There may be some requirements regarding the external audit staff depending on the audit. For example, in an external financial audit, a Certified Public Accountant (CPA) must certify the financial statements. In an internal audit, there is no requirement that any member of the audit team must be a CPA. In some cases, it might make sense for an internal audit committee to evaluate a special circumstance that will occur only once. This may entail gathering a report on the efficiency on a recent merger, the hiring of a key employee, or a complaint from staff. When selecting the individuals for the special investigation audit, a company must be especially mindful to select members with appropriate expertise and independence.
It is conceptually similar in many ways to financial auditing by public accounting firms, quality assurance and banking compliance activities. In today’s business environment, the internal audit function must keep pace with the hastening speed, volume, and complexity of risk. Against a volatile geo-political backdrop, organizations are navigating risks posed by environmental, social, and governance (ESG) regulations, emerging technologies such as Generative AI (GenAI), and the future of work. These are all provided through the internal audit professional body – the Chartered Institute of Internal Auditors. So, for example if a line manager is concerned about a particular area of responsibility, working with the internal auditor could help to identify improvements. Or perhaps a major new project is being undertaken – the internal auditor can help to ensure that project risks are clearly identified and assessed with action taken to manage them.
Conducting audits internally helps the management identify if anything wrong in an organization. The financial reports and data collection methods are studied to see if the firms are impartial in applying different means to achieve their corporate goals. In addition to assessing business processes, specialists called information technology (IT) auditors review information technology controls. The nature of internal auditing, its role within the organisation and the requirements for professional practice are contained within the International Professional Practices Framework (IPPF). The components and the detailed content of the IPPF are available in the Global professional guidance area of the website. Whenever “audit” is mentioned, we, or at least most of us, switch into Charlie Brown school mode—our eyes glaze over and the speaker’s voice turns into a stream of mumbles.
As a member of senior management, the chief audit executive (CAE) may participate in status updates on these major initiatives. This places the CAE in the position to report on many of the major risks the organization faces to the audit committee, or ensure management’s reporting is effective for that purpose. Internal auditing professional standards require the function to evaluate the effectiveness of the organization’s Risk management activities. Risk management is the process by which an organization identifies, analyses, responds, gathers information about, and monitors strategic risks that could actually or potentially impact the organization’s ability to achieve its mission and objectives.
Internal Audit vs External Audit
Here’s our view on the major risks organizations face today and the strategies internal audit functions purpose of internal audit can employ to effectively address these risks by providing necessary assurance and insights. Internal audit’s role in evaluating the management of risk is wide ranging because everyone from the mailroom to the boardroom is involved in internal control. The internal auditor’s work includes assessing the tone and risk management culture of the organisation at one level through to evaluating and reporting on the effectiveness of the implementation of management policies at another. Many of the auditing procedures used by internal audits are the same as external auditors. Some companies might use continuous audits to ensure ongoing oversight of company practices. Assessment techniques ensure an internal auditor gathers a full understanding of the internal control procedures and whether employees are complying with internal control directives.
Compliance Audit
Development, operating, real estate, or construction companies may perform construction audits to ensure not only appropriate physical development of a building but appropriate project billing along the life of the project. This mostly includes adherence to contract terms with the general contractor, sub-contractors, or standalone vendors as necessary. Remote workforces have also created some relationship barriers amongst working teams. Without water cooler moments, teams may have less natural and trusted relationships to lean on with their coworkers, complicating some internal audit conversations and investigations. Fewer touchpoints between auditing departments and internal stakeholders may require greater efforts to maintain ties.
- They also may take place to check on the accuracy of billing, expenses, or company reimbursements.
- Internal auditors work closely with line managers to review operations then report their findings.
- During an external audit, a very defined scope is often set, and the external auditor will often take great care to ensure they do not exceed their audit boundaries.
- The goal of an internal audit is to provide independent assurance over a company’s operations.
Some analyses may be targeted and others may be randomized in order to test various controls and systems. To remain objective, your internal auditor or team cannot have any operational responsibility. In cases where resource constraints impact smaller companies, it’s acceptable to cross-train employees in different departments for auditing purposes.
Similar to an interim financial statement, an interim audit communicates a partial set of information useful for laying the road for the remaining portion. The internal audit may have started with a defined scope; but as the internal audit team gathers and analyzes information, it may become necessary to redefine the purpose and extent of the audit. This includes re-evaluating the original timeline or resources allocated to the audit.
An operational audit is most likely to occur when key personnel leaves or when new management takes over an entity. The company may want to assess how things are done and whether resources are being used more efficiently. During an operational internal audit, the auditor will review whether current staff and processes fulfil the mission statement, value, and objectives of a company. An internal audit focused on performance pays less attention to the processes and more on the final result.
Starting from quality control, accounting controls to human resources function, they assess every aspect of the company. In addition, they also offer advice and guidelines to improve the operational procedures to enhance the company’s efficiency and effectiveness. The Institute of Internal Auditors (IIA) has set the internationally recognized framework for internal auditing.
Internal audit reports
The final report includes a summary of the procedures and techniques used for completing the audit, a description of audit findings, and suggestions for improvements to internal controls and control procedures. The final report may also communicate next steps in terms of changes to be implemented, future monitoring processes, and what future reviews will entail. Internal auditors begin by performing a risk assessment (at least annually) which is the process of identifying your audit universe; ranking or scoring the audit universe on various risk factors; and choosing which audit areas to include in the audit plan. This sets out all of the audit requirements, objectives, and schedule, and assigns roles and responsibilities among team members. There is typically a kick-off meeting that launches the audit and then multiple communication check-points throughout the process. These audits assess the impact of a company’s actions and operations on the environment, and may also assess an organization’s compliance levels with relevant environmental laws and regulatory requirements.
About Internal Auditing
Deloitte has a wealth of experience in the areas covered, and together, we look forward to helping your organization manage these risks effectively and emerge stronger and more resilient in the face of uncertainty. Internal auditors have to be independent people who are willing to stand up and be counted. Their employers value them because they provide an independent, objective and constructive view. They might be advising the project team running a difficult change programme one day, or investigating a complex overseas fraud the next. The words “internal audit” often conjure a sense of fear, frustration, and time consumption. Even in the best circumstances, most would find having someone review their activities unsettling or intimidating.
Following up is critical to ensure that the recommendations have been implemented to address the findings identified. This process should include appropriate follow-up with process owners needing to implement the recommendations as well as Board oversight of the company’s overall status in addressing findings identified by the internal audit. If an organization fails to follow up on the implementation of recommendations, it is unlikely that the changes will be made. Internal audit reports often outline the criteria, condition, cause, consequence, and corrective action. These five areas report why the audit was performed, what caused the reason for the audit, how the audit will be performed, what the auditor aims to achieve, and what steps will be taken after the audit findings are presented.
These audits may include examining a business’s internal controls around corporate governance, accounting, financial reporting, and IT general controls. Internal audits may also entail evaluating the effectiveness/efficiency of critical business operations such as supply chain management. Internal auditors may cover all areas of an organization or specialize based on their skill-sets. Internal audits evaluate a company’s internal controls, including its corporate governance and accounting processes.