Internal Audits are not just a box-ticking activity. While some may question the essentiality of these audits, these audits serve a very important function and are crucial to a company’s growth. They help in solidifying the foundation of an organization, besides giving valuable feedback about the business processes and product quality.
But what is an internal audit? In simple words, an internal audit is an independent, objective assurance process that is conducted to identify loopholes, add value, and improve an organization’s operations. It involves examining and assessing company records, workflows, systems, and processes basis which the evaluation is done and suggestions are given to improve the effectiveness of risk management, control, and governance process
Though not as stringent as external audits, internal audits are still instrumental in driving a culture of continuous improvement in any organization. In addition to scheduled formal external audits, organizations should periodically conduct these audits to identify vulnerabilities and understand their compliance and security posture. What’s more, with the prevalence of internal audit advisory services, it is possible for organizations to carry out audit functions without having to worry about business risks.
Difference between Internal Audit and External Audit
Internal and external audits have similar objectives, i.e., analyzing an aspect of an organization to determine the accuracy, efficiency, and compliance of your business process with regulations, yet there are distinguishable differences between the two types of audits.
| Internal Audit | External Audit |
|---|---|
| Internal auditors, typically employees of the company, perform internal audits. However, companies that don’t have competency or manpower may outsource this to an external entity. | External auditors, typically members of a CPA firm, perform external audits. External auditors and the firm they work at must be independent of the company being audited to maintain objectivity. |
| The results are be used by the management team to improve operations, processes, or more. | External audit results are used by outside investors for strategic decision-making.
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| These audit results are reported to the Board of Directors and the members of the management. | External audit results are reported to the shareholders and members outside of the company. |
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| Internal audits are conducted at a frequency decided by the Board of Directors | External audits are conducted annually |
Who can perform Internal Audits?
Companies may be required to appoint an internal auditor, who shall either be a chartered accountant a cost accountant, or such other professional as may be decided by the Board to conduct an internal audit. Generally, internal auditors are employees of the company. In cases where the companies do not have such competencies, the internal audit function is outsourced to a competent external entity.
Who Needs Internal Audit?
Every organization, regardless of its size or industry, needs internal audit functions to maintain operational integrity and ensure compliance. The role of this audit is crucial; it identifies deficiencies and substantiates proficiencies within a company’s processes. For instance, a company may issue an internal financial audit to verify that its internal controls over accounts payable are aligned with established policies. This helps prevent errors and fraud while ensuring that resources are utilized effectively.
If you want your organization to thrive in today’s competitive landscape, embracing the function of internal audits is non-negotiable. They provide essential insights that drive improvement and ensure adherence to financial standards.
Effective Steps to Successfully Perform Internal Audits in Your Organization
A systematic approach and an unwavering commitment are the key elements to conducting internal audits successfully. With that and a set of clear organizational objectives, you are good to move to the next steps:
Step 1: Determine the Scope of Audit
Auditing every process is neither practical nor efficient. Instead, identify the key processes that require auditing and define what you aim to achieve – whether it’s for compliance, risk management, or process improvement.
Having clarity from the start helps you direct your efforts in the right direction, making it easier to plan, schedule, prepare checklists, execute audits, and follow up effectively. A well-structured approach enhances efficiency and ensures concrete, actionable results.
Additionally, determine key stakeholders, involved process owners, audit timelines, and review previous audits (if available) to anticipate potential challenges. Setting a strong foundation will streamline the audit process and maximize its impact on organizational performance.
Step 2: Decide on the Frequency of the Internal Audit process
This entirely or to a great extent depends on the process being audited – while some processes may necessitate annual audits, others require half-yearly or quarterly assessments to ensure consistent results. For instance, quality control processes might require daily auditing to maintain standards and quickly address issues that arise. Conversely, financial processes typically call for internal audits on a quarterly basis to safeguard against discrepancies and ensure compliance with regulations. It’s crucial to maintain clarity about the specific areas you intend to audit in order to make informed decisions regarding the frequency required for each type of business process.
Step 3: Plan and Schedule the Internal Audit
The next step involves planning and scheduling. It is imperative to have a clear plan and schedule ready in advance to avoid clashes between processes. It also ensures that the right team members are available for the audit. An effective audit plan not only streamlines your team’s activities but also aligns their efforts with the overall objectives of the organization.
