What Is an Internal Audit?
When you’re running a business, it’s important that things are running smoothly. You often have to evaluate your processes, and take a look at the bigger picture. Sometimes, to do that, an internal audit is required. This is the best way to evaluate a company’s internal controls, including accounting and governance processes. Are you thinking about running an internal audit for your company? You’re in the right place. Keep reading to learn about internal audits, and how they can help your business!
Here’s What We’ll Cover:
Internal Audit Explained
In larger companies, internal audit is it’s own department, or it’s a person known as an internal auditor. They normally belong to the risk management side of things. Their goal is simple: to provide objective assurance that business processes are working as intended. While audits can be done by outside companies as a consulting activity, internal audits are generally more effective.
The Role of Internal Audit Activities
If the goal of the internal audit department is to review business processes, who do they report to? Most companies that have an audit process also have an audit committee. This committee is made up of higher ranking employees, like senior management.
These individuals are able to make worthwhile changes, which is why they receive the audit reports. When an audit report is published, they review it, and change what needs to be changed. This can include any control processes, like accounting procedures or governance processes. In any business, accounting is a vital part of things running smoothly. You can help your business run smoothly by using intuitive accounting software!
The Internal Audit Process
The internal audit process is a lengthy one. While it takes time, it is still faster than hiring external auditors. Let’s take a look at the internal audit process below.
Identifying a Department to Audit
The department will first identify which department is due for an audit. The choice can come as a result of many factors. Audits may be on a schedule. In other cases, organizational governance may have recently changed, triggering an audit. Or, in worse cases, illegal activity may have occurred, sparking a more in-depth investigation. Audits play a critical role in making sure that companies are in compliance with laws.
Understanding the Current Internal Control Process
After the department has been identified, for whatever reason, the control process is evaluated. The auditors have to gain an understanding of how things are currently done. After they’ve been able to do this, they can identify where any issues may lie. This is the first step in getting processes back on track.
Conducting Fieldwork Testing and Following Up with Staff
This is also known as auditing fieldwork procedures. When it comes down to it, audits are really just tests for effectiveness. When processes can be improved upon, audits identify where through testing a variety of things. First, they test the current process. Then, they test new, proposed processes that should improve upon the original. Then, any identified issues or improvements are presented to the staff.
Preparing and Reviewing an Audit Report
The audit produces an internal audit report. This documents all of the issues identified, and lays out any plans for improvements. The report is then reviewed with management prior to implementing the changes. Once approved, changes to processes go into effect.
Following Up on Recommendations for Improvements
After a period of time has passed, any recommendations for improvements are followed up on by the audit team. This ensures that the staff is following through with process changes, and that they’re working. It is through this process that permanent changes are made.
Key Takeaways
While the term audit might be a nerve wracking one, it doesn’t have to be. Internal audits aim to improve the processes and compliance of a business. When done effectively, both staff and management benefit from the changes. If you’re looking for more articles like this, check out our resource hub! We have plenty more just like it.
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