Author: Ramin Ramazanov – Director / Accounting and Audit Expert
Audit is an activity that helps reduce business risk
At a certain stage of business activity, entrepreneurs, managers, and accounting specialists often ask the question: what is internal audit and how is it organized? Before answering this question, it is useful to briefly discuss the concept of audit.
In recent years, the requirements for organizing accounting, tax accounting, and reporting systems have increased significantly. New forms and methods of accounting have also appeared. Financial statements have become the main source of information used to assess a company’s financial position and property status. All of this makes it necessary to verify the accuracy and reliability of the information presented in accounting records and reports. One of the methods used for such verification is auditing.
What is audit? This concept has several meanings. The word originates from the Latin word audio, meaning “to listen.” In a general sense, audit is considered a branch of economic activity and also an academic discipline studied at universities. In a narrower sense, according to Azerbaijani legislation, audit refers specifically to the examination of financial statements and accounting information.
Sometimes, during internet searches, we come across the term internal audit. The meaning is simple: it is the English expression for daxili audit. The same term is also often used in Turkish sources.
The concept of an audit inspection, which accountants frequently encounter, has the same meaning as audit and is used as a synonym. The result of such an inspection is documented in the form of an audit opinion.
Do not confuse audit with inspection:
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Sources related to economic sciences distinguish several types of audit, and internal audit is one of them. Specialists consider it one of the most effective tools for identifying opportunities to improve business activities.
In the past, and sometimes even today, the answer employees gave to the question “What is internal audit?” was not always very positive. In many cases it was seen as an unpopular role associated with difficult and sometimes unpleasant tasks. Today, however, internal audit is expected to perform much more ambitious functions. The requirements for internal audit have increased, and the responsibilities of internal auditors have grown accordingly. In some cases, internal audit is even viewed as a solution that can address many problems within a company.
In large companies, this type of control is carried out by a specialized department. Employees of an internal audit department should have:
In small enterprises, the responsibilities of internal audit may be assigned to a revision commission appointed by the founders.
External auditors can also be invited to conduct internal audit activities. Specialists from the Accounting consulting company can assist you in carrying out audit procedures.
From a legal perspective, the answer to the question “What is internal audit and what are its responsibilities?” can be found in the Law of the Republic of Azerbaijan on Internal Audit.
International professional standards for internal audit are developed and maintained by The Institute of Internal Auditors (IIA).
The decision on whether internal audit is necessary in a company is made by the company’s owners and senior management. This decision depends on several factors, including:
In cases where entrepreneurs are also the managers of the company and maintain full control over all aspects of the business, the internal audit function may not be necessary. However, as the company grows and management processes become more complex, internal audit can become very useful. At this stage, it becomes physically difficult for management to maintain full control over all processes.
It should be noted that in Europe and the United States, combining ownership and management functions is typical mainly for small and partly medium-sized businesses. In large and many medium-sized companies, business owners usually determine the company’s development strategy and main directions, while professional managers handle daily management. However, regardless of how professional managers are, the issue of monitoring the company’s activities remains important for owners. The principle “trust, but verify” is still relevant. In such situations, internal audit can become one of the most effective control tools.
Internal audit is important not only for owners but also for company managers. Managers are responsible for achieving business objectives in the most effective way. The success of this task largely depends on two factors:
Information provided by internal audit often becomes a valuable source of data for managers.
In this article, we briefly tried to answer the question “What is internal audit?” We also clarified the meaning of the question “What is internal audit?” that often appears in online searches. In our future articles, we will provide more detailed information about audit and its different types.
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