What is the meaning of Internal Audit? is it mandatory?

Internal Audit refers to an independent compulsory non mandatory appraisal of activity within an organization for the review of accounting, financial and other business practices. It consists of a continuous and critical review of financial and operating activities by a staff of auditors. It is a separate part of internal control system. Internal audit is a vital tool that helps modern organizations to manage risks. It helps to focus on key areas such as the identification and management of risks

Internal auditing has great value as an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.

Internal audits provide a number of important services to company management. These include detecting and preventing fraud, testing internal control, and monitoring compliance with company policy and government regulation. Smaller companies may require these functions even more than large companies. A small business simply cannot afford employee fraud, waste, or a government fine. Establishing an internal audit function provides a vital step in the growth of a small business.

First: Fraud

Small businesses lose millions of dollars every year to employee theft. Types of fraud committed by employees include skimming payments from customers, check tampering, cash theft and misuse of company credit cards, and improper payroll transactions. Many small-business owners may believe they lack the staff to create an internal audit policy or carry out audits to combat these problems. However, even with a small staff, a small business may create a program for monitoring employees and their behavior. An announced policy of internally auditing financial transactions for fraud may inhibit an employee from misusing company resources.

Second: Monitoring Internal Controls

A formal internal audit policy, even if conducted part time by individuals normally assigned other duties, performs other tasks besides detecting fraud. Examining policies and procedures on a regular basis ensures that the company minimizes its exposure to fraud and other losses. Extension of credit to customers provides one such area of loss prevention. If you have formulated a policy regarding extension of credit, internal audits test compliance with that policy. Designing a credit policy with the intention of reducing bad debt does no good if not followed.

Third: Operational Audit

Operational audits examine the practices of a company, rather than its finances. Is your business operating at maximum efficiency? Ineffective operations add to overhead without increasing profit. An operational audit may reveal these inefficiencies or point to unnecessary paperwork. Is your business following applicable regulations? Finding out you do not comply with a government regulation before the government discovers that fact avoids fines or other legal actions. A rapidly expanding business needs to monitor compliance with human resource laws as new employees join the company. Internal audit performs a vital service in reviewing these functions.

Fourth : Planning Your Internal Audit

Your small business likely cannot afford to create an internal audit department, but with careful planning, you can create a system for checking up on your company and its employees. This less formal system, using people you already have, can still provide the information you need to improve your operations and financial controls. Such an internal audit requires two people working as a team. This avoids personality conflicts and prevents the auditor from simply checking his own work. It also provides an opportunity for the team members to discuss results and prepare an objective report to ownership. An informal process helps employees understand that the internal audit function provides an opportunity for the company to thrive and grow.

Sir,

Internal auditing is the internal checklist and analysis of an organisation. It is very useful one, but not mandatory. 

Internal audit can help to reduce manipulations in accounts, because it is a continuous process, but external auditing is just a random selected auditing. 

Internal auditing can make sure the 100% efficiency of works, if it is going right way

Thanks for invitation.

Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organisation's operations. It helps an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance process.

Internal Audit is an independent management function, which involves a continuous and critical appraisal of the functioning of an entity with a view to suggest improvements thereto and add value to and strengthen the overall governance mechanism of the entity, including the entity’s risk management and internal control system.

Whether an organization is required to have an internal audit activity or not depends on the respective regulatory requirements that govern the organisation. Stock exchanges throughout the world have their own norms governing companies. Although private companies, those are not publicly listed, are not required to have internal auditing, many of them have established an internal audit activity as one of its core organizational governance elements.

The role of internal audit is to provide independent assurance that an organisation's risk management, governance and internal control processes are operating effectively.

It is not mandatory to have internal auditor but its mandatory to conduct external audit if the company is registered under stock exchange.

I completely agree with the explanation of Ms Ghada, Mr. Ibrahim, Mr. Sunil pandey and Mr. Nair,

I would like to add some points with that. Internal audit is a CHECK on the operation as well as activities of the organization, which monitors, analyses and examines assure the activities and operations of an organization. It is required in every organization. In short Internal Auditor is the person appointed by the chairman or owner of the company just to monitor and assures management as well as organization is following rules, regulation, defined procedures and steps which keeps company away from cheating or fraud. Auditor is the whistle blower for an organization but all whistle blowers are not auditor.

Internal audit is an independent,objective assurance and consulting activity designed to add value and improve an organisation's operations. it helps an organisation to accomplish its objectives by bringing a systematic,disciplined approach to evaluate and improve the effectiveness of risk management , control and governance process 

Its no mandatory

An internal audit is the examination, monitoring and analysis of activities related to a company's operation, including its business structure, employee behavior and information systems. An internal audit is designed to review what a company is doing in order to identify potential threats to the organization's health and profitability, and to make suggestions for mitigating the risk associated with those threats in order to minimize costs.

Above answers are sufficient to explain.

I apologize for the answer, I leave the answer to experts specialists in this field that's not my specialty field

Internal Audit - by words- do the audit internally. (within the organisation). Technically the definition is explained in many previous replies.

For a small organisation- utility of internal audit might not be that much, however once the organisation starts growing Internal Audit plays a bigger role. Segregation of duty is required and its utmost important that company's policies and guidelines are adhered and timely updated for any shortcomings and gaps identified.

While statutory audit is mandatory for the organisations however most of the time it is post-mortem of what has already incurred and at times it might not be possible to recover or rectify events. Where as internal audit team reports directly to senior management and  generally timings are  concurrent .In this way this team enhances the quality of the operations and smooth functioning of the organisation and in a timely manner.  So this is part of organisation's internal control procedure.

In this way Internal audit observations prepare or add value to  external auditors as well as the stakeholders and organisation itself. It makes pathway for timely actions for organisation activities and shortcomings. Rest is all answered by experts.

Yes it is mandatory-------------------------------