What Is an Internal Audit?
Internal audits evaluate a company’s internal controls, including its corporate governance and accounting processes. These types of audits ensure compliance with laws and regulations and help to maintain accurate and timely financial reporting and data collection.
Internal Audit Process
Internal auditors generally identify a department, gather an understanding of the current internal control process, conduct fieldwork testing, follow up with department staff about identified issues, prepare an official audit report, review the audit report with management, and follow up with management and the board of directors as needed to ensure recommendations have been implemented.
Step 1: Planning
Before any audit procedures are performed, the internal auditors often start by developing the audit plan. This sets the audit requirements, objectives, timeline, schedule, and responsibilities across audit team members. The audits may review prior audits to understand management expectations for presentation and data collection.
Step 2: Auditing
Many of the auditing procedures used by internal audits are the same as external auditors. Assessment techniques ensure an internal auditor gathers a full understanding of the internal control procedures and whether employees are complying with internal control directives.
Step 3: Reporting
Internal audit reporting includes a formal report and may include a preliminary or memo-style interim report. An interim report typically includes sensitive or significant results the auditor thinks the board of directors needs to know right away. Similar to an interim financial statement, an interim audit communicates a partial set of information useful for laying the road for the remaining portion.
Step 4: Monitoring
After a designated amount of time, an internal audit may call for follow-up steps to make sure the appropriate post-close audit changes were implemented. The details and process for these monitoring and review steps is often agreed to at the delivery of the final audit.
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