What is Internal Audit :
Internal audit is the process of controlling, examining, and improving the operational, financial, and risk management aspects of a company. These activities are carried out by internal auditors who work in an independent and more objective manner.
The Difference Between Internal and External Audit :
The difference between internal and external audit mainly lies in their objectives and independence.
- Internal Audit : Conducted by employees of the organization to improve the company’s internal processes, ensure compliance, and manage risks. It covers all operations regularly throughout the year.
- External Audit : Conducted by independent professionals and focuses on verifying financial statements to ensure their compliance with accounting standards. It is usually performed annually.
What is the internal audit process?
Planning :
Internal auditors develop a detailed plan before beginning the internal audit process. This plan specifies the objectives, schedule, and responsibilities of each team member.
It may also include a review of previous audits to understand management's expectations regarding reporting and data collection. The audit plan often includes a checklist. Additionally, meetings with management may be scheduled throughout the audit to track progress and address any issues.
The planning phase ends with a kickoff meeting that officially starts the audit and communicates the initial information requirements.
Audit :
Internal auditors follow similar procedures to external auditors, with some companies opting for continuous audits to ensure constant oversight.
Assessment methods enable auditors to understand internal control procedures and verify compliance without disrupting daily operations. They typically start by reviewing department organization charts, manuals, and policies. On-site, they perform checks such as matching transactions, physical inventory counts, audit trail calculations, and account reconciliations as needed.
Analysis techniques may include random or targeted data testing to improve internal control processes. As the audit progresses, the scope may evolve, requiring a reassessment of timelines and resources to ensure a thorough review.
Reporting :
Internal audit reporting consists of a formal report and a preliminary report or interim memo. The interim report highlights sensitive or important findings that the auditor deems crucial for immediate board awareness, similar to an interim financial statement providing partial information to prepare for the next audit phases.
Companies often provide a draft final report and organize an internal pre-closing meeting with management. This meeting allows management to present counter arguments, provide additional information that may alter the conclusions, or give feedback on the audit results.
The final report summarizes the methods used, audit findings, and proposes improvements for internal controls and procedures. It also describes the proposed changes for implementation, future follow-up strategies, and the scope of future reviews.
Follow-up :
After a specified period, internal audits often include follow-up steps to verify that the recommended changes after the audit closure have been implemented as agreed. For example, if an internal financial audit reveals significant deficiencies in internal controls that could affect an external financial audit, and management commits to making changes within six weeks, the internal auditor may conduct a targeted or limited review after that period to check if the issue persists.
This follow-up process ensures that corrective actions are effectively implemented and maintained over time.
Why conduct an internal audit for your company ?
An internal audit offers several crucial benefits for your company: it strengthens internal controls by identifying and correcting weaknesses, which reduces the risk of fraud and errors while improving the security of assets.
It also helps manage potential risks by implementing mitigation strategies, ensures compliance with regulations to avoid penalties, and optimizes operational processes to increase performance and reduce costs.
Additionally, it enhances transparency and stakeholder trust, helps prevent fraud, prepares the company for external audits, and fosters a culture of continuous improvement by providing recommendations to evolve and adapt to changes.
To reap the benefits of internal audit, SourceLogique offers customized solutions with experts in the field. Moreover, you can take advantage of a free consultation before August 1, 2024, and see your project develop significantly.
Link : Commencer | Sourcelogique
Comments