What is Internal Audit? Value, Process and Standards

Internal auditing is the process of checking and consulting on the operations of a business independently to add value to the company and improve the services itself. 

It is a systematic, disciplined, and objective method of improving various aspects of the business such as risk management, corporate governance, and control. But why would you need internal audits in Dubai? In this blog, we’re going to take a look at what internal audits are, the value they bring to the business, and the processes and standards that go into the discipline. 

What is Internal Audit?

The job of an internal audit department or organisation is to provide independent and unbiased reviews of the organisation, systems, and processes of the business they audit. This independent review is used by the senior leaders of the organization and the governing bodies of the business to acutely access the risks, controls, effectiveness, and compliance with the applicable laws and regulations the business operates in.

The internal auditing entity, whether it be a department or an organization, reports directly to the upper management through something known as an audit committee. The committee must be free of the politics of the organization and provide objective information to the administration.  Reviews provided by the audit committee on the internal workings of the business are known as internal audits.

The primary value of internal audits, especially internal audits in Dubai, is that they provide objective information about the company free of any bias which gives a clearer picture of how the business operates to the upper management so they can make the right decisions guiding the business forward.

Differences between Internal and External Audits

When talking about the internal audit, it is also vital to discuss external audits. Internal and external audits can be thought of as two ways to achieve the same objective vis-a-vis the audit, but there are certainly distinct differences between the two that make them separate processes:

  • While an internal audit is performed by internal auditors, i.e. employees of the employee typically, an external audit is carried out by external auditors, usually a CPA firm.
  • While internal auditors report to the upper management of the company, external auditors report to the shareholders and agencies outside the company.
  • While internal audits are mostly related to risk management, process improvement, and corporate governance, external audits focus on financial reports and the internal controls regarding financial reporting.
  • Lastly, while internal audits can report at any time as decided by the board, external audits are statutorily required to be reported annually.

Both internal and external audits are important to the company and provide a lot of value, but they have different reporting objectives and procedure, which makes both of them different processes.

Value of Internal Audit

Even though the internal audit is considered as a cost for the business as it doesn’t generate revenue but it can lead to profound changes that can improve the process of the businesses which can then, in turn, lead to an increase in revenues.

As we mentioned previously, external audits are only focused on the financial reporting aspect, but internal auditing covers much more than that. It considers broader issues of the business, such as the operational efficiency, strategy growth, and reputation of the organisation itself.

So, while internal audits in Dubai may not generate revenue for the business, it can boost the business process, which does generate revenue and optimize them, so they are at the full capacity.

Types of Internal Audit

Many types of internal audits can help an organisation such as:

  • Compliance Audits: These audits check the business’ compliance with the relevant laws, regulations, procedures, and policies that the companies operate under.
  • Environmental Audits: These audits check for the environmental impact of the business operations.
  • Operational Audits: These audits are a check on the operational efficiency of the business.
  • Performance Audits: The objective of these audits is to check if the organization is meeting the performance goals set by the management.
  • Information Technology Audits: The objective of these audits is to check if the information systems and infrastructure of the business is up to the mark and are working accurately.

Process

There is generally a four-phase approach followed by most audits – 

  • Planning: This is the initial planning phase for the audit. The audit team will understand and define the scope and objectives of the audit, review previous audits and check up on guidance. An audit plan would be created to ensure the audit is followed through in a timely and organized manner.
  • Fieldwork: During this phase of the audit, the actual process of auditing takes place. It is during this phase that the audit plan is actually executed. The audit team may interview key members of the organization, review relevant documents, review the test and controls while documenting the entire auditing process.
  • Reporting: The reporting phase of the audit concerns with the drafting of the report that’ll be presented by the auditor. The report is written after giving careful consideration to all the evidence collected and it is ensured that the report should be written in a way that it can’t be interpreted in any other way than how it is meant to be.
  • Follow-Up: After the report has been presented, the last phase of the auditing process is the follow-up. During this phase, the audit team may follow up with key members of the company and the methods being audited. 

Standards 

Internal audits have to follow the standards set up by Internal Auditors Association, which is the internationally recognized framework for internal auditing. The International Professional Practices Framework (IPPF) is the main document which prescribes standards that are to be followed during an internal audit.

Conclusion

While internal audits do not generate revenue, they definitely generate a lot of value and are instrumental when it comes to the success of any organization. Keep these points in mind when you’re looking for internal audits in Dubai!