Internal audit is a dynamic profession involved in helping organizations achieve their objectives. It is concerned with evaluating and improving the effectiveness of risk management, control and governance processes in an organization.
-Institute of Internal Auditors
What is Internal Audit?
Internal audit is an activity wherein an organization’s risk management, control and governance process are being evaluated with the aim of improving the overall operations through recommendations based on a systematic and disciplined evaluation of the aforementioned processes. This activity helps organizations to ensure that they are doing the right things toward the achievement of their goals.
Internal Auditors: Roles and Responsibilities
In order for a company to proceed with an internal audit, they need to hire an internal auditor first. These professionals have the responsibility to come up with an individual, objective and unbiased evaluation of the systems and operations of an organization. Unlike external auditors, internal auditors report directly to the organization’s management, normally thru an Auditing Committee or the Board of Investors. They work across all areas of the organization but give a special focus on financial control and IT. Internal auditors evaluate not only the palpable aspects of the operations (e.g. IT chain, financial supply, people supply) but also the impalpable facets such as the organization’s culture, its work ethics, the morale of its members, among others. After the work has been finished, Internal Auditors will come up with a report to be presented to the organization’s management. These reports contain the progress of the organization in achieving its goals and areas that can and/or should be improved.
Benefits of Internal Auditing
While some internal audit is required in some countries like the United States (for publicly listed companies), it remains as a non-compulsory activity for most countries. Still, the importance and benefits of conducting internal audit can’t be ignored. With internal audit, the management can see where the organization is headed, what can be improved and what steps it can take towards success. It helps to identify and understand risks, aid in preventing loss of assets and resources, warranting credible financial reports, and in complying with regulations and the law.
I already have external audit, why do I need internal audit for?
Internal audit and external audit are two very different activities. While external audit is concerned with finance and the key risks linked with the organization’s finance, internal audit is aimed at identifying risks facing the organization and how these risks are being handled. Another key difference is that external auditors report to stakeholders (e.g. shareholders, government, and the general public) while internal auditors report to the organization’s management to provide them with independent insights about the organization. Finally, external audit is only concerned with adding credibility and reliability to your financial reports, and report problems, if any, whilst internal audit is concerned with your organization’s improvement and success.
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