Unlike external audits, internal audits are typically not required. So why would you invest your organization’s money and time in them? In a word, protection. Show
Internal audits attempt to uncover deficiencies and inefficiencies in a company’s operations — including internal controls, corporate governance, compliance, and accounting processes — before they are brought to light in an external audit. The sole purpose of an internal audit is to provide management and the board of directors with information about the business, so the scope of the audit can be as broad or limited as needed. Audit tests can focus heavily in some areas while ignoring others. This flexibility is one reason why business owners avoid internal audits — they don’t know where to begin. To help you understand what internal audits are and how your organization can benefit from them, let’s review the basics. What Does an Internal Audit Look Like?Since internal audits are performed purely for the benefit of management and the board of directors, there is no predetermined audit process. But most audits follow the same basic framework. Define objectives.What do management and the board of directors want out of their audit? Do they want to:
Everything that follows will fall back on this objective, so audit goals should be clearly defined. Evaluate risk.At the outset of an audit, auditors typically perform a risk assessment to uncover strategic, financial, operational, and compliance threats facing their organization. Here are some examples:
Defining risk is important, but it’s just as important to determine management’s threshold for risk. Businesses cannot realistically mitigate all risk, so management must be clear about what risks they are willing to accept. Determine scope.Once risk is assessed and risk threshold is determined, auditors can determine the extent and range of testing that’s required. This is called audit scope. When determining audit scope, you might be asking yourself these kinds of questions:
In general, once it is set, audit scope should not change. Scope is closely linked to audit objectives, so unless those objectives change, scope should not change. Perform testing.When performing fieldwork, your internal auditors will perform a variety of types of tests. The types of tests vary based on the goals of your audit and the area of the organization you’re auditing. A few of the most common types of tests your auditors will perform are:
Report findings.The internal auditors will prepare reports outlining the types and scope of testing they performed and their findings. Some may even include recommendations to management for making improvements. What’s the Difference Between Internal and External Audits?Although both internal and external audits look critically at an organization and provide reports based on their findings, they are quite different.
Why Are Internal Audits Important?A well-performed internal audit can:
And most importantly, a positive internal audit report will increase board member confidence that the business is operating efficiently. If any deficiencies are discovered, management can confront those challenges head on. Should You Outsource Your Internal Audit Function?Internal audits are often performed in-house, but they don’t have to be. Internal audits can be co-sourced or outsourced to an audit firm if you need additional support. Outsourcing your internal audit may be a good choice if:
If you have questions about whether your company needs an internal audit function or how to improve your internal audit process, your CRI advisors can help. We can talk you through the options, including hiring internally, outsourcing, or co-sourcing your internal audit function. What are some of the factors to consider when conducting an internal audit?8 Steps to Performing an Internal Audit. Identify Areas that Need Auditing. ... . Determine How Often Auditing Needs to be Done. ... . Create An Audit Calendar. ... . Alert Departments of Scheduled Audits. ... . Be Prepared. ... . Interview Users. ... . Document Results. ... . Report Findings.. What are the important criteria that you would consider for assessment of internal audit function?Competence of the Internal Auditors. Educational level and professional experience of internal auditors.. Professional certification and continuing education.. Audit policies, programs, and procedures.. Practices regarding assignment of internal auditors.. Supervision and review of internal auditors' activities.. What are 3 factors to take in consideration when choosing who will audit?6 key points to consider when appointing the auditor for your company. External audits are an invaluable tool for companies. ... . 1) Cost. ... . 2) Relationship. ... . 3) Reputation. ... . 4) Audit approach. ... . 5) Transparency. ... . 6) Expertise.. What is the factor on which to assess internal control?The major factors to consider in assessing and evaluating the internal control system in clients environment are: The size of the entity. The nature of the entity's business, including its organisation and ownership characteristics. The diversity and complexity of the entity's operations.
|