Furthermore, scheduling audits meticulously ensures that no single process or area gets missed out. Utilizing feature-packed software may be helpful at this stage as these software can help you schedule all audit activities ahead of time, facilitating timely execution and significantly reducing compliance and operational risks.
At KnowVisory, we help businesses take control of their auditing process—maintain efficiency, uphold compliance, and eliminate risks by prioritizing planning and scheduling your audits well in advance.
Step 4: Inform the stakeholders and the people involved
Next up, inform all stakeholders and departments about upcoming audits, and ensure that they are adequately prepared with the required documentation and supporting materials, such as evidence of implemented action plans. This practice isn’t just a matter of protocol; it is a common courtesy that fosters transparency and cooperation across the organization. Unless we are dealing with a surprise audit triggered by suspicious activities, every team deserves to be aware of organizational activities.
Step 5: Prepare the Checklist
Prepare an audit checklist to ensure the audit is conducted thoroughly, consistently, and efficiently. A checklist is essentially a set of process-related questions that ensures that key stakeholders are consulted and all the critical aspects of the process are reviewed. An audit checklist makes the entire process more reliable and less repetitive. It also ensures that processes align with organizational standards while minimizing errors and maintaining consistency.
Fortunately, many audit management tools now come with pre-built checklists based on industry standards and best practices. These can be customized to match your organization’s specific workflows, ensuring a more efficient, accurate, and tailored audit process.
Step 6: Execute the Audit
During the fieldwork phase, which is also known as data collection and testing, collect data diligently. Conduct surveys, interviews with process owners and controls, and document reviews, testing the controls currently in place for the process and gather relevant information that will provide a complete picture of operations.
All the available data about the process is reviewed under audit. Data generated before your audit should give you an unfiltered look at the process and whether there are discrepancies between what is reported and actual performance. This analysis also serves as strong supporting evidence when presenting recommendations and process improvements to upper management.
Step 7: Analyze the Findings and Present Them
Once the audit process is over, the next step is analyzing the findings and identifying the areas that need immediate attention as well as those that can be addressed over time. The goal isn’t just to highlight issues but to provide valuable insights and actionable recommendations that drive positive change within the organization.
Remember, an effective internal audit goes beyond pointing out gaps – it helps to improve efficiency, compliance, and overall business performance by offering strategic solutions that create long-term impact.
Step 8: Perform the Effectiveness Review and Conduct Audit Follow-Ups
An effectiveness review is an important step toward maintaining organizational integrity. Reviews and regular follow-ups are as important as the audit itself. They enable you to measure the effectiveness of your action plans while ensuring that all urgent audit-related activities are being properly addressed for operational efficiency and long-term success.
Conducting internal audits in-house can be resource-intensive, time-consuming, and prone to bias. Hiring an outsourcing services provider can streamline this entire process, making it efficient and at the same less burdensome. By leveraging professional expertise, you eliminate wastage of your time and that of your resources, allowing them to focus on what really matters: maintaining high standards of product quality and driving continuous improvements.
What Value-Add Do Internal Audit Consulting Services Provide to Your Business?
The Internal audit service providers are a team of highly skilled and experienced professionals who
- Monitor, analyze, and assess the risks and controls of your organization.
- Review your organization’s compliance with the prevalent policies and laws.
- Make reassurances and recommendations to your organization’s decision-making authorities.
Outsourced internal audit service providers offer a wide range of services to help organizations enhance governance, risk management, and internal controls. They help companies transform their internal function holistically (people, process, and technology) and help them to build and maintain trust. Major benefits are:
- Improved operational efficiencies and cost-effectiveness
- Deeper insights gained to build trust through transformation
- Stronger ability to manage business progress with confidence
In today’s competitive business landscape, consistency is key to success. A well-structured audit process ensures compliance with industry standards and best practices. Therefore, equip yourself with an effective internal audit system that empowers you to meet customer needs consistently—because delivering excellence should never be left to chance!
Wish to know how you can work better towards getting professional help with internal audits, so that you devote time towards scaling up your core business, get in touch with us now!
