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Internal Audit and Its Importance

Internal audit is a systematic approach to assessing the effectiveness of risk management, control, and governance processes aimed at supporting the organization in achieving its objectives. As the initial form of the control system, internal audit is of paramount importance as one of the fundamental elements of management.

Internal audit involves evaluating the organization`s activities and examining the effectiveness of other types of controls through the systematic review and assessment of internal control procedures. It ensures oversight of the organization`s assets, management policies, and their quality. This function can be carried out by both internal staff and external experts.

What is Included in Internal Audit?

Internal audit encompasses the following:

1. Control over the state of assets and prevention of losses;

2. Verification of the accuracy of information used by management;

3. Confirmation of the implementation of internal control procedures;

4. Analysis of the effectiveness of internal control and information processing;

5. Evaluation of the quality of information provided by the internal information system.

Internal audit goes beyond simply identifying and rectifying deviations. It allows for the identification of cause-and-effect relationships behind identified anomalies, thereby enabling improvements in the operations of the audited entity. The absence of an internal audit service increases the risk of errors in tax payments and violations of accounting and tax legislation.

In addition to control, the purpose of internal audit is to provide management with information for decision-making regarding the analysis of financial statements and the management of the organization. It involves assessing the adequacy of assets, verifying the proper conduct of business operations and the preparation of reports, and facilitating effective collaboration with external auditors.

Steps for an Effective Internal Audit Process:

Planning: Planning is one of the most critical stages of internal audit, similar to what we apply in all areas of our daily lives. Planning should be well evaluated to prevent disruptions and enhance efficiency. It includes determining audit areas, identifying risk factors and assessing risks, prioritizing audit areas, allocating audit resources, preparing and ultimately approving the internal audit plan and program.

Execution of Audit: Audit requests begin as initial tasks. It is essential to understand the purpose of the audit precisely and to define its objectives clearly. Subsequently, data collection, research, and initial meetings should be supported. Once these stages are systematically completed, operations are brought under control.

Reporting: Information about the results of the audit, along with management opinions and recommendations, is provided considering the findings obtained from the audit. The reporting of audit results is conducted in accordance with the reporting standards established in the International Auditing Standards (IAS). In the face of negative situations, appropriate solutions should be prepared, and the report should be re-examined.

Monitoring and Evaluation: Following internal audit activities, modified procedures are implemented with appropriate solutions within the periods specified in the report or activity plan. Top management monitors whether actions have been taken for the audited information. The review should be under continuous control. Therefore, it is necessary to find quick and effective solutions to potential problems as a good observer.

Types of Internal Audit

Internal audits are a collection of experiences. Generally, it is expected that internal audit functions and internal auditors operate in accordance with these standards. Like us humans, these programs also have the ability to change, evolve, and renew. Therefore, these standards are constantly updated during the observation period.

Compliance Audit: It involves checking the compliance of companies` activities and operations with relevant laws, regulations, and other legislation. It aims to determine the extent to which the organization`s management and operations comply with the legal framework and the effectiveness of these legalities in specific operational processes, justifying this decision, providing examples, and presenting alternative improvement options.

Financial Audit: Every institution begins with the instinct to achieve financial success. A lot of effort is required to rise in this way. By setting big goals for themselves, companies add innovations to themselves. Whether these efforts are appropriate or not can be understood through financial information. These can be listed as; information on the company`s annual sales revenue, information on the movement of current assets and funds, profitability information, and financial statement information. In summary, it is the evaluation of the correctness of calculations related to income, expenses, and assets, and the reliability of the financial system and statements.

System Audit: Continuous audit and improvement must be essential for a growing company. System audit considers that the company management believes that it has lost control due to the growth, development, and new investments of the companies. It involves analyzing activities examined with an approach that gives structure to the organization`s internal control system, identifying conflicts, investigating their quality and compliance, measuring the adequacy of resources and applied management, and evaluating.

Performance Audit: Every company has certain goals to achieve. Some goals require many years to achieve, while others are short-term. In internal audit, this operation is performance audit, which determines goals, determines the direction we will go, and identifies measurable goals. It is an audit type that shows the extent to which operations carried out in all parts of management are planned, implemented, and controlled effectively, economically, and efficiently in line with performance objectives.

Information Technology Audit: It evaluates the continuity and reliability of the electronic information systems used in all areas, from purchasing goods to the production and delivery of that service. Information technology audit is an internal audit that examines the continuous use of information technologies in all areas investigated, such as evaluating the activity of the company`s assets and the quality of its management policies.

"SAMADOV Law and Audit" is one of the companies that operates professionally in the field of internal audit.

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