Free «Auditing in an Organization» Essay Paper
Table of Contents
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- Purposes of Audits
- Ensure that the Business Pursues Its Objectives
- Preventing Risk
- Fraud Prevention
- Examining Organizational Practices
- Auditors Challenges
- Internal Control
- No Support from the Management
- No Audit Preparation
- Dealing with Difficult Audits
- Higher Priorities
- Related Business essays
Auditing is an on-site verification activity, which includes examination of a process to ensure compliance to necessities. An audit might be performed to a whole organization. However, it can also apply to a particular function, production step, and process (Beasley et al. 2005). Moreover, an audit is a documented, independent, and systematic process, which obtains audit statements, records of fact and other useful information that is verifiable. Therefore, the process evaluates the evidence objectively and aids in fulfillment of such audit criteria as requirements, procedures, and a set of policies. Various audit approaches might be applied to acquire the audit purpose. An audit can be classified as external and internal depending on the interrelationships between participants. External audit is also characterized as second party/third party services, which are executed by an agent outside the organization, whereas an internal audit is known as a first party service, and is performed by the employees of the organization. The current paper will discuss the purpose of an audit and the challenges auditors face.
Purposes of Audits
The company's business objectives can be achieved through maintaining an effective system of audit controls. In addition, it is vital in avoiding misappropriate funds and fraud, obtaining reliable financial reporting of the organization operations. Moreover, auditing minimizes the cost of capital (Gray & Manson 2007). The importance of an audit system to enterprises is discussed below.
Ensure that the Business Pursues Its Objectives
An effective audit system is essential for an organization, since it allows the company to attain and pursue its corporate objectives (Beasley et al. 2005). Departmental procedures require numerous methods of audit control to aid in monitoring and supervision, promote operational productivity, maintain adequate business records, measure ongoing performance, and detect and prevent irregular transactions (Gray & Manson 2007). The auditors assess the internal control design, document the possible material irregularities, provide additional investigations upon the request of management, and recommend improvements.
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The cost of capital is important for every organization, irrespective of its size (Beasley et al. 2005). The cost of capital involves the risk accompanied by the investment, thus, a more risky investment will require an investor to have a higher rate of return (Cascarino 2007). Reliable audit systems help minimize various risks in a company. Such risks of suboptimal management occur due to insufficient data on company operation, misappropriation and risk of fraud of assets, and risk of material misstatement in financial reporting (Cascarino 2007).
Audit professionals evaluate information risk in an organization financial report (Beasley et al. 2005). A company is incapable of creating reliable financial reports for external or internal purposes, if it lacks an audit system (Gray & Manson 2007). Moreover, the management cannot determine the manner of allocating resources, as well as know the sectors or product lines that lack profit and the ones that are profitable (Gray & Manson 2007). The company might lack the capability of managing its affairs, which results in the fact that it would not be in a position to determine the status of its resources and liabilities (Beasley et al. 2005). Thus, the enterprise would be declared undependable in the market due to its failure to produce its services and merchandises in a reliable manner (Gray & Manson 2007). An audit system is vital in the prevention of data risk in an enterprise report and records.
Auditing is essential in organizations to aid in preventing fraud (Beasley et al. 2005). Regular scrutiny of operations in an enterprise and maintaining demanding systems of audit controls can detect and prevent numerous kinds of accounting irregularities and fraud (Cascarino 2007). Auditors contribute to the modification and design of audit control methods, which include the prevention of fraud. Moreover, it can be prevented due to company’s reputation. For instance, if an organization is known to have busy and active audit systems, salesperson or employees might be afraid to involve in defrauding the organization (Gray & Manson 2007).
Examining Organizational Practices
Instead of finances, operational audit examines the organizational practices (Beasley et al. 2005). For instance, it observes if the company is running at extreme efficiency. Inefficient operations increase overhead devoid of maximizing profit (Beasley et al. 2005). An operational audit scans the unnecessary paperwork. In addition, operational audit reveals if the organization observes the government regulations before the state discovers some illegal issues, which helps avoid fines among other legal actions (Gray & Manson 2007). A rapidly growing industry requires monitoring compliance with laws regarding human resources, since new employees join the organization.
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Every organization can occur in a position where it cannot afford creating an internal audit department (Gray & Manson 2007). However, with careful planning, the company can generate a system for monitoring employees and the management. Besides, using individuals who already work for the company can offer the information it requires to improve the financial and operation controls (Beasley et al. 2005). Planning an internal audit provides a chance to the team members to deliberate outcomes and formulate an objective report to management. Such easy process helps in making employees comprehend that an audit system offers an opportunity for the organization to expand and thrive.
The standard auditing requirements oblige an auditor to conduct company’s audit independently without interference from the concerned company (Jayalakshmy, Seetharaman & Wei Khong 2005). A study shows that auditors are usually under pressure from the side of organization’s top management while conducting the audit report (Cascarino 2007). Moreover, the auditors usually compromise their independence by offering clients the consulting services, such as matters not associated with auditing, consultation on auditing reports, and non-audit services (Jayalakshmy, Seetharaman & Wei Khong 2005). Auditing companies face various challenges when conducting audits. Most organization managements hamper auditors during the auditing process. Moreover, they tend not to support the audit program, thus, making it difficult for auditors to execute their job successfully (Cascarino 2007). The following challenges are usually faced by the auditors in the process of conducting an audit of an organization. They include absence of management support, dealing with difficult audit, absence of audit preparation, and internal control (Beasley et al. 2005).
