Internal audit
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Operational efficiency, regulatory compliance, and financial integrity are paramount in today’s competitive and fast-moving business world. Internal audit is one of the most powerful resources internal auditors employ to help accomplish these objectives. Internal audit can help identify resources that are not being utilised effectively, as well as monitor for the existence of certain risks, and can even provide opportunities for improvement.
This ultimate guide will outline everything you need to know about internal audits, from definition and purpose to steps, types, values, and best practices. Business owner, Compliance Officer and Internal Audit team-readers, based on your profession, this article is for you. At Zivadra, we also know how significant internal audits and the role it plays in business-wide success are for you!
What is an Internal Audit?
Definition
An internal audit is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It’s a way for a company to meet its goals by addressing how risk management, control, and governance should be seen and reviewed on a regular and consistent basis.
Key Objectives
- Evaluate internal controls
- Comply with laws and regulations
- Streamline processes within your organization
- Detect fraud or other anomalies
- Support strategic goals
Modern Business Organizations: The Role of Internal Audit
Risk Management
All companies and business organizations can benefit from internal audits, which enable them to detect risks that they may face down the line before they materialize, such as financial, operational, compliance and reputational risks.
Regulatory Compliance
They make sure that the company is following the law, that they are complying with industry conventions, and that they have rules for their own business.
Operational Efficiency
The auditor process reviews practices and finds improvements to make work more efficient and less costly.
Identification of Fraud and Prevention
A strong internal audit function can uncover and prevent fraud, thus safeguarding the assets of the institution.
Strategic Insight
Published audits generate facts which can be used to inform better decision making and strategic long-term planning.
At Zivadra, we partner with our clients to develop customized internal audit plans that meet their unique business needs and management’s understanding of relevant regulatory requirements.
Types of Internal Audit
Financial Audit
Emphasizes finance transactions, financial accounting records, and financial reporting accuracy.
Operational Audit
Assesses effectiveness and efficiency of operations procedures and processes.
Compliance Audit
Evaluates compliance with laws, regulations, and internal policies.
I.T. AUDIT
Assesses the Group’s IT systems, cyber security and data integrity.
Social and Environmental Review
Focuses on the company’s environmental and social responsibility policies.
Performance Audit
Evaluates how well resources are used in relation to producing desired results.
The Internal Audit Process: A Step-by-Step Walkthrough
Step 1: Planning
- Set auditing objectives and scope
- Conduct risk assessment
- Create an auditing to-do-list and timetable
Step 2: Fieldwork
- Collect and analyze data
- Converse and survey
- Review documentation
Step 3: Reporting
- Draft the audit report
- Report results to all interested parties
- Make actionable recommendations
Step 4: Follow-up
- Track the recommendation and follow its implementation
- Re-assess if necessary
Roles and Responsibilities of Internal Auditing
Internal Auditors
- Perform audits
- Remain independent and objective
- Give assurance and advices
Audit Committee
- Oversee the audit function
- Support compliance and risk management
Management
- Facilitate the audit process
- Apply suggestions in the audit
- Communicate with the auditors.
Tools in Internal Audit
Data Analytics
The use of software to search for patterns in the data and to find aberrations from the norm.
Risk-Based Auditing
Concentrates audit work on the areas where risk is greatest.
Control Self-Assessment (CSA)
Permits departments to assess their own controls and risk.
Audit Management Software
Streamlines workflows, documentation, and reporting.
Popular tools include:
- ACL Analytics
- AuditBoard
- TeamMate
- CaseWare
At Zivadra, we use new age audit execution software and provide data analytics to ensure accuracy and transparency in all engagements.
Best Practices in Internal Auditing
Maintain Auditor Independence
Auditors should report to the board or audit committee, not the department whose practices they are reviewing.
Continuously Update Skills
Continuous education ensures its auditors stay abreast of best practices and regulatory updates.
Use a Risk-Based Approach
Conduct audits according to the risk significance of the areas subject to inspection and their possible impact on the business.
Promote Ethical Culture
Development of a culture of integrity and transparency within the company.
Leverage Technology
Drive with data, analysis, automation, and real-time reporting.
Problems in Internal Audit and How to Solve Them
Common Challenges:
- Resistance from employees
- Resources and competences unavailable or unattainable
- Data accuracy issues
- Rapid technological change
Solutions:
- Clearly explain the benefits of audits
- Invest in training and tools
- Put in place strict data governance policies
- Stay agile and adaptive
Internal Audit vs. External Audit
Feature | Internal Audit | External Audit |
Objective | Improve internal processes | Provide independent financial assurance |
Performed by | Internal employees or in-house team | Independent third-party auditors |
Reporting Line | Management or Audit Committee | Shareholders and external stakeholders |
Frequency | Ongoing/Regular | Annually or as required |
FAQs About Internal Audit
What is the main objective of an internal audit?
The key objective is to assess and enhance these, as well as the risk management, control processes and governance processes.
Who performs internal audits?
Internal audits are generally conducted by the internal audit departments, or by professional auditors engaged by the companies.
How frequently should internal audits occur?
That depends on the size and complexity of the organization. But at a minimum, you should audit at regular intervals (quarters, semi-annually, annually).
What are the elements of an internal audit report?
- Executive summary
- Objectives and scope
- Findings and evidence
- Recommendations
- Management response
Is internal audit mandatory?
Although they are not mandated by law for all companies, internal audits are strongly encouraged, particularly for publicly traded companies and regulated industries.
Is it possible for the internal auditors to audit all departments?
Absolutely, they can audit any function or department, whether it’s HR, finance, IT, operations.
Which are the best certifications for internal auditors?
- What Does Certified Internal Auditor (CIA) Mean?
- CISA, also known as Certified Information Systems Auditor
- Certified Fraud Examiner (CFE) in the United States
Conclusion
Internal auditing is more than a compliance function, it is a strategic resource to optimize business performance, use resources more effectively, and manage risk while providing continuous improvement. A well-defined internal audit program allows companies to identify inefficiencies, improve operational performance, and gain stakeholder confidence.
In a world of growing risk and increased complexity, a forward-thinking and intelligent internal audit function gives you the insights and assurance you need to succeed.
So whether you are in the middle of developing your IA capabilities, or are well down the track, invest in this function and you will receive long term dividends for your business.
Having issues in internal auditing or compliance structure? Get in touch with Zivadra for personalized expert advice for your business. At Zivadra, we are dedicated to supporting organizations to improve their internal controls and meet their objectives with expert internal audit services.