Internal auditors work closely with line managers to review operations then report their findings. The internal auditor must be well versed in the strategic objectives of their organisation and the sector in which it operates in, so that they have a clear understanding of how the operations of any given part of the organisation fit into the bigger picture. Hence, internal auditors, along with executive management, non-executive management and the external auditors are a critical part of the top level governance of any organisation. The aim of internal audits is to identify weaknesses within the organization’s processes and control environment internally so that they can be fixed as quickly as possible to prevent harm to the organization or its stakeholders.
Many organizations also recognize the need for other types of assessments or audits outside of accounting or finance. Some of these key areas include compliance (i.e., regulatory), environmental, information technology, operational, and performance audits. Internal auditing examines and assesses company records, workflows, systems, and processes.
To demonstrate compliance with these rules, a company may task an internal audit committee to review, compile appropriate information, and provide an overall opinion on the status of the compliance requirement. Departmental business transactions and related internal controls within an organization’s operations should be clearly documented, periodically reviewed, and updated. Company policies and procedures should be written down and documented so that they can be referenced and revised as needed. Security and technology audits evaluate an organization’s information technology systems and the underlying infrastructure to assess the accuracy and/or security of data and information or intellectual property. They often include the evaluation of IT controls as well as a review of change management and system backups and recovery processes. An internal auditor’s knowledge of the management of risk also enables him or her to act as a consultant providing advice and acting as a catalyst for improvement in an organisation’s practices.
Difference Between Internal and External Audits
After a designated amount of time, an internal audit may call for follow-up steps to make sure the appropriate post-close audit changes were implemented. The details and process for these monitoring and review steps is often agreed to at the delivery of the final audit. Attracting and retaining internal audit staff has become an ongoing issue and many organizations. Hiring budgets have grown in some cases, but filling open positions continues to be difficult. Companies need to bring in top talent with flexibility and a willingness to fulfill the requirements of today’s evolving workforce. Strict rules about facetime and office hours are becoming obsolete and are a barrier to bringing in talented team members.
For example, a manufacturing process may be audited on a daily basis for quality control, while the human resources department might only be audited once a year. AuditBoard is the leading cloud-based platform transforming audit, risk, ESG, and InfoSec management. Nearly 50% of the Fortune 500 leverage AuditBoard to move their businesses forward with greater clarity and agility.
Scott Madenburg, CIA, CISA, CRMA, is Market Advisor, SOX & Internal Audit at AuditBoard. Prior to AuditBoard, Scott was Head of Audit at Mobilitie LLC, with nearly two decades experience in operational, IT, and financial auditing, as well as SOX compliance. Connect with an expert today and let’s start building your internal audit program.
- Your internal audit program will help you to track and document any environmental changes and ensure the mitigation of any found risks.
- The aim of internal audits is to identify weaknesses within the organization’s processes and control environment internally so that they can be fixed as quickly as possible to prevent harm to the organization or its stakeholders.
- Unlike external auditors, they look beyond financial risks and statements to consider wider issues such as the organisation’s reputation, growth, its impact on the environment and the way it treats its employees.
- Members of Internal Audit must be independent of internal politics and unbiased to provide leadership with an objective source of information.
- Here are the details on each of these items and what a team’s auditing report should make sure to include.
Role in risk management
A product owner or quality assurance member may also test the system in a non-production environment to see if the system functions as desired with the change. Candidates for an internal audit team should have strong analytical and critical thinking skills and also be good communicators when it comes to both receiving and sharing information. Auditors should be fair, objective, discreet, strong collaborators, ethical, analytical, and great at synthesis and communication. Attention to detail is important, as auditors spend much of their time drilling down into complex data. Internal auditing is also a good career path for individuals that are highly self-motivated, as even when auditors are on project teams they frequently do most of their work alone. Internal auditors work for government agencies (federal, state and local); for publicly traded companies; and for non-profit companies across all industries.
Accordingly, the internal audit plan for an organization should be driven on a risk basis or, in other words, be designed to examine those areas that present the greatest risk to the company. The internal audit plan should also include a component of the strategic needs of an organization. The end goal of either audit is an audit report; however, audit reports are used for very different reasons.
Why is the Audit Performed?
An internal audit report is usually used by internal management to improve the operations, processes, or policies of the company. An external audit report is often required for an outside reason and is more often used by members outside of purpose of internal audit the company. Public companies are required to perform certain levels of external financial auditing where a completely independent third party provides an opinion on the company’s financial records. Companies may want to dive further into audit findings or perform an internal financial audit in preparation for an external audit.
Step 3: Reporting
He is attentive to his clients’ needs and works meticulously to ensure that each examination and report meets professional standards. An internal audit can be extremely useful to help streamline processes, find gaps, and identify fraud. My experience as an auditor has taught me to recognize the red flags that can quickly derail the process. There is a little bit of confusion about the difference between internal and external audits.
Step 1: Planning
While conducting this type of audit, the auditor ensures that the companies’ standards and core competencies are efficiently met. The management sets these standards, expecting employees and the overall workforce to strengthen their performance while remaining compliant with the standards and regulations. Under later iterations of the model,[26] assurance from “external independent bodies” is seen as a fourth line of defence; here the external auditor, and others, provide assurance and insights to the Board and are “clearly seen to be independent”.
Internal auditors are used to identifying and managing risk for the organization, but they are not immune to risks themselves. Common risk factors that may impact their own work include talent shortages, remote work, internal relationship issues, evolving skill needs, and tech tool gaps. These audits may be performed to confirm or recalculate internal financial reporting as it pertains to the overall business, budgets, assets, or special projects. They also may take place to check on the accuracy of billing, expenses, or company reimbursements.