Audit in simple words is the checking done in order to ensure whether the financial statements which are prepared by the company are correct or not. Auditing is compulsory for listed companies and it is done by the external auditor. However some companies also undertake internal audit which implies that company appoints some professional internal auditors to conduct audit of accounts as well as company’s systems and policies. Given below are some of the advantages and disadvantages of internal audit –
Advantages of Internal Audits
1. The biggest advantage of internal audit is that it will lead to discovery of errors and therefore when external audit is done those errors which were discovered during internal audit would have been rectified by then.
2.Internal audit reduces the chances of frauds because top management cannot look after all things and many times top management is not competent enough to look into minute details of accounts whereas internal audit is carried out by professionals and they will be able to find out quickly where are the loopholes in company’s accounts and policies.
3. As internal audit is a constant procedure where records are checked regularly it ensures that accounting staff of a company keep the records up to date and are always vigilant.
Disadvantages of Internal Audits
1. Internal audits are not full proof in the sense that it cannot eliminate or catch all the frauds and therefore some chances of frauds happening even after internal audit is done is always there.
2. Since internal audit is done by the professionals who are outsiders chances are they have little or zero attachment towards the company and hence they will do it the work for money rather than for betterment of company.
3. Internal audit reports are not accepted by shareholders and therefore it is for only management use and company has to conduct external audit irrespective of fact whether it has conduct internal audit or not, therefore it results in additional costs for the company for hiring internal auditors.