| Internal auditing is a profession and activity involved in advising organizations regarding how to better achieve their objectives. Internal auditing involves the utilization of a systematic methodology for analyzing business processes or organizational problems and recommending solutions. Professionals called internal auditors are employed by organizations to perform the internal auditing activity. The operation of internal audit is based on the nature of the Company such as Listed Company, Joint Stock Company or Limited Company. We only shows the general system that widely apply over the World.
Purpose of the internal audit
To assist the Board of Directors and Managers in promoting sound operations of the company and reasonably ensuring the objectives listed below are achieved. At the same time, to make timely recommendations for improvements to ensure sustainable operating effectiveness of the internal control system and to provide a basis for review and correction for the system.
- Effectiveness and efficiency of operations,
- Reliability of financial reporting, and - Compliance with applicable laws and regulations.
The organization of the internal audit (Just for reference only, the organization of internal audit is depend on the Company's structure)
Internal audit department reports directly to the board of directors. The appointment or discharge of internal audit executives shall be approved by the board of directors.
Internal Audit’s Functionality
The scope of the Internal Audit includes inspecting and reviewing the appropriateness and the effectiveness of internal controls system in each department of the company, and estimating the efficiency and effectiveness of operations. To be more specific, the scope of the internal audit includes:
Inspecting the reliability and completeness of the financial and operating information.
Inspecting the current system to ensure the compliance of policies, plans, procedures, contracts, and laws.
Reviewing the securing of assets, and, if necessary, verifying the existence of the assets.
Evaluating whether resources are being used economically and efficiently.
Reviewing the operations and special projects to ensure their results are consistent with the specified goals.
The Targets of the Internal Audit include all business units and subsidiaries this company is responsible for. The staffs of the inspected unit should cooperate with the inspection closely.
The Method of the Internal Audit In principal the inspecting staff should go to the unit for on site inspection and request the inspected unit to submit documents, accounts, certificates, etc. for documental inspection.
The Internal Audit Work Process
The internal audit includes the planning of inspections, the examination and estimation of information, the communication of the result, and the tracking after inspection.
In consideration of the risk, the annual plan of the internal audit should set major inspecting points for each individual case and keep journals of the audit.
After the inspection comes to an end, communicate with the director of the inspected unit regarding the results; when necessary, acquire the improvement plan and the presumed date for completion. The inspecting staff should track the status of the improvement.
The inspection report and the tracking of abnormal issues should be reported to the Supervisors and the independent directors for review.
The Timing for the Internal Audit
Regular Internal Audit： To ensure that the internal control of the company is effectively carried out, the Internal Audit Unit should set up the annual plan of inspection and determine the time of inspection for each inspecting item before the end of each year according to the characteristics of the trading cycle, the frequency of transactions of the company, and the complexity of operations.
Irregular Internal Audit：To fully understand the current situation of the inspected unit, the Internal Audit Unit may set up inspecting items regarding the importance, the risk, the frequency of transactions, and the complication of operations of each activities of the trading cycle.
Project Internal Audit：To ensure the effective implementation of the internal control of the company, the inspecting staff should launch inspections based on the time and the themes determined by the senior directors of the company or the director of the Internal Audit Unit.
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