Objectives Of Internal Audit

The primary objectives of conducting an internal audit in an organization can be summarized as follows:

Proper Control:

Conducting an internal audit would keep adequate control over all the business activities. This, in turn, would result in maximum efficiency. Internal control would be able to determine the degree of control overwork.

Accounting System:

It would evaluate the accounting system of the organization. Internal audits include checking the proper authority for transactions such as purchase, retirement and disposal of fixed assets. It checks against the result against entries in order to determine the actual facts and figures.

Help Management:

It helps management in significant ways. An internal auditor would be able to point out the weaknesses of an organization. Internal audits may be used as a tool to make the necessary corrections. This would enable the management to perform correctly.

Working Review:

Internal audits comes with the purpose to review the working of a business. The functioning of the current year could be examined in detail. With the help of internal auditing, weak points could be located, and the corrective measures could be taken to ensure proper functioning.

Asset Protection:

The protection of assets is ensured with the conduction of an internal audit. With the proper record of assets, an internal auditor would be able to examine the valuation, verification and possession of assets belonging to the company. It would confirm that the purchase or sale of assets would be made under proper authority.

Internal Check:

Internal audits can evaluate the internal check system. With the division of duties amongst employees and when every member of the organization works appropriately, an effective internal check system would exist, and the auditor’s work is decreased. The internal auditor is then only required to apply test checks in order to complete audit duty.

Fair Statements & Error Scrutiny:

An internal audit detects the errors in the accounting records. This would help the management to access the accounting record in order. This would also minimize the chances of errors occurring in the records. The accounting team of an organization would be able to rectify mistakes to prepare accounts at the end of the year to help the external auditor.

Detection of Fraud:

Conducting an internal audit can detect frauds in the books of accounting. Internal audits begin when the work of the accounting team is done. The accounts team often remains alert as there is not enough time between recording and checking. Therefore, the detection of fraud is possible with internal audits.

Determine Liability:

Conducting an internal audit could determine the liabilities of employees. As the duties in an organization are divided amongst the employees, it is easier to notice the negligence on the part of employees. An internal audit can put a pin on the individual responsible for the error.

Help in Independent Audit:

An internal audit can help an independent audit. The external auditor has the option to rely on an internal auditor instead of conducting another cent per cent check, saving both money and time.

Performance Appraisal:

An internal audit can check performance appraisal. It can be used as a tool to evaluate the working of each management function in order for the organization to achieve the targets fixed in budgets and plans.

Provide Suggestions:

Conducting an internal audit would provide suggestions for the improvement of the business activities. The internal audit staff would be able to suggest ways and means by which the difficulties could be overcome. However, an internal auditor cannot compel the management to implement the suggestions.

New Ideas:

Internal audits can bring about new ideas concerning the procedures, marketing, financing and other matters of the business. The auditors would be able to offer new insights about various business matters which could be implemented for the betterment of the business.

Use of Resources:

The purpose of an internal audit is to determine the right use of resources. Misusing resources would naturally increase the cost of doing a particular business. The proper use of resources goes hand in hand with the efficiency on the part of the management.

Accounting Policies:

An internal audit would be able to examine the accounting policies of an organization. The understanding of the accounting system and its procedures would be helpful to formulate effective audit plans and procedures. The internal auditor would be able to find weaknesses in the internal control and help fix the accounting policies.

Special Investigation:

The purpose of an internal audit may be to conduct a special investigation concerning any business matter. An internal audit may be used as a tool to find the effectiveness of the function of the management.

Benefits Of Internal Audit

The following are the benefits of conducting an internal audit in an organization:

Proper Accounting Systems:

Internal audits introduce an appropriate system of accounting. An accounting system comprises of a chain of activities in a company by which transactions are processed in order to maintain financial records. To achieve desirable results, a need for orderly devices is required, and that can be achieved through internal auditing.

Better Management:

Internal audit ensures that there is better management of the business in the organization. An auditor would be able to point out the areas of weakness in the management. The objectives of the business can be achieved if there is a proper internal control, internal check and internal audit. It should be noted that the management has the option to rely on internal audit for the best results completely.

Progressive Review:

The progress of the business can be reviewed with the help of an internal audit. The figures from the previous years are compared to those of the present year. The performance result of various other similar companies can be considered and compared to in order to determine the progress of the entity. An internal audit helps the management to review the growth of the entity.

Effective Control:

An internal audit is essential in order to retain effective control over business activities. Control comes under the functions of management and is related to the supervision and direction of ongoing operations. The concerned manager can make the necessary changes according to the internal audit and remove the difficulties for the smooth working of a business.

