Discover the Power of Internal Audit

Internal audit is very important to improve operations, ensuring compliance and managing risks, because in today’s world transparency and efficiency are two essential points of success. Let’s explore why internal audit is so important for your organization.

What is an internal audit ??

Internal audit is an?independent, objective process aimed at evaluating and improving the effectiveness of risk management, control, and governance processes. He gives to (company, association, group, administration, etc.) the assurance of control of its business.

In addition, internal audits evaluate the effectiveness of a lot of aspects of the company and the results of internal audits provide management with a lot of suggestions for improvement.

Internal audit vs External Audit :

There are many differences between internal and external audits, but they have the same objective, both of them analyze an aspect of a company and give an opinion about that aspect.

In internal audit, audit reports are used by internal auditors to improve company operations, and members of the audit team don’t need to have a specific title or license. But on the other hand external audit, members may be required to hold specific titles or license, for example in an external financial audit a certified Public Accountant (CPA) must certify the financial statements, but there is no requirement for the internal audit.

The internal audit process :

• Planning :

Before conducting any audit procedures, internal auditors begin with the audit plan. This document has a lot of components, objectives, timeline, schedule and responsibilities.? It may also involve reviewing previous audits to grasp management expectations for reporting and data gathering.

The audit plan usually includes a checklist to ensure team members adhere to overarching expectations. Additionally, the internal audit team may schedule meetings with management throughout the audit process to update them on progress and address any challenges.

The planning phase culminates in a kick-off meeting that initiates the audit and communicates initial information requirements.

• Auditing :

Internal auditors employ many of the same procedures as external auditors, with some companies opting for continuous audits to maintain ongoing oversight. Assessment techniques ensure auditors understand internal control procedures and compliance with directives without disrupting daily operations.?

They typically start with indirect methods like reviewing flowcharts, manuals, and departmental policies. Fieldwork includes transaction matching, physical inventory counts, audit trail calculations, and account reconciliations as required.?

Analysis techniques may involve testing random or targeted data to improve internal control processes. As audits progress, the scope may evolve, prompting reassessment of timelines and resources allocated to ensure thorough examination.

• Reporting :

Internal audit reporting encompasses a formal report along with a potential preliminary or memo-style interim report. The interim report typically highlights sensitive or significant findings that the auditor deems crucial for immediate board of directors' awareness, akin to an interim financial statement offering partial information to pave the way for forthcoming audit phases. Often, companies provide a draft of the final audit report and conduct a pre-close internal audit meeting with management.?

This forum enables management to present rebuttals, share additional information that could alter findings, or offer feedback on audit outcomes. The final report consolidates the audit's methodologies, findings, and proposes enhancements to internal controls and procedures. It also outlines proposed implementation changes, future monitoring strategies, and the scope of upcoming reviews.

• Monitoring :

After a specified period, internal audits often initiate follow-up steps to ensure that the recommended post-close audit changes have been implemented as agreed upon at the delivery of the final audit report. For instance, if an internal financial audit identifies significant internal control deficiencies that could affect an external financial audit, and management commits to implementing changes within six weeks, the internal auditor may conduct a focused or limited review of the deficiency after this period to verify if the issue persists. This monitoring and review process ensures that corrective actions are effectively implemented and sustained over time.

Internal audit is very important to improve operations, ensuring compliance and managing risks. Internal audits may improve the efficiency of operations, motivate employees to adhere to company policy, and allow management to explore specific areas of its operations.

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You can also read this blog article about the 6 key steps to conducting an effective internal audit.