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Is it useful to perform an audit on the same department as a part of a preparation for an external audit - I mean assigning two or three employees to conduct an audit on the same department where they work.

We are having a debate here whether it's useful.

What would be arguments for/against it?

  • I couldn't find the right tags, can someone help with this. – Nean Der Thal May 20 '14 at 5:30
  • Finance audit? What industry or department type of audit are you talking about? – Marc K May 20 '14 at 5:42
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    As long as the external audit happens, I don't see the problem. The internal audit is almost like a "practice run". If only the internal audit were performed, that seems like it would be a clear conflict of interest. – aroth May 20 '14 at 5:43
  • @MenoTalk I have edited your question in a attempt to collect more facts instead of opinions. – Jan Doggen May 20 '14 at 7:09
  • Does the agency executing the external audit have any authority to punish your company for infringements? – user8365 May 20 '14 at 13:34
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Is it logical to perform an audit on the same department as a part of a preparation for an external audit. When I say a same department audit, I mean assigning two or three employees to conduct an audit on the same department where they work.

Yes, as the internal audit would ensure that the documents would be ready for when the external auditors come. Consider the question of what are the external auditors wanting to see and is that already prepared or not by the internal audit.

Can such a thing happen? We are having a debate here about it.

Yes, as I'd imagine finance departments would likely want to double check their work before the auditors come and may be more costly to the business if the auditors have to make multiple trips if things aren't ready when they first arrive.

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    In addition, your team might discover things the external auditor might miss because they understand company procedure, policy and workflow. This information could be used to improve company performance or compliance as well as to combat possible negatives that come out of the external audit. – MJ6 May 20 '14 at 14:47
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This is not only useful, it is a golden opportunity to propose change and get it implemented in order to pass the audit. It is very rare to have such an opportunity when change proposals are going to be looked on so favorably.

Further, it educates the employees doing the internal audit about the internal controls etc. that are part of a good financial structure. By doing the internal audit, assuming you do it well and not treat it as a joke, the people doing the auditing will have a chance to look at the details of what is happening with their systems and to get very knowledgable about the Generally Accepted Accounting Principles (GAAP) that the audit will likely be based on.

One of the most critical things that they may learn is about the importance of internal controls to prevent fraud. It is especially important if the people who are being audited are not professional accountants themselves and thus may not really understand the details of the GAAP.

In smaller companies I have seen many places where the people who set up the orginal systems had no concept of internal controls and thus their systems would have been ridiculously easy to steal from. (I should point out that I used to work for a government audit agency so I tend to notice this stuff even though my job no longer includes an auditing component.) Having these people do an internal audit before the financial audit might help them close those gaps before the real auditors show up.

I would suggest that the internal team consists of multiple people and that no one internally audit his or her own direct tasks and that all work is reviewed by multiple people. You might even find some actual fraud that way.

The one caution I might make is that you do not want to be assigned to do this if management just wants to find ways to "creatively" cover up any problems you find especially any illegalities. Always remember that the alternative term for creative accounting is FRAUD. People who help cover up illegal activites can go to jail with the peope who set up the illegalities in the first place.

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Is it useful to perform an audit on the same department as a part of a preparation for an external audit - I mean assigning two or three employees to conduct an audit on the same department where they work.

Yes. Your department’s work is being audited so who would better know the state of that work than your department. Also, since the act of performing an internal audit will naturally focus your department on the needs of auditing, the process can lead to overall proactive efficiencies.

Let’s say you have a process that works well for you, but at the end of the day needs to be tweaked for auditing purposes. Well, now you know you have to alter your process moving forward & other team members do as well.

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