Over the years, internal audit has become an essential aspect of modern business. In most companies, units or departments are specifically created with the sole purpose of carrying out audits of general or specific activities.
Internal audit can be described as a neutral unit, department, or process within an enterprise that reviews, checks, and verifies the activities (especially financial activities) to ensure compliance with its policies, rules, and regulations.
It also makes available essential information about the company’s workflow, working conditions, and a general overview of critical financial operations.
In most organizations, the internal audit unit directly reports to the overall head of the institution, which can be the CEO, president, or a Director. Also, the operations of the audit unit must be completely free from influence. The internal audit team is expected to always be in continuous contact with the management of its enterprise to ensure that all activities are undertaken accordingly.
Internal audits are primarily used to pinpoint areas with problems within an enterprise to manage and prefer appropriate solutions continuously. In doing so, all processes and activities are compared with established policies, standards, and regulations. Also, internal audits teams are very much concerned with risks and how they affect the output of enterprises.
Although most internal audits that are carried out within an enterprise relate to financial processes, other critical aspects or sectors require some form of assessment to ensure compliance at all levels. However, all types of internal audits have the same function of ensuring that risks are managed to minimize losses. The common types of internal audits include the following.
This type of audit relies on the use of historical data to objectively and accurately assess the financial performance of an enterprise. The primary purpose of a financial audit is to confirm the reliability and accuracy of the financial process, as presented in financial reports of businesses or companies.
A compliance audit is a form of audit that is used to evaluate the extent of a company’s compliance with standards, policies, regulations, laws, and processes. It is also performed to satisfy specific legal requirements. It also helps to assess the financial standing of an enterprise. In a case where a company is neglectful of the proper use of this type of audit, this can lead to sanctions or fines from regulatory bodies.
It is used to evaluate technologies, systems, and frameworks that are used to process information accurately. IT audit is also used to identify, assess, and recommend solutions that are going to secure the processing and propagation of information within a company. This type of audit focuses on crucial IT infrastructures, such as system operations, access, data management, and more.
The management audit is a type of audit that is done to assess the entire activities and objectives of an enterprise. It is usually independent of the company, and it reviews and reports on all the processes and strategies that are in use to improve productivity. The outcome of management audits may sometimes lead to a complete restructuring of a company’s workflow, objectives, leadership style, and outlook.
This type of audit is conducted under the directives of the management of a company. Performance audit assesses the objectives and processes that have been put in place to achieve the primary purpose of the creation of an enterprise.
For the achievement of a successful internal audit, several steps must be taken. There are generally four steps involved in internal audit. These are:
At this stage, the objectives, scope, and process of delivering a successful audit are generated. All documents and information that are required for the audit are collected and assembled before the actual work begins. These documents include budgets, previous reports of audits, and all relevant records. Also, a schedule of work must be produced to ensure efficiency and minimize the use of resources.
This process involves the actual audit work. The auditors involved are expected to go through all the documents to identify all problems and possible solutions and recommendations.
After the completion of all analyses and inferences, a comprehensive report is written, which presents problems, risks, and recommendations. This step is what the management of a company would typically use to mitigate changes from within.
Process review is the final stage, which involves a follow-up to ensure that all solutions and recommendations have been put into use. It also provides a form of feedback, which can be used in future audits.