The business environment has become fiercely competitive and even risky, thanks to the complicated regulatory framework it has to abide by. Every business, regardless of which industry they specialize in, is exposed to a certain type or level of risk throughout the course of its lifespan.
But, the way a company deals with the potential threat is what makes it stand out among others. One of the best ways of ensuring reliable governance over your business activities as well as keeping the stakeholders well informed about the operations is by performing internal audits.
With a proper audit representation, the company can experience various benefits. But before we dive into checking the benefits, let’s understand –
What is an internal audit?
Internal audit is a procedure that evaluates risk management and makes sure that internal controls are functioning effectively. It typically deals with the management process, financial risks, cybersecurity and reputation of the company.
And since today’s business environment is highly complex, an internal audit can prove helpful in safeguarding from these threats.
Now, let’s take a look at some of the biggest reasons why internal audits prove an important factor for your company.
1. Assess internal controls: With an internal audit, you can review the policies and procedures to ensure that the operations are of the company are in sync with the regulations.
Even the existing process needs to be capable of mitigating the potential risks the company may face. And since the annual internal audit continuously evaluates the existing processes, the effectiveness of internal controls can be easily evaluated. You can use these findings to make recommendations and to improve things.
2. Identify potential risks or fraud: SMEs are prone to theft and fraud, just like large companies. One of the main benefits of an internal audit is that it makes sure that a company has the right governance so that there are zero risks of fraud.
A few types of thefts that can occur within the company are tampering of checks, misuse of company cards, not accounting the customer payments, etc.
With the internal audit done by a professional, it is possible to create a system of checks and balances to decrease the company resource’s misuse.
3. Improve efficiency: Besides the finances, internal audits can also be used to measure the operations of the company. This type of auditing is termed as operational audit, and it ensures that the operations of the business are functioning at maximum efficiency.
With inefficient operations, the company can face high overheads. But thankfully, internal audits help in identifying opportunities to enhance operations while reducing costs. And once the organization focuses on improving the company’s process, the organization will be dependent on processes instead of people.
4. Ensure compliance: By evaluating the internal controls of the company, the business can work as per corporate governance and ethics in all of its accounting processes. This means ensuring the operations are in sync with rules and regulations set by the government as well as other public entities.
And since compliance rules keep changing, it becomes important for companies to conduct annual audits to prevent costly fines down the line. Regulatory compliance is also assessed in external audits. So, by performing the internal audit, you can identify the issue before they get discovered in the external audit.
5. Improve investor confidence in the business: The role of internal audit is to evaluate all the internal controls and highlight the potential issues that exist in the company.
Once these findings are conveyed by the audit team to the executives who make decisions based on the results, the necessary improvements are made wherever required, therefore, improving confidence among the investors because they are assured that management is taking the necessary steps to operate the organization smoothly and effectively.
6. Protect the computer network: No matter how small your company is, it is bound to generate a large amount of data on a daily basis. This means the safety of the technology s vital.
With regular internal audits, it is possible to detect any vulnerabilities within the computing system that can cause risk to the financial data. The audit will also aid the organization to decide if the current protection layer is enough or is there any need to enhance the security protocol for the computer system by using a multi-layered approach.
And since cyber fraud is one of the significant threats to any accounting firm as they house large amounts of client’s confidential data, auditing can prove a beneficial investment.
Bottom line
Besides offering incredible business benefits, internal audits can ensure your company adheres to compliance laws to avoid fines and even highlight any potential errors in the external audits.
So, if you are looking forward to conducting an audit representation, work with Strothman+Co to get expert solutions.
