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INTERNAL AUDIT METHODS AND PRACTICES
Elov Olimdjon Komilovich
Navoi State University, " Geography and
Basics of Economic Knowledge." Lecturer
Tosheva Malika
Navoi State University, 3rd-year student at School Management.
E-mail: mr.olimdjon@gmail.com
https://doi.org/10.5281/zenodo.14630846
Abstract.
Internal audit is an independent evaluation of the effectiveness
of an organization’s activities to check and identify its performance. The internal
audit is managed by the company itself or a specific department within the
company, usually the internal control department. The aim of internal audit is to
assist the company’s employees in performing their duties at a high level of
excellence. Internal audit provides the organization with clear analysis,
assessment, recommendations, advice, and information regarding the audited
objects.
Key words:
Internal Audit, External Audit, Mandatory Audit, Proactive
Audit, Operational Audit, Compliance Audit, Financial Statements Audit, Co-
sourcing, Outsourcing
Introduction.
Today, internal audit has become even more relevant
worldwide. Great attention is being paid to its development, as internal audit is
an effective tool for gaining a competitive advantage and improving the quality
of company operations. Internal audit is an independent evaluation of the
effectiveness of an organization’s activities to assess and identify its
performance. The internal audit is managed by the company itself or a specific
department within the company, typically the internal control department. The
goal of internal audit is to assist the company’s employees in performing their
duties at an excellent level. Internal audit provides the organization with clear
analysis, evaluation, recommendations, advice, and information regarding the
audited objects.
Internal Audit Practices and Methods.
Successfully presenting the
results of an internal audit requires a systematic approach that includes several
key methods:
Audit Planning and Preparation: Setting Objectives:
Clearly
define the goals and tasks of the internal audit to ensure alignment with
organizational priorities.
Data Collection and Analysis: Data Gathering:
Collect
relevant information through interviews, document reviews, observations, and
data extraction from systems.
Data Verification:
Ensure the accuracy and
reliability of the information through cross-referencing, verification, and
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validation processes.
Report Development:
Structure:
Organize the audit report
into clear sections, including an overall conclusion, methodology, findings,
conclusions, and recommendations.
Clarity and Precision:
Use concise language
to facilitate understanding between different stakeholders, avoiding technical
jargon.
Visual Aids:
Include diagrams, charts, and tables to visually represent
key findings and trends for easier understanding.
Stakeholder Engagement:
Communication Plan:
Develop a communication strategy that outlines how
audit results will be presented to various stakeholder groups.
Follow-up and
Implementation: Recommendations:
Provide actionable recommendations
based on audit results to address identified issues and improve processes.
Monitoring and Evaluation:
Implement mechanisms to monitor progress, track
the implementation of recommendations, and assess the effectiveness of
corrective actions.
The study of the scientific foundations of organizing and conducting
internal audits includes identifying the range of issues (problems) that internal
audit service employees may face, developing criteria for evaluating accounting
documents, and studying the methods of working with documents and economic
information carriers.
Based on the condition of the internal control system, the objectives and
tasks of the internal audit are defined. The main goal is to provide the
organization’s management with objective, reliable, and timely information
about the company’s operations. The tasks of internal audit include establishing
an internal control system as an inseparable part of the rights and obligations of
the management and officials.
It is important to note that, organizationally and legally, internal audit is
individual for each company, as it depends on the specific characteristics of its
financial and economic activities.
Based on this, the following organizational forms of internal audit are
distinguished in economic literature:
Establishing its own internal audit service;
Outsourcing; Co-sourcing.
Outsourcing
involves fully or partially transferring internal audit
functions to a third-party company or external consultant.
Co-sourcing
refers to establishing internal audit units within the
company, but occasionally involving third-party specialists or external
consultants when needed.
Types of Internal Audit Practically Applied.
From an economic
perspective, audit inspections are divided into two types:
Internal Audit:
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Internal audit primarily focuses on the safeguarding and utilization of physical
assets, the accuracy of accounting records, and the examination of other
operational areas within the company. Typically, a comprehensive audit is
conducted.
External Audit:
A key feature of external audit is that it is conducted
by an independent, impartial auditor who has no vested interest in the company
being audited, such as being its owner, founder, or senior manager. If an auditor
is affiliated with the company being audited, their license may be revoked. The
effectiveness of an external audit is often enhanced through collaboration with
internal auditors.
International practice distinguishes three specific types of
audit:
Operational Audit, Compliance Audit, Financial Statement Audit.
Operational Audit
is the most widely practiced type of internal audit. It
involves examining how effectively a company uses its resources to achieve
optimal results and improve its financial and operational performance. The goal
is to help employees perform their tasks effectively and increase the company’s
profitability.
Compliance Audit
focuses on examining whether the organization
complies with national laws and all relevant regulations. For example, it checks
whether a company's activities align with its internal regulations or existing
guidelines.
Financial Statement Audit
is conducted by financial and accounting
professionals to assess how accurately the financial results, payment capacity,
and sales processes are reflected in the financial reports.
Frequency of Audit.
Audits are classified into two categories based on
their periodicity:
Initial Audit:
An audit performed for the first time by an auditor or auditing firm
on a company.
Periodic Audit:
A recurring audit conducted by the same auditor
or auditing firm under a contract with the company.
Mandatory vs. Voluntary Audits.
Audits can also be classified based on
whether they are mandatory or voluntary:
Mandatory Audit:
This is an audit
that is required by law or regulation.
Proactive Audit:
The initiative to conduct
an audit is taken by an individual or organization, and the costs are covered by
the party that requested the audit.
Conclusion.
In conclusion, internal audit is not only important for monitoring
financial status but also plays a crucial role in analyzing and optimizing
operational processes. Operational audits conducted by auditors help
organizations make effective decisions, save resources, and manage risks.
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Therefore, the quality of internal audit organization and the professionalism of
auditors are key factors in the successful development of organizations.
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