How to Conduct an Internal Audit for Philippine Businesses

June 30, 2025

An internal audit is one of the most valuable tools a business can use to ensure financial accuracy, operational efficiency, and regulatory compliance. While external audits are often mandated by law, internal audits are voluntary evaluations that can identify issues before they escalate into costly problems. For Philippine businesses, establishing a structured internal audit process not only strengthens financial health but also encourages more informed decision-making.

We’ll explain what happens during an internal audit, focused on financial processes and controls within the Philippine business environment.

What Is an Audit?

An audit is a systematic review of financial records, transactions, and processes. For internal audits, this review is conducted by employees or an internal audit team rather than an independent third party. Unlike external audits, which focus on legal compliance, internal audits are conducted for internal decision-making. They assess whether financial activities are accurate, compliant with internal policies, and aligned with the organization’s objectives.

Internal audits can also cover non-financial areas such as operations, compliance, and risk management. However, our guide will focus on financial internal audits for businesses in the Philippines.

What Is the Main Goal of an Internal Audit?

The primary goal of a financial internal audit is to verify that the company’s financial systems and controls are functioning properly. Specifically, an internal audit aims to:

Ensure financial records are accurate and complete
Detect potential errors, misstatements, or fraud
Evaluate the effectiveness of internal controls
Identify risks and recommend preventive measures
Improve the efficiency of financial operations
Prepare for external audits or tax assessments

When done regularly, internal audits help businesses comply with government regulations, such as those from the Bureau of Internal Revenue (BIR), and strengthen credibility with stakeholders.

How to Conduct an Internal Audit

The internal auditing process doesn’t need to be complicated, but it does require a clear process and objective evaluation. Here’s a step-by-step guide for Philippine businesses:

1. Define the Audit Scope and Objectives

Create an audit plan that outlines what will be reviewed, how long it will take, and what methods will be used.

Decide what areas of your financial system to review. This could include cash handling, payroll, expense claims, purchasing, or compliance with tax laws. Prioritize high-risk areas.
Then, a clear objective, such as reducing unnecessary expenses, should be set to help guide the audit process.

The process of auditing may differ depending on your goals. If you need assistance, our experienced accounting team can guide your team through the internal audit process.

2. Assign the Audit Team

Select employees with financial knowledge and auditing skills. For objectivity, it’s ideal if the company’s primary auditor is not directly involved in the processes being reviewed. In larger companies, this may be an internal audit department. Small businesses may designate a senior staff member or hire a consultant.

3. Gather Financial Documents

Prepare all necessary documents, such as:

General ledger
Trial balance and financial statements
Invoices and receipts
Tax filings and BIR records
Payroll records
Bank reconciliation reports

Organizing these documents beforehand ensures a smoother and more thorough audit.

4. Evaluate Internal Controls

Review your internal controls – these are the systems and processes in place to prevent errors or fraud. For example, are purchases approved by a supervisor? Are bank statements reconciled regularly? Are there checks and balances in place?

Weak or outdated controls often result in financial discrepancies. Unrecorded transactions or even fraudulent activity can occur without your knowledge. The auditor should test the controls by sampling transactions and reviewing policy compliance.

5. Fieldwork: Conduct Interviews and Observe Workflows

This is the heart of the audit.

Talk to staff involved in financial processes to understand how things work in practice. Sometimes, the real procedures differ from what’s written in policy manuals. Observing workflows helps identify gaps, inefficiencies, or areas for improvement. Review records, test financial transactions, and assess whether procedures are followed.

6. Reporting

Once fieldwork is complete, your team should summarize the findings in an internal audit report. This should include:

Areas of non-compliance or inefficiency
Root causes of identified issues
Recommendations for corrective action

The report should be submitted to management or business owners for review.

7. Follow-Up

An often-overlooked step is making sure that recommended changes are actually being implemented. Schedule follow-up reviews or progress checks to track improvements.

The Importance of an External Audit

While internal audits improve internal controls and efficiency, external audits offer independent assurance that your financial statements are accurate and compliant with regulations. In the Philippines, external audits are often required by the BIR and SEC, especially for registered corporations.

At Triple I Consulting, we provide consultations, internal and external auditing assistance, and other accounting services to help your business operate efficiently and fully comply with Philippine regulations.

Here are some of the auditing services we provide to assist you with both internal and external auditing.

General audit of financial statements and accounting system in preparation for an auditor’s report
Review and evaluation of internal accounting controls and procedures, to determine effective deployment and recommend necessary adjustments
Comparative financial analysis and summaries for the company’s management team
Inventory of company assets
Accounting and Audited Financial Statements

Summary

Internal audits are more than just a financial check. They’re a proactive strategy for risk management, operational efficiency, and business growth. For Philippine businesses, a strong internal audit process helps prevent financial discrepancies, identify areas for improvement, build stakeholder confidence, and prepare for mandatory external assessments.

Create your audit plan, assign a qualified team, review internal controls, and conduct fieldwork to observe actual procedures in practice. After preparing your audit report and recommending improvements, be sure to follow up to ensure those solutions are implemented effectively.

Are You Looking to Improve Your Internal Auditing Process? Our Experts Are Here to Help

Accountancy goes beyond just legal compliance. It should identify inefficiencies, strengthen internal controls, and ensure long-term financial stability. With expert auditing support, your business can stay compliant while making smarter, data-driven decisions that ensure your resources are used efficiently.

That’s where Triple i Consulting comes in. We’re among the best accounting outsourcing companies in the Philippines, offering bookkeeping, payroll, auditing, and tax consultation services. So let our experienced accountants and lawyers provide comprehensive support for your business, so you don’t have to stress over the paperwork.

You can find a list of our legal and accounting services here.