One of the factors hindering a successful auditing process is internal control (Jayalakshmy, Seetharaman & Wei Khong 2005). Famous auditing organizations point out internal control among the leading challenges auditors encounter during an audit (Beasley et al. 2005). The famous auditing firms state that if auditors lack an internal control, it becomes impossible to conduct proper auditing of an enterprise (Cascarino 2007). It is essential for auditors to have an understanding of the internal control. Besides, it lies within the rules and regulations of auditing (Beasley et al. 2005). The auditors are supposed to ensure that internal control is appropriately designed and implemented. However, an auditor is allowed to alternate the audit system, basing on the internal control of auditor, such as the outcomes of the private court. The auditors will need to focus more on programs that are poorly managed and can cause troubles (Beasley et al. 2005). Furthermore, auditors can learn about internal control through diverse ways, including reviewing previous reports and records, evaluation, inspection, inquiries, and monitoring through perusing various files and documents.
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No Support from the Management
Among other challenges auditors may face, noncompliance between company management and auditors is the biggest of them (Beasley et al. 2005). A study shows that most business managers lack an understanding of the organization audit report significance (Gray & Manson 2007). As a result, they tend to refuse from cooperating with auditors to provide the necessary information. ISO 19011 requires that all CEOs of an organization have to set criteria for the audit. However, most executive team members in global companies lack understanding of the term established by ISO 19011 (Beasley et al. 2005). On the other hand, one fundamental step to overcoming the challenges generated by the executive team of an organization is to inform them the essentials of the auditing by professionals (Jayalakshmy, Seetharaman & Wei Khong 2005). Therefore, it is upon auditors to ensure that the company management understands the motives for performing an internal audit.
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Nowadays, auditing has become a necessity to every international organization despite the fact that not all businesses recognize the importance of performing the auditing by professionals (Beasley et al. 2005). There are many teams that perform auditing unprofessionally. Therefore, instead of saving the company, they tend to drive it into a loss (Cascarino 2007). For an auditing company to improve performance, auditors need to communicate with the management to boost the effects. The communication can be performed in the form of audit reports between the top administration of the enterprise and auditors (Jayalakshmy, Seetharaman & Wei Khong 2005). Besides, auditors must ensure they encourage the cooperation of the Directorate by re-emphasizing the role of administration in the audit process.
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No Audit Preparation
Audit preparation is another challenge faced by auditors (Beasley et al. 2005). Sometimes, the auditors assure themselves of obtaining better results compared to previous ones still receiving the same outcomes (Jayalakshmy, Seetharaman & Wei Khong 2005). The problem is encountered since the audit is performed at the last moments of deadlines, which leads to various negative issues (Gray & Manson 2007). Audit preparation is the most important measure of an audit program. Therefore, an auditor needs to control his/her keep time so that to address the issue, since time is very essential in auditing (Gray & Manson 2007). Hazardous audits usually turn out to be performed under deadlines and stress.
Dealing with Difficult Audits
One of the biggest four auditing companies, namely KPMG, advises auditors to interact with the company top management in order to acquire improved idea of auditing and manage the difficult audits (Beasley et al. 2005). Additionally, auditing in IT departments is a struggle accompanied by a variety of issues (Gray & Manson 2007). Nevertheless, if the issues are not managed appropriately, it can frustrate the compliance and security efforts in an organization becoming a challenge for the auditors (Gray & Manson 2007).
In modern society, a great amount of new information is produced yearly, thus auditing modifications into critical information become a more time-consuming task (Gray & Manson 2007). According to Beasley et al. (2005), enterprise information growth summing to 650% by 2015, results in an increased number of data obtained and requires compliance escalation, security, audit, and backup. Most IT departments have limited resources, which makes an IT administrator to work more (Gray & Manson 2007). IT departments use most of their time supporting administering patches, developing software, managing systems, and supporting end-users until a breached security hole and a failed compliance audit can be corrected (Cascarino 2007). Currently, the biggest problem accompanied with IT infrastructure change auditing is time. Departments are utilizing computer-assisted audit technologies and are assertive to change auditing frameworks to aid in identifying possible control and performance problems (Beasley et al. 2005). It helps in determining where diminished auditing should be placed.
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Multiple stakeholder expectations are another challenge of auditing faced by the auditors (Beasley et al. 2005). In order to ensure the independence of the audit, internal audit should answer to the Board of Directors committee (Gray & Manson 2007). Audit Committees have governance and fiduciary responsibilities concerning value preservation and warranting that business is efficiently managed by the company (Cascarino 2007).
It is evident that audit system in an organization is essential in monitoring the performance of various departments. Auditing aids a company to realize its objectives. Reviews in an organization are critical as they help in evading fraud, misappropriation of money, and obtaining a financial report regarding operations of the company. Despite auditing being a significant activity in an organization, auditors are faced with various challenges in the process of conducting their work. Mostly, auditors experience much pressure from the top leadership of the organization, thus making it difficult for auditors to execute their duties. To achieve the best results, auditors should encourage the management to cooperate through emphasizing the role management plays in an audit process.