Difference Between Internal Control and Internal Audit

Definition of Internal Control

The systems, procedures, rules, and processes used within an organization to guarantee that its operations are efficient, productive, and consistent with legal requirements are collectively referred to as internal controls. It functions similarly to the company's internal controls that help it manage risks, accomplish its objectives, and uphold its integrity.

Internal control is a framework that the management of the business develops, implements, and maintains to guarantee that goals pertaining to:

• Operational efficacy and efficiency,
• Safeguarding resources,
• Preventing and identifying errors and scams,
• Completeness and accuracy of financial reporting,
• Compliance with the laws that apply.

It consists of five components that, applicable to all enterprises and interconnected, are implemented differently depending on the size of the organization. The aspects consist of information and communication, monitoring, control actions, risk assessment, and control environment.

Objectives of Internal Control

• Determining if the transactions are carried out in accordance with the management's approval.
• Verifying the timely recording of transactions in the appropriate account and amount during the relevant accounting period.
• Confirm that resources are shielded against usage and access by unauthorized parties.
• Comparing recorded assets to current assets over a range of periods and taking appropriate action if discrepancies are found.

Review

The review of the internal control system is the most crucial component, and the auditor can use any of the following techniques to do it: flowcharts, checklists, questionnaires, and narrative records.

Definition of Internal Audit

Internal auditing is a free-standing, impartial assurance and consulting practice that aims to enhance an organization's performance. It assesses and enhances the efficiency of governance, control, and risk management procedures. Internal audit essentially serves as the organization's watchdog by offering analysis and suggestions for improving internal procedures and controls.

Internal auditing is a management-developed, objective, and reasoned assurance and consulting service that monitors organizational activities. It entails routinely analyzing an organization's operations critically to suggest improvements. The goal is to support business members in effectively carrying out their tasks.

The internal auditor, chosen by the management of the organization, carries out the assignment. He or she provides the management with reports on the analysis, evaluation, suggestions, and pertinent data pertaining to the activities being studied.

Objectives of Internal Audit

• Verify the legitimacy and correctness of the accounting records submitted to the people in charge of governance.
• To determine whether or not the organization is adhering to the conventional accounting practices that are considered to be pursued.
• To guarantee fraud detection and prevention.
• To confirm that the right authority is in place for asset acquisition and disposal.
• To confirm that the obligations are solely for business purposes and not for any other reason.
• To examine internal control system operations and report any deviations or non-compliance to management.

Key Differences Between Internal Control and Internal Audit

Conclusion

Internal auditing and control are crucial for any organization to evaluate its overall performance. Since internal audit is a part of internal control, its scope is larger than that of the latter.