The Commission on Audit headlined many news due to the financial reports (on the national budget) released. It placed a spotlight on how essential accounting and management reviews are in ensuring the productivity and efficiency of projects.

But this is not a new concept. Auditing has grown with the systems of businesses and organizations with financial transactions over the years. Let us take a look on the importance of audit through this article:

What is an Audit?

The term financial audit commonly pertains to the intensive review and validation of an organization’s financial statement. The process ensures that all of the transactions that took place throughout the period of operation were accurate, legal, and verifiable through their financial records. The audit can be administered internally by the organization’s employees or externally by contracted Certified Public Accountant firm.

Types of Audit

There are two general types of auditing. These are:

Internal Audit

Internal audit refers to financial auditing conducted by in-house auditors or employees of the company. The financial reports accomplished are received by the board of directors or the company management.

It is also possible that the auditing proceeds with the service of a consultant auditor. Although this type of auditor is not employed with the organization, the consultant auditor follows the company standards for auditing processes. This approach happens when an organization has no internal manpower to conduct auditing on some parts of their operations.

External Audit

External audit refers to the financial auditing conducted by a third party. The external auditors work by a procedure different from what the subjected organization or company utilizes. Nevertheless, the processes involve aims the same thing: to determine misrepresentation and misstatement on the financial reports.

This approach of outsourcing audit purposefully serves in evaluating a company’s financial standing without biases. The reports provide honest and better insights for stakeholders to come up with a decision for the organization or company.

Benefits of Internal Audit

Here are the reasons why internal audit is important:

Secure internal controls

Internal controls are processes and rules set by an organization to uphold the integrity of accounting and financial data. They also keep accountability and give protection from fraud. Simply put, internal controls make the financials of an organization work.

Through internal auditors, the internal controls are secured and strengthened. They review the procedures implemented, and the findings enable the organization to make better decisions not only for the financial aspects but also to the performance of the management personnel.

Continuous Review

An advantage of having internal auditors is the uninterrupted access to financial and management reviews. Since the in-house auditors are part of the company, the management can decide to start an audit anytime of the year, especially if there’s financial emergency to work out on. Also, it gives them ample time to revisit their findings and correct the discrepancies and mistakes on the reports.

Maximized Resources

The internal findings, as mentioned, lead to better decisions for the organization. The auditors will identify the parts of the operations that don’t work well, in which the management should take an action to. Be it adjustment or replacement, these results help in improving the performance of the workforce as well as to ensure that the resources are utilized optimally.

Benefits of External Audit

On the other hand, these are the advantages of external auditing:

Improvement of internal controls

Internal auditors follow the company rules and systems on conducting the financial reviews and monitoring. These rules, which have been the basis of the company for a long time, may be a little outdated now. Here comes the essential benefit of external auditors.

Since the outside auditors do not follow the company standard processes, their approach can be different or streamlined. These approaches not only allow them to make more detailed reviews on the financials of a company, but they can determine the old systems that don’t work anymore. They can improve the internal controls and system to extract better financial data.

Honest and clean reports

There is truth that some business data are not disclosed properly. But hiring an independent accounting firm helps the company avoid this kind of situation. Since external auditors are not directly affiliated with the company, financial reports are unbiased and conducted with no personal interest. It ensures the company accounts are not subjected to malpractice or material errors, establishing a higher level of company credibility.

More time for core skills and processes

Outsourcing auditors spare the management from doing the financial review. With the approved working arrangement between the company and the accounting firm, the goals are met. Also, it gives the management to focus on their core services and processes such as ideation and profitability boost.