What is the significance of internal bookkeeping for a firm?
If you are an owner of a company or head of an organization then you must have heard about the term internal bookkeeping or internal auditing. An audit is necessary to find out about the accounting problems associated with an organization and more importantly, it can provide assistance through which companies can improve their daily operations.
With the help of internal bookkeeping audits, companies will receive insights into their flaws and opportunities to address the same. The work of an internal auditor is to deal with matters crucial to the survival and success of any firm.
The work of internal audit management is to help the company identify the problems of the organization and it also helps in checking the efficiency of the company’s governance and control. Furthermore, the audit is performed on a regular basis to determine if a corporation adheres to its internal policies and standards.
An organization’s risk management strategy cannot be complete without internal audits.
Challenges faced by the internal audit department
The job of the internal audit is not only to look at the financial control of the company but also to investigate the regulatory and operational controls of a company. Internal bookkeeping audits should also justify the expenditure of the company and the way they contribute to the bottom line of the business. In case the internal audit department is unable to justify all the above mentioned things they won’t be able to operate within the company and probably will be replaced.
More or less every company has a risk management strategy, and the internal audit department is an essential part of the same. The job of this department is to manage risk by having significant control over the financial records of the company and preserving the monetary stability of the organization.
With all of the audit-related issues faced by the audit department, the job of any auditor is far from simple. They are considered the last line of defense to guarantee the precision and compliance of any company or organization.
Auditors, who are mainly from the bookkeeping department of the company are specifically required to check and evaluate sensitive financial documents in light of tax laws and regulatory regulations of a specific region and country. They need specialized expertise to adequately detect the list of accounting issues which includes fraud and any other inconsistencies.
While performing an internal audit there are lots of complications and challenges the internal bookkeeping audit department can come across. Some of them are discussed below:
Lack of support from the management of the company
A lot of times the internal audit department may find it difficult to thoroughly conduct the audit. However, it is the duty of the audit manager to make sure that the company’s management and higher authorities clearly understand the importance of auditing. The audit department head needs to convey to them how beneficial it is for the company to conduct internal audits frequently and how the audit report can benefit the company in the long run.
More importantly, companies can face huge consequences if they do not go through the auditing process. Sometimes, an internal audit is not considered a favorable thing to the company superiors and it can definitely create difficulties for the audit department due to the conflict of interest. This kind of situation should be avoided while conducting the audit to make sure everything runs smoothly.
Inaccurate inventory
There are several reasons why a company’s inventory can be inaccurate such as the inefficient process of stocking, no availability of cycle counting, misidentification, paper-driven picking systems, damage to products, mislabeling, etc. All of these factors can have a huge negative impact on the company and waste the company’s energy, funds and most importantly time.
A lot of companies and businesses are outright irresponsible at times when it comes to handling inventory. No matter how disparity in inventory can cause a lot of problems for the auditors and can be considered one of the major headaches of the internal audit department. In order to avoid issues pertaining to the inconsistencies of the company’s inventory, the internal bookkeeping audit department can certainly review inventory records and procedures before the audit and demand that the company do a new inventory check.
Finding out fraudulent activities from the company accounts
In companies and businesses, fraudulent activities occur more frequently than we would like to think. Whenever the internal bookkeeping audit department evaluates the company accounts-related paperwork, they are continuously on the lookout for this kind of audit problem.
Although fraud can be frequent, it is not necessarily done with malice. In some cases, there is a possibility that clients don’t comprehend how their companies’ finances work. Regardless of the motive, it is the auditor’s job to spot and document any fraudulent activity and find out the accounting problems. Not to mention, it can have significant ramifications on the company or business.
Compliance with established processes is essential to a successful internal audit.
Defunct technical tools
In modern times there have been a lot of advances and innovations in almost every industry. There are also technological solutions available through which internal bookkeeping auditors can make their tasks easier than ever. Having outdated tools can increase the workload and may provide you with inefficient data and audit reports which can affect you negatively in the long run.
Therefore, it is also the responsibility of the company’s internal bookkeeping audit department to have access to the necessary technology and tools through which they will be able to efficiently complete their jobs.
Information slowdowns
A lot of businesses and companies take a lot of time in order to gather financial information. After the COVID-19 pandemic, remote working has become a trend therefore, when it comes to financial auditing the audit department’s time of work may not match with the other departments of the company. More importantly, a lot of sectors have found it difficult to learn how to conduct an audit offshore efficiently.
In addition to the policies of their own business, auditors are required to follow the client’s health and safety regulations. That is why there is a significant delay while gathering information related to business and as a result, it hampers the overall workflow of the internal audit department of the company.
Revenue Recognition
When it comes to internal bookkeeping audits the most significant concern that arises during audits is namely revenue recognition. The thorough nature and complexity of auditing need unwavering attention to detail. However, the customer sometimes refuses to put forth the same amount of effort.
The auditor must carry out a comprehensive examination of all revenue-related documents, including all the sales invoices, in order to confirm the authenticity and address the absence of proof. At times, the information received from the audit is insufficient or unclear to draw a firm conclusion and that is the reason why auditors have to go through a tough time in order to come up with trustworthy results.
Take the assistance of IBN Technologies and outsource your company’s bookkeeping
You can certainly outsource your company’s bookkeeping services to major industry leaders such as IBN Technologies. It can help you manage the finances and accounts of your business effectively. With over 200 clients across a variety of industries, including bookkeeping services, accounting systems, etc., this organization has over 22 years of expertise.
In addition to bookkeeping and account management, the services of IBN Technologies also include treasury management, accounts payable, accounts receivable, payroll processing and other technological solutions. IBN Technologies can assist you in simplifying and effectively managing your finances so that you can concentrate on the productivity of your business and achieve the best results possible.
Final words
To conclude, internal bookkeeping audits can extensively examine the financial operations of the company or corporation and the frequency of the audits can also be determined by the company itself. In order to perform an internal audit, companies can use any justification necessary.
Lastly, an internal bookkeeping audit can certainly find out the list of accounting issues faced by a company and insights gained from internal auditing are valuable for enhancing internal operations. It will also offer the management enough information through which companies can improve themselves.
Frequently asked questions
1.What are the challenges faced during an audit?
During an audit one of the most difficult challenges faced by any auditing department is the recognition of revenue. Auditing is undoubtedly a systematic, intricate profession that necessitates a staggering amount of attention to detail and sometimes what the company claims to be the revenue does not have enough evidence to be regarded as valid.
2. What are the 5 C’s of internal audit?
The 5 C’s of internal auditing are:
Corrective action
Cause
Condition
Consequence
Criteria
3. What are the key risks in an internal audit?
The significant risks of internal audits include disruption in the supply chain, change of climate, social and political unrest, lack of staff, cyber threats, etc. If we include all of this together then it can severely affect the fundamental underpinnings of society and commerce.
4. What are the red flags in internal audit?
The red flags of internal auditing include:
Remuneration does not match the level of obligation.
Inadequate answers when asked about misplaced property, goods, etc.
A very close relationship with business rivals or even customers.
Insatiable ambitions for personal gains.
