Techniques and Procedures of Internal Audits

Techniques and Procedures of Internal Audits

There are some significant differences between external audits and internal audits (Also see The Audit Objective of External and Internal Audit) . The former requires a company to engage an audit firm in Johor Bahru, and it concentrates on identifying whether the company’s financial statements (Also see How the Accounting Principles and Guidelines affect the Financial Statements) are true and fair and in compliance with the GAAP. On the other hand, the latter pays more attention to uncovering the weaknesses of internal controls and evidence of waste, abuse or fraud in the company. Having semi-annual or annual audits enable the company’s management to measure the efficiency of its internal control system. Hence, techniques and procedures of internal audits are crucial to the implementation of efficient risk management.

Audit Objectives and Procedures

Internal audits enable companies to assess and improve their internal controls by reviewing business processes and plans of risk management and look for any failures and weaknesses. Typically, auditors will start the audit procedures (Also see Audit – Procedures for a Construction Audit) by examining existing procedures and processes. Then, they will analyse and compare their results with the objectives of internal controls to identify whether the company follow its internal policies and procedures and the rules and regulations that the state or the government has fixed. Finally, the auditors will compile an audit report and present it to the company’s management or owner.

Indirect Observation and Assessment Techniques

The importance of the assessment is to make sure that the company’s in-house auditors have understood the internal control procedures thoroughly and possess the ability to identify whether the staff are following those controls. When the auditors start performing the internal audit procedure, they may use the indirect assessment technique and try not to disrupt the employees’ daily workflow. This includes reviewing existing documents like departmental control policies, manuals as well as the flowcharts. Besides, another usual assessment technique is to create audit trails which monitors certain processes from the beginning till the end.

In some cases, the auditors may not be able to obtain answers to their questions via document reviews and audit trails. If such situations occur, they may implement some techniques in the second phase, which includes process observations and one-to-one interviews.

Analysis Techniques

Some people may think that audits are all about looking for wrongdoings or horrible flaws in the system of a company. However, audits do more than that. Audits can help identify misstatements or data entry errors in the financial statements (Also see Essential Processes in the Audit of Financial Statements) of a company. If the internal auditors feel that the processes of internal controls are at risk, they may use analysis techniques to target a particular data or assess random data. On the other hand, the substantive audit procedures include but are not limited to calculations of audit trail, physical inventory counts, transaction matching, as well as the recalculation of reconciled financial statements, for example, monthly bank reconciliation.

Procedures of Audit Reporting

To close the company’s internal auditing process officially, it needs the final internal audit report. Usually, the reporting will include a formal report, yet it may also consist of a preliminary interim report. In general, the interim report will consist of significant or sensitive results that the auditors think that they should share them with the business owner immediately. Conversely, the final report is more formal. It comprises of a summary of the techniques and procedures that the auditors have used in the audit process, a description of their audit findings, as well as recommendations for improvements or alternations the management may apply to the company’s control procedures or internal controls. 

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