Internal audit activity can play an important role and support the BOD and Management, in fulfilling the essential component of their governance mechanisms. The internal auditor furnishes analysis, evaluations, recommendations, counsel and information concerning revenues, and improving profits.
Regular internal audits assess a company’s controls and help uncover evidence of fraud, waste or abuse. The frequency of internal audits will depend on the department or process being examined. Some types of manufacturing may require daily audits for quality control, while a department such as human resources may require only an annual audit of records.
Unlike an external auditor that primarily considers financial risk, the internal auditor examines issues relating to wide-ranging risks to the organization’s reputation and growth. For example, an internal audit can uncover threats to the organization’s reputation if it finds employee safety violations or instances where employees are treated unfairly.
Once the internal audits are completed, auditors issue a final audit report outlining how well the systems and processes are working.
When required, Information provided by internal auditors can help the company thrive in a competitive business environment and inform new initiatives to help it continue to prosper.
What are the Differences between Internal and External Audit?
Internal auditors are often confused with external auditors; however, there are significant differences between the professions. External auditors focus on the accuracy of the annual report and financial statements whereas the internal auditor has a wide reaching brief which considers anything which might be important to an organization’s success.
Benefits of having a good internal audit system
- Safeguards assets
- Reduces the chance of fraud
- Increases financial reliability and integrity
- Enhances the efficiency of business operations
- Ensures compliance with laws and regulations
What we do and Specialize
- Understanding business objectives and risks
- Complete internal audit outsourcing
- Partial internal audit outsourcing
- Risk assessments & audit plans
- Staff sharing basis (supervisory and execution)
- Assisting with change management and business awareness processes
- Training and assisting staff
- Revenue Assurance
Types of Internal Audits?
While a significant portion of internal audit covers internal controls over financial reporting within the organization as they pertain to generally accepted accounting procedures (GAAP) impacting their financial statements. Many organizations also recognize the need for other types of assessments or audits outside of accounting or finance. Some of these key areas include compliance (i.e., regulatory), environmental, information technology, operational and performance audits.
- Compliance Audits evaluate compliance with applicable laws, regulations, policies and procedures. Some of these regulations may have a significant impact on the company’s financial well-being. Failure to comply with some laws, such as the Foreign Corrupt Practices Act (FCPA) or General Data Protection Regulation (GDPR), may result in millions of dollars in fines or preclude a company from doing business in certain jurisdictions.
- Environmental Audits assess the impact of a company’s operations on the environment. They may also assess the company’s compliance with environmental laws and regulations.
- Information Technology Audits may evaluate information systems and the underlying infrastructure to ensure the accuracy of their processing, the security and confidential customer information or intellectual property. They will typically include the assessment of general IT controls related logical access, change management, system operations, and backup and recovery.
- Operational Audits assess the organization’s control mechanisms for their overall efficiency and reliability.
- Performance Audits evaluate whether the organization is meeting the metrics set by management in order to achieve the goals and objectives set forth by the Board of Directors.
What are the Internal Audit Procedure / Process?
An internal audit should have four general phases of activities—Planning, Fieldwork, Reporting, and Follow-up. The following provides a brief synopsis of each phase.
- Planning – During the planning process, the internal audit team will define the scope and objectives, review guidance relevant to audit (e.g., laws, regulations, industry standards, company policies and procedures, etc.), review the results from previous audits, set a timeline and budget for the audit, create an audit plan to be executed, identify the process owners to involve, and schedule a kick-off meeting to commence the audit.
- Fieldwork – Fieldwork is the actual act of auditing. Throughout this phase, the audit team will execute the audit plan. This usually includes interviewing key personnel to confirm an understanding of the process and controls, reviewing relevant documents and artifacts for an example execution of the controls, testing the controls for a sample over a period of time, documenting the work performed, and identifying exceptions and recommendations.
- Reporting – As you might guess, internal audit will draft the audit report during the reporting phase. The process of issuing an internal audit report should include drafting the report; review the draft with management to ensure the accuracy of findings, and issuance and distribution of the final report.
- Follow-up – The final stage 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 internal audit. If an organization fails to follow-up on the implementation of recommendations, it is unlikely that the changes will be made.