Internal Audit: What It Is and How It Works in a Company
An ongoing function within the company, not a one-off check
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Internal audit works in the interests of the owner and the company's governing bodies: it assesses how reliable internal processes are, whether resources are used effectively and whether risks are managed.
Unlike an external audit, it does not express an opinion on the annual financial statements and is not addressed to external users — its output is intended for management.
What the law requires
- a joint-stock company (JSC) with a balance sheet value of assets above 100,000 BCV (UZS 44 billion with the base calculation value at UZS 440,000) must establish an internal audit service (Art. 108 of the Law on Joint-Stock Companies);
- the service reports to the supervisory board or, if there is one, to the audit committee;
- the supervisory board establishes the service, appoints its staff and hears its reports quarterly;
- the service oversees the executive body and branches, the reliability of accounting and reporting and the safeguarding of assets;
- the procedure for the service's activities is determined by the Cabinet of Ministers.
What internal audit does
- Assesses the internal control system and identifies gaps in it
- Checks compliance with internal regulations and procedures
- Analyses the efficiency of individual processes and transactions
- Identifies areas where abuse is possible
- Monitors whether previously identified weaknesses are being remedied
The key condition — independence from those audited
Internal audit is pointless if it reports to the people it audits. That is why the function usually reports to the owner, the supervisory board or the audit committee — not to financial or operational management.
In-house service or external specialists
Maintaining an in-house service is justified when the business operates at a significant scale. Smaller companies bring in external specialists for specific reviews — this is cheaper and gives independence by definition, since the provider is not part of the internal hierarchy.
Discuss internal audit
We will help you build the function or carry out a review with an external team.
Go to the Voluntary Audit serviceFrequently asked questions
Does internal audit replace the mandatory external audit?
No. They are different functions with different audiences. The obligation under Art. 35 of Law ZRU-677 on Audit Activity is fulfilled only by an external audit performed by an audit firm.
Where should building the function start?
With defining reporting lines and the subject of the first reviews. A function that reports to the management it audits and has no clear plan exists only on paper.
Which JSC must establish an internal audit service?
A JSC with a balance sheet value of assets above 100,000 BCV (Art. 108 of the Law on Joint-Stock Companies).
Sources
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