Internal Audit of Financial Statements

Publication date/update: 12.02.2024

Financial Accounting is the process of gathering and analyzing financial and other indicators of a company's economic activity. It should be established in enterprises of any scale, including individual entrepreneurs. It is essential for updating data and obtaining information about the company's current situation. Based on such information, the director can make conclusions about profitability and profitability. Additionally, financial accounting serves as the basis for tax calculations. Errors in financial accounting can lead to fines imposed by regulatory authorities.


In 2023, it is crucial to control financial accounting at the enterprise. Checks are necessary to objectify the financial condition of the company and avoid sanctions. Control is expressed through audits - supervisory measures to identify risks, errors, and compliance of financial accounting with the regulatory acts of the Russian Federation. Audits can be external and internal. If the former is conducted by an independent third-party company/auditor, the latter is carried out by the company's own employees.

The procedure for conducting an audit is regulated by the "Accounting Law." Typically, both management and employees of the organization are interested in conducting internal audits. It is important for them to verify the accuracy of the financial statements and assess all possible risks. The goal of such an audit is to compile an objective representation of the company's state of affairs. Subsequently, this information will serve as the basis for making decisions aimed at the development of the business.


It is important for the director and management in general to observe important factors and react to them in a timely manner. It should be noted that each organization independently determines the list of these factors based on its own needs and industry.


Another important goal is to adequately prepare for external audit and tax inspection. Both forms of control can significantly influence the state of affairs at the enterprise.

What tasks does internal audit solve?

Such a form of verification will help demonstrate to management whether the company operates effectively, whether assets are safeguarded, and whether operational and financial indicators correspond to the business plan. Equally important is to verify the accuracy of financial reporting and the company's compliance with legislation. However, the latter is directly monitored by the work of the accountant.


If such control is conducted on a regular basis, it is possible to monitor factors that are poorly reflected in the company's operations. These factors may involve production, employee performance, improper expenditure of funds, or the selection of counterparties. Additionally, timely internal audits allow for legally reducing the company's tax base. After analysis, specialists can provide a list of recommendations for reducing tax payments or obtaining tax deductions. Without initial verification, reducing expenses is not possible or difficult.


For whom internal audit is particularly relevant:

Audit performs a number of important functions. Among them, the following can be highlighted:

While external audit examines compiled financial statements for a specific period and provides an assessment of the company's overall performance, internal audit closely and swiftly monitors some important processes. It helps to evaluate the company's activities "on the go". That is, it is important to do this before many procedures are completed and reflected in reports.

The principles of internal audit are similar to those followed by external experts. Among them, the following can be highlighted:

Scheduled control should follow a specific schedule. However, an audit may also be required unexpectedly. The reason for this may be a sharp deterioration in economic indicators, when the company is losing money, or when the board of directors has doubts about the correctness of the accounting. Any audit begins with an order from the CEO. The audit proceeds in several stages.

In the internal audit report, it is important to include the following information about the audit:

With proper organization, internal audit in the enterprise will help avoid many unpleasant surprises and make the company's work more efficient.

The audit department can include existing employees such as lawyers or accountants, as well as newly hired individuals. It is important to maintain the independence of the experts in either case. Without adhering to such a condition, the control will not be objective. If the requirement is not met, the director has the right to reorganize the internal audit department. At any stage, the director can also hire experts for outsourcing assistance.


After creating the department, it is important to prepare local acts that will regulate the department's work. The basis will include all aspects of the department's work: information about the department, number of staff, goals, tasks, description of the department's structure, and distribution of responsibilities. It is also important to specify the types of documents it processes, criteria for assessing accounting, and basic procedures.