By aligning internal audit outcomes with the organization’s purpose, accelerating organizational change and learning, and fully embracing digital technologies, internal audit leaders can stay ahead of the curve and continue to evolve the function to meet stakeholder needs. But, without a deep understanding of the risks that matter, functional improvement alone cannot maximize the impact that an internal audit function can make. We are pleased to present our perspective on the most significant risks facing organizations today and what strategies internal audit functions should adopt to provide the assurance and insights needed to address these risks effectively.
Many of the tests between an internal or external auditor may be similar; the nature of independence separates the two types of audits for financial audits. Compliance audits assess compliance with relevant laws and regulatory policies and procedures. Depending upon an organization’s business purpose of internal audit sector, failure to comply with these laws may result in fines or lawsuits, and the result can mean that there will be a big impact on an organization’s finances. Objectively evaluating risks, analyzing and assessing processes and systems for efficiencies, doing spot-checks for as-yet-unknown issues, and keeping departments aligned and meeting business objectives are all important ways that auditors can bring value. An important distinction is to understand the difference between internal checks and internal audits.
Ensures Compliance with Laws and Regulations
It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of governance, risk management, and control processes. The role of internal audit is to provide independent assurance that an organisation’s risk management, governance and internal control processes are operating effectively. In addition to ensuring that a company complies with laws and regulations, internal audits also provide a degree of risk management and safeguard against potential fraud, waste, or abuse. The results of internal audits provide management with suggestions for improvements to current processes not functioning as intended, which may include information technology systems as well as supply-chain management. During the course of a project new information might be uncovered that requires the original scope or planning of the audit to be adjusted to accommodate the learnings.
Reasons Why Internal Audits are Important
- Those skills may well be one of the most important aspects of any auditor’s role.
- 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.
- An internal audit focused on technology reviews the controls, hardware, software, security, documentation, and backup/recovery of systems.
- Internal audits help teams to accomplish their goals by bringing a disciplined approach and objective perspective to the effectiveness of internal controls, risk management, and adherence to and alignment with company goals and objectives.
These audits have become more significant, especially after the Sarbanes-Oxley (SOX) Act of 2002, which holds managers responsible for the rights and wrongs in a company’s financial statement. Once the audits go smooth, the management prepares accordingly for the external audit. Your internal audit program will help you to track and document any environmental changes and ensure the mitigation of any found risks. Audit assignment length varies based on the complexity of the activity being audited and internal audit resources available. Many of the above steps are iterative and may not all occur in the sequence indicated. To be effective, the internal audit activity must have qualified, skilled and experienced people who can work in accordance with the Code of Ethics and the International Standards.
In these latter two areas, internal auditors typically are part of the risk assessment team in an advisory role. Knowing the objectives of internal audit is critical to understanding why organizations have Internal Audit functions. When the Sarbanes-Oxley Act of 2002 was passed, it made executives of publicly traded companies legally responsible for the accuracy of their financial statements and the internal controls over financial reporting. Internal Audit functions play a critical role in helping executives to reach their conclusions.
Internal checks are when peers or team members check each other’s work as part of a process. Internal audits are process assessments performed by members of the same organization that are independent or do not have any responsibilities to perform the process. The last area of difference that I would like to highlight regards the scope of responsibilities between internal and external auditors. Internal auditors function as a consultant who performs the assessment and then advises the organization’s management on how to address the risks identified. You will notice that the scope and objectives of the two types of audits also differ.
Internal Audit Functions
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the “Deloitte” name in the United States and their respective affiliates. Certain services may not be available to attest clients under the rules and regulations of public accounting.
Both are checking whether the organization is performing certain activities or controls correctly. However, internal audit results are reported in-house while the results from external audits are reported to individuals inside and outside of the organization. When the two cover the same scope, I like to say that an internal audit is a pre-test, and an external audit is the final. The organization can use the results from the internal audit to identify its weaknesses and work to correct or strengthen them in preparation for the external audit where the results will be shared publicly. An internal audit is a process that allows a company to self-select an audit team to carry out the review of its operations. In addition, the company can often choose almost any reason to conduct an internal audit.
As a result, most people in any organization view them as synonyms for the same thing—audit. Despite this popular perception, internal and external audits are not the same thing. Management or the board may decide to disregard internal audit findings and not implement the changes the audit report suggests. Both types of audits analyze an aspect of a company to determine a specific opinion. For example, a company may wish to have expanded its use of diverse suppliers; the internal auditor, independent of any purchasing process, will be tasked with analyzing how the company’s spending patterns have changed since this goal was set.
“Customer surveys” sent to key managers after each audit engagement or report can be used to measure performance, with an annual survey to the audit committee. Scoring on dimensions such as professionalism, quality of counsel, timeliness of work product, utility of meetings, and quality of status updates are typical with such surveys. Based on the risk assessment of the organization, internal auditors, management and oversight boards determine where to focus internal auditing efforts.
After confirmation, the internal audit team will share these findings with the auditee along with recommendations and work to define a road to remediation. With internal audit activity, the internal audit team (internal, co-sourced, or out-sourced) performs audits on behalf of the organization to add value and improve an organization’s operations. The internal audit team is led by the Chief Audit Executive (“head of audit”) who often reports administratively to management (usually the CFO) while retaining their independence by reporting directly to the organization’s Audit Committee of the Board of Directors. Internal auditors follow the requirements set forth by The Institute of Internal Auditors, and often hold the designation of Certified Internal Auditor or Certified Information Security Auditor from ISACA. It refers to the audit conducted to evaluate and improve the risk management effectiveness in the company, examine different internal controls followed in the company and ensure that the company is complying with all applicable laws and regulations. Our recently updated Internal Audit 4.0 framework offers three new features that we believe can greatly enhance internal audit’s impact and value for your organization.
These standards are applied by over 160,000 internal auditors who are working globally within the framework. While not required, individuals can be evidenced by their understanding of the IPPF and experience by becoming a Certified Internal Auditor. As part of the process to develop changes to a system, most organizations have built-in checks within the process. For example, a peer who did not develop the code reviews the code developed for the change to check if it will have the desired impact on the system.