Why Internal Auditing Is Becoming Increasingly Important

Internal auditing is becoming an ever more important way for companies to assess their own financial situation, and to know where to make changes in the way resources are allocated. Auditing has a very long history, but most of that history relates to auditing by an external organization. This is what needs to happen if you need to present the result of your audit to someone as a way to establish credibility. The most common reason for needing to do this is to raise finance.

The result of an internal financial audit is never going to be accepted by external organizations in the same way. The internal audit only began to be used extensively when companies realized that they were becoming too complex for their own financial health. When business managers have crucial choices to make, they need to be able to see at a glance how these choices are going to affect every other department. The larger the company, and the more complex the structure, the greater the benefit which can be derived from internal audits.

Although an internal audit will not involve some of the nervous waiting and the possible disastrous outcomes of an external audit, it is a mistake to believe that there is nothing which can cause shock or dismay. Within any company there are going to be individuals who will be potential problems, those who don't believe they are paid enough or those with a grudge. These people could well be exploiting holes in the company administrative structure. It is important to examine receipts and to make sure that all expenses are accounted for.

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The style of internal audits is now being copied to a large extent by companies performing external audits. This is because accounting firms have realized that concentrating on the internal procedures of a company is often the best way of uncovering any irregularity. Where there is a problem with something within a company's operating system, an internal financial audit has a good chance of uncovering it. One of the reasons is that it allows patterns to emerge. Once you can see clear patterns, you can quickly spot anything untoward or out of the ordinary.

One of the great problems with internal auditing is the possibility of collusion between the staff who are doing the auditing and anyone who is misusing the system. Although the possibility may be remote, it is quite feasible to assume that within a small company one of the friends of a wrongdoer could be appointed to be one of the auditors. This is why management needs to take a hands on role and make sure that they are able to understand an oversee the audit. This is happening more often as managers realize the importance of internal auditing.

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