Assets Protection:

The protection of assets is possible through an internal audit. The management has the option to only use the assets for the benefit of the business and not for private purposes. Internal auditing keeps an eye on embezzlement of cash, misappropriate use of stock and misuse of other assets from ever occurring.

Division of Work:

An internal audit can be conducted to apply the division of labor. This is necessary in order to watch the activities of every employee, including the members of the management. The auditor may choose to suggest a way and means on how to improve the performance of the business.

No Error and Fraud:

Internal audits can be conducted to protect the accounting records from errors and fraud. Accounting and auditing in a company go hand in hand as the latter begins when the former is done. In such situations, the mistakes and deceptions committed by accounting personnel would be detected and rectified easily.

Fixing Responsibility:

Internal audits would be able to set the responsibilities of employees having poor performances. The management would establish performance standards, and the internal auditor can evaluate the result of all the employees. This way, the concerned individuals can be held responsible for their work that does not meet the standards of the company, and appropriate changes could be taken.

Helps External Auditing:

The work performed by an internal auditor would be a great help to an external auditor in conducting the audit. The audit procedure of the internal and external audit is very similar. However, an external auditor would be responsible for an external audit even if they choose to go through the internal audit report.

Improved of Performances:

An internal auditor would be helpful in improving the performance of the organization. The company’s achievements in the previous year would be the basis of the budget preparations for the present year by drawing up income statements and balance sheets. Therefore, an internal audit improves the performance of a business and its employees.

Proper Use of Resources:

The check on the appropriate use of resources is maintained through an internal audit. The misuse of resources would undoubtedly lead to an increase in costs for the organization. The optimum use of resources in a company could be determined with the control of the cost of output. Internal audits can be considered as a tool to use the resources of a company in the best interests of the business.


Internal audits help to investigate various matters of the business. In situations that bring doubts, the internal auditor can be given the responsibility to examine the facts and figures to confirm. Such investigations can be conducted at the request of the management of the company.

Limitations Of Internal Audit

Internal audit has several limitations that may affect its effectiveness in providing an accurate assessment of an organization's operations. These limitations include:

Inadequate Staff:

The shortage of staff is a significant limitation of internal audit. An adequate audit staff is essential to examine the records and conduct a thorough internal audit. A shortage of staff could prevent the organization from obtaining the full benefits of an internal audit.

Time Delay:

Internal audits begin after the accounting process, leading to a significant time lag between the recording and checking of entries. This time delay can hinder the internal audit process and prevent the organization from making timely decisions.


One of the limitations of internal audit is that undetected errors can remain in the books of accounts, depending on the expertise of the internal audit staff. With experienced and competent audit staff, the chances of an error going undetected are minimal. However, with an inadequate audit staff, the audited accounts may not be free from errors.

Lack of Responsibility:

The limitation of internal audit is that top-level management may not feel responsible for completing the audit formalities. Although the audit staff can offer suggestions for the proper functioning of the business, the management may not necessarily pay attention to these suggestions, resulting in a loss or no benefit to the company.

Ineffective Duties:

If the duties of the audit staff are not appropriately divided and implemented, the whole purpose of internal audit may fail. A proper method must be utilized to ensure the optimal utilization of organizational resources and effective completion of audit duties.

Lack of Independence:

One of the primary limitations of internal audit is the potential lack of independence. Internal auditors are typically employed by the organization they are auditing, which may limit their ability to provide unbiased assessments.

Limited Scope:

Internal audits may have a limited scope of focus. This may be due to resource constraints or a lack of expertise in certain areas. As a result, some areas of an organization's operations may not be fully examined during an internal audit.

Risk of Fraud:

Internal auditors may have a conflict of interest when auditing areas where they have previously worked or where they have close relationships with employees. This may increase the risk of fraud going undetected.

Reliance on Information:

Internal auditors may rely on information provided by the organization being audited, which may be inaccurate or incomplete. This could lead to incorrect conclusions being drawn.

Limited Resources:

Internal audit teams may have limited resources and may not be able to cover all areas of an organization's operations. This may result in a lack of coverage in certain areas, which may leave the organization vulnerable to risks.

Lack of Authority:

Internal auditors may not have the authority to enforce corrective actions or make changes to the organization's operations. This may limit their ability to address issues identified during the audit.

Compliance vs. Value:

Internal audit may focus too heavily on compliance with policies and regulations, rather than adding value to the organization. This may result in missed opportunities for improvement or innovation.