In public organizations, as well as in some private firms, due to the requirements of the law, such measures as internal audit and internal control must be carried out. What are they?
What is internal control?
Let us first consider the specifics of internal control in government agencies. Then we will study its features in private firms.
It can be noted that the procedure in question is officially referred to in state organizations as “ internal financial control ”. That is, the subject of inspections is the business operations of the institution, which are mainly related to the expenditure of budgetary funds.
Internal control in government organizations is mandatory. The need for its implementation is legally enshrined in the provisions of the Budget Code of the Russian Federation.
In accordance with Art. 160.2-1 of the RF BC, internal control in state organizations is a procedure that must be carried out by the main manager of budgetary funds. That is, the central office of one department or another, working at the federal level, in Moscow. Internal control in the interpretation of the Russian legislator is an audit of the activities of a budgetary institution for the following:
- compliance with the standards and norms of budget execution used by the institution;
- following the rules for the formation of financial statements, accounting;
- effective spending of budgetary funds.
In addition, internal control in state organizations involves the development of measures by the main manager aimed at improving the quality of financial management in subordinate state organizations.
What are the features of internal control in private firms? First of all, it should be said that, in general, these organizations carry out such a procedure voluntarily. There are only certain categories of private firms that must necessarily exercise internal control - as well as audit.
Among the non-state companies that are required by law to conduct the activities under consideration are corporations that organize trading on stock exchanges. These firms are obliged to carry out internal and external control in accordance with the provisions of the Federal Law No. 325 dated November 21, 2011.
Under the internal control in trading firms, the legislator understands checks that are aimed at assessing the compliance of the exchange or trading system with the requirements of the legislation, as well as the provisions of the constituent documents. To carry out the appropriate procedure, the financial company must appoint a controller or establish a specialized structural unit.
Of course, the understanding of internal control in those private firms in which it is not mandatory may differ from the interpretation that should be followed by trading companies.
What is internal audit?
Internal audit, like control, is a mandatory procedure for government agencies. Its essence is also reflected in the provisions of Art. 160.2-1 BC RF. This source of law states that internal audit is:
- checks, which are aimed at assessing the reliability of the implementation of internal control;
- making recommendations necessary to improve the effectiveness of related controls;
- audits aimed at assessing the reliability of reporting and the quality of accounting;
- development of proposals aimed at increasing the efficiency of the use of public funds.
In private firms, as we noted above, internal audit is generally optional. But the same trading companies (in accordance with Federal Law No. 325) must carry out it. True, this federal law does not disclose the essence of internal audit. It is only indicated that in order to conduct it, a financial company, by analogy with the organization of control, must appoint an internal auditor or establish a separate specialized structural unit.
But if we proceed from a legal analogy with the provisions of the RF BC, then it is permissible to assume that internal audit in private companies, as well as in state ones, can be checks aimed at assessing the reliability of internal control, reliability of reporting and the quality of accounting, as well as the development of recommendations and proposals in the field of financial policy of a trading company.
It is obvious that internal control and internal audit in both public organizations and private companies are procedures that complement each other. But there is a fundamental difference between internal audit and internal control. The first procedure is aimed at detecting errors in business transactions, in the preparation of reporting and other documents. In turn, internal audit is, first of all, an assessment of the severity of detected errors and the development of recommendations for their elimination. In addition, internal audit also allows you to analyze the effectiveness of controls.
Having defined the difference between internal audit and internal control, we will display its main criteria in a small table.
|What do they have in common?
|Conducted by the same entity - the main manager of budgetary funds in public organizations, an internal auditor, controller or specialized department - in private companies
|What is the difference between them?
|Aimed at identifying errors in economic activities, in maintaining accounting documents and accounting
|development of measures to eliminate them, to analyze the quality of control