Internal Audit is a department or people’s organization within a company responsible for delivering objective, independent reviews of systems, business organizations, and processes. Internal Auditors’ role is to provide an organization’s senior leaders and regulatory bodies with an objective source of information about the risks, control environment, organizational effectiveness and compliance with relevant laws and regulations.
As Internal Audit reports to senior management, it is only fitting that the CEO or Board of Directors guides its activities through the Audit Committee. Internal Audit participants should be independent of internal politics and unbiased in providing objective information channels to leadership. It works with managers under the supervision of the Audit Committee to regularly review control activities over critical systems and procedures.
What is the Internal audit?
Internal Audit reports are also called internal audits. An internal audit may be used against a variety of standards, policies, metrics, or regulations to assess the performance of an organization or the implementation of a process. These audits can include examining the internal controls of business in regard to corporate governance, accounting, financial management and general controls on IT. Internal audits may also involve evaluating the effectiveness/efficiency of critical business operations such as managing the supply chain.
Some people who work with Internal Audit are considered Internal auditor. Auditors may cover or specialize in all aspects of a company, depending on their skill set. Internal audits aim to identify weaknesses within the procedures and internal management environment of the organization such that they can be fixed as soon as possible and prevent harm to the organization or its stakeholders. Accordingly, an organization’s internal audit plan should be guided by risk base or, in other words, should be structured to analyze those areas which pose the company’s greatest danger. The internal audit strategy will provide always a portion of an organization’s strategic needs.
What do Internal auditors do?
It offers an impartial and balanced view. They will be aware of the operations of an organization where they assess and submit to the highest level senior executives and governors. That is usually the chairman of the board of directors, the financial officer or the audit committee. For the internal audit process to be effective, there must be qualified, professional and knowledgeable people who will work in compliance with the Code of Ethics and International Standards.
Within the International Professional Practices Framework (IPPF), the concept of internal auditing, its role within the organization and standards for professional practice are contained. The IPPF components and detailed content are available in the website’s Global Professional Guidance area.
The internal auditors can be engaged in a range of activities which are detail below.
- Assessing the management of risk
- Assisting management in the improvement of internal controls
- Why is internal audit important to your organization?
- Activities of internal audit
- Evaluating controls and advising managers at all levels
- Evaluating risks
- Analyzing operations and confirm information
- Working with other assurance providers
What is its value to the organization?
Internal auditors address issues that are of fundamental significance for every organization’s survival and prosperity. Unlike external auditors, they look past financial risks and statements to consider larger issues such as the reputation of the organization, its growth, its environmental impact, and why it treats its employees.
In general, when-house auditors help companies excel. We achieve so by integrating security with consulting. The confirmation aspect of our job is to inform administrators and rulers of how good the programs and procedures are functioning to maintain the enterprise on track. We then provide consulting assistance to develop certain structures and procedures where appropriate.
Difference between Internal and External Auditors
|External audit||Internal audit|
|Reports to||shareholders or members who are outside the organization’s governance structure.||The board and senior management are within the organization’s governance structure.|
|Objectives||Add credibility and reliability to financial reports from the organization to its stakeholders by giving an opinion on the report||Evaluate and improve the effectiveness of governance, risk management, and control processes. This provides members of the boards and senior management with assurance that helps them fulfill their duties to the organization and its stakeholders.|
|Coverage||Financial reports, financial reporting risks.||All categories of risk, their management, including reporting on them.|
|Responsibility for improvement||None, however, there is a duty to report problems.||Improvement is fundamental to the purpose of internal auditing. But it is done by advising, coaching and facilitating in order to not undermine the responsibility of management.|
Who Performs the Audit?
- Internal Audits – Internal Auditors, typically employees of the company
- External Audits – External Auditors, typical members of a CPA firm
Who is the Audit Reported to?
- Internal Audits – Board of Directors, and members of management
- External Audits – Shareholders and members outside of the company
What Does the Audit Cover?
Internal Audits – Internal Controls related to:
External Audits – Financial Reports, and Internal Controls related to Financial Reporting
Why is the Audit Performed?
Internal Audits – To assess and improve the effectiveness of governance, risk management, and control over critical processes. To provide the board and management with information and assurance related to their duties.
External Audits – To validate, or provide reasonable assurance, the material accuracy of financial reports from the organization to its stakeholders.
Why is Internal auditor important to your organization?
Through reporting to executive management that significant risks have been assessed and identifying where changes are necessary, the internal auditor is helping executive management and boards show that they are successfully managing the organization on behalf of their stakeholders.
This is an outline in the internal audit mission statement that states that the function of internal auditors is to improve and preserve corporate performance by offering risk-based and objective assurance, advice and insight. Internal auditors, along with executive management, non-executive management, and the external auditors are a critical part of the top-level governance of any organization.
Activities of Internal Auditors
Key things internal auditors do. Within these areas, it is important to think of the internal auditor as the organization’s critical friend – someone who can challenge current practice, champion best practice and be a catalyst for improvement, so that the organization as a whole achieves its strategic objectives.
How is an Internal audit report prepared?
1. Make a cover
Have you ever heard the saying that the first impression is the one that lasts?
The auditor’s work should make a good impression, which is why starting with a quality cover is fundamental. It will be upper management’s first point of contact with the audit results, which is why it is important to present information such as:
- Report title
- Name of auditor responsible
- Audit end date
- Name of company or business unit audited.
2. Draft an introduction
The auditor should use this section to provide an overview, with information on the area and processes audited, which standards are providing support to carry out the audit, in addition to telling the reader about any historical information that may be required before reading the full report. That way, anyone who reads the report will be able to understand the reasons that led to the audit to be executed.
3. Create an executive summary
- A brief description of what was audited, objectives, scope and start and end dates.
- Discuss the auditor’s conclusions.
4. Introduce Terminology used
It should show the terms used in drafting the report so that everyone can understand the information presented.
5. Discuss the Audit Plan
The audit plan should name the lead auditor and list their qualifications, along with other auditors on the team. This section should also describe the documents evaluated and name the people interviewed.
6. Describe facts found
When something is not compliant with established standards, the auditor should take note, describing the facts and evidence found.
- The auditor should focus on what is going on right now and on how the company’s positive aspects can be applied to inefficient areas or processes.
- The auditor should be very clear and specific on which aspects are not in compliance with established standards and which actions should be implement to guarantee compliance. It should be clear who needs to act.
- The auditor should make brief recommendations and only include the information and details that are really necessary.
Auditors are becoming aware that they need to submit clear and objective audit reports so that executives can understand the situation and work so that there is continual improvement. This is possible through an internal audit report.