What is Internal Audit?

Illumeo Customer Success's Profile

Internal audit is a systematic approach to evaluate the company's internal controls, regulatory and corporate compliance, and accounting processes. Internal audits provide tools necessary for the organization to achieve operational efficiency by providing information it needs for the accomplishment of its goals and correcting slip-ups before they turn up in an external audit.

Internal auditors monitor, analyze and assess the risks and controls of the organization, review compliance with state and federal policies and laws and make recommendations to ensure the company has the ability to survive in a competitive business environment. The information gathered during the process is used to show how and where a company is performing and where it needs improvement.

The managers are legally held responsible for the correctness of the company’s financial statement by the Sarbanes-Oxley Act of 2002 (SOX). The company's internal controls are also required to be documented and need to be reviewed as part of its external audit. Internal controls are measures implemented by a company to ensure the integrity of financial information, promote accountability, and prevent fraud.

The internal auditors analyze documents and reports related to the company's risks, objectives, and performance. They also walk through the specific strategies that have been implemented by the company. Companies mostly rely on outside auditors as they are not related to the company and provides an unbiased and objective review of the company's operations.

The auditors, during the audit, take notes, review documents, and interview employees. It also includes testing employees' knowledge of company policies, compliance rules, objectives, and safety standards. Audits may be conducted daily, weekly, monthly, or annually. Some departments may be audited more frequently than others. Scheduled audits give time to managers to prepare the required documents and information.

Auditors after completing reviewing documents and conducting interviews prepare a formal report of an audit known as an internal audit report. This report shows their negative and positive findings so that the management knows what is going well and what needs improvement. The report needs to be carefully prepared as it is this point where many internal auditors fail. The report should be clear and impartial so that it should give clear direction to the company to set its course of action. . It should accurately state the findings and recommendations that are actionable and lead directly to process improvement. The process of internal audit should include proper follow-up with process owners as well as the Board. If an organization fails to follow-up on the implementation of recommendations, it is unlikely that the changes will be made.

in today’s business environment, internal auditors need to expand their abilities beyond traditional areas like accounting, compliance, fraud, and finance. Companies are looking for internal auditors with expertise in technical areas like analytics, data science, IT, cybersecurity, and privacy. Organizations should provide opportunities to their internal audit team to continuously update themselves with the updated skills and knowledge to effectively deliver services while adapting to transformation within the profession. Internal audit certification courses and internal audit CPE can help the audit team meet their continuing education require