Internal audits are used by companies to assess critical systems and technologies, from manufacturing to governance and accounting to logistics and supply chain management. They provide an independent assessment as well as recommendations for improvement. Internal audits help to ensure compliance with all laws and regulations and to improve internal processes within an organization.
What is an internal audit?
An internal audit is an independent review of an organization’s internal controls. It is used to assess critical systems and technologies and includes manufacturing, governance and accounting processes. This helps to identify and correct flaws to ensure that the company is in compliance. The International Standards for the Professional Practice of Internal Auditing (STANDARDS), defines the functions of internal auditors as assurance services for a number of internal processes.
Internal auditors examine evidence objectively and reach an independent assessment of corporate processes and systems, such as governance, risk management, and control processes, as well as logistics and supply chain management. The rapid growth and integration of new technology opens up new areas to be covered, like cybersecurity and data analytics.
How does an internal audit help your organization?
An internal audit allows organizations to assess critical systems and technologies and to remain in compliance with all applicable laws and regulations. It also offers several other benefits, such as:
- Accurate data collection and financial reporting
- Identify and correct problems in operational efficiency
- Risk assessment and management
- Effectiveness of internal controls in maintaining the integrity of financial and accounting information, promoting accountability, and preventing fraud
- Improving cybersecurity
Internal audits offer companies a way of correcting problems before they are flagged by external audits. They can also offer robust risk management tools to managers as added value.
How do internal audits work?
Internal audits are carried out on a regular schedule, which may be daily, weekly, monthly or annually. The schedule may vary with department. Audits may be scheduled in advance or they may be carried out without warning, in case any illegal activity is suspected. The internal audit process is usually focused on a single department and begins with testing the internal control process in place through fieldwork.
The testing can be followed by meetings with staff. Assessment techniques include documentation review including manuals and policies. Analysis based on transaction matching, physical inventory count, audit trail calculations, and account reconciliation is used to produce the final report. The official audit report is submitted to management and reviewed to facilitate implementation. Follow up helps to ensure that recommendations have been met.
Internal audits have the purpose broadly to assess critical systems and technologies in any organization. They help businesses in a number of other ways as well, helping them to remain in compliance with all laws and regulations. Internal audits also offer added value in terms of risk assessment and management, as well as improving cybersecurity and logistics.