Internal audit

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suuny (Querist)
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09 December 2011 does internal audit not include audit of accounts, income tax related, co. law related issues?
what is process audit?
does it not include accounts, finance?

CA Sreenivasa Rao Munaga

CA Sreenivasa Rao Munaga (Expert)
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13 December 2011 Internal Audit includes every thing what happens in the company. In addition to that it will be depend upon the client and auditor who decide the scope of the internal audit.

Thanks,
CA M Sreenivasa Rao.

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suuny

suuny (Querist)
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13 December 2011 meaning it includes audit of acccounting, financial process.
but I work in IA dept. which focuses on inventory, logistics audit and hardly on accounting and finance process.
so from career's point of view, I fear that i will not get chance to do audit of accounts, finance, legal aspects.

And is modern auditing more of analysis and not of vouching?

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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01 August 2024 Internal auditing is a broad field that encompasses various aspects of a company's operations, including but not limited to accounting, finance, compliance with laws and regulations, and operational efficiency. Here's a detailed breakdown to address your concerns and clarify the scope of internal auditing:

### **Scope of Internal Auditing**

1. **Financial Auditing:**
- **Accounting Processes:** Internal audits often involve reviewing accounting processes to ensure accuracy and compliance with accounting standards. This includes auditing general ledger entries, accounts payable and receivable, payroll, and financial reporting.
- **Financial Reporting:** Auditors check the accuracy of financial statements and ensure they reflect a true and fair view of the company’s financial position.
- **Tax Compliance:** Internal auditors review tax-related processes to ensure compliance with tax laws and regulations. This includes checking for proper documentation and adherence to tax reporting requirements.

2. **Compliance with Laws and Regulations:**
- **Company Law:** Internal audits may include a review of compliance with company law requirements, such as corporate governance practices, statutory filings, and adherence to regulations set by authorities like the Registrar of Companies (ROC).
- **Regulatory Compliance:** Auditors assess compliance with industry-specific regulations and standards.

3. **Operational Auditing:**
- **Process Efficiency:** Internal audits evaluate the efficiency and effectiveness of operational processes, including inventory management, logistics, procurement, and other operational areas.
- **Risk Management:** Auditors identify and assess risks related to operational processes and recommend improvements to mitigate those risks.

4. **Process Audits:**
- **Definition:** A process audit focuses on evaluating the effectiveness and efficiency of specific business processes, such as procurement, inventory management, or sales operations.
- **Scope:** While process audits may not focus exclusively on financial aspects, they often involve reviewing processes that impact financial outcomes. For instance, an inventory audit can affect financial reporting through inventory valuation and cost of goods sold.

### **Modern Auditing Trends**

1. **Shift from Vouching to Analysis:**
- **Vouching:** Traditional auditing often involved detailed vouching, where auditors check individual transactions and documents to ensure accuracy and compliance.
- **Analytical Procedures:** Modern auditing places a greater emphasis on analytical procedures and data analysis. This involves using data analytics tools to identify trends, anomalies, and potential areas of concern.

2. **Risk-Based Approach:**
- **Focus:** Modern internal auditing often follows a risk-based approach, where auditors focus on areas of higher risk rather than performing extensive vouching of all transactions.
- **Efficiency:** This approach aims to use resources more effectively by concentrating on areas that have a higher impact on the organization's objectives and risk profile.

### **Career Development in Internal Audit**

1. **Exposure to Different Areas:**
- **Diversification:** Even if your current role focuses on inventory and logistics, internal audit departments often have diverse responsibilities. Look for opportunities within your department to get involved in different audit areas, such as finance or compliance.
- **Cross-Training:** Seek cross-training opportunities or express your interest in other audit areas to gain broader experience.

2. **Professional Development:**
- **Certifications:** Consider pursuing certifications such as the Certified Internal Auditor (CIA) or Certified Public Accountant (CPA) to enhance your qualifications and career prospects.
- **Networking:** Engage with professional networks and associations related to internal auditing to stay informed about industry trends and opportunities.

In summary, internal auditing encompasses a wide range of activities, including financial, compliance, and operational audits. While modern auditing may focus more on analysis and risk assessment, there are still significant opportunities for auditing financial and legal aspects. If your current role does not fully align with your career goals, consider seeking additional training or opportunities to diversify your experience within or outside your current organization.