Introduction to internal auditing

Definition of internal audit

Internal audit can be defined as an independent, objective process, based on a precise methodology, designed to evaluate and improve the effectiveness of a company’s risk management, control and governance processes. The internal audit is an investigative and evaluative tool that provides objective and strategic recommendations for improving the performance and quality of a company’s operations. Internal audit’s role is to offer independent assurance that an organization’s risk management, governance, and internal control processes are functioning effectively.” Internal auditing objectively improves an organization’s business practices.

Internal auditing typically covers multiple aspects of business operations, including compliance, financial reporting, operations, and legal affairs. These audits are often regarded as an effective means of ensuring adherence to and execution of established policies.

A product owner or quality assurance team member may also test the system in a non-production environment to verify that it functions as expected with the implemented change. These activities are examples of internal checks or internal controls.

What is an Example of an Internal Audit? An internal audit of the change management process would involve a member of the Internal Audit team or an employee from another department reviewing whether internal checks or control activities (such as peer reviews and change testing) were consistently carried out for a sample of changes.

Depending on the organizational structure, the internal audit may be prepared by the board of directors or upper management.

Internal Audit vs. External Audit: Internal and external audits share the same objective. Both types of audits examine an aspect of a company to form a specific opinion.

Internal audit focuses on several key aspects of the business, such as compliance with laws and regulations, the efficiency and effectiveness of operations, risk management, the reliability of financial information, and many others. Using a rigorous methodology, internal auditors conduct interviews, document reviews, direct observation tests and other techniques to obtain an accurate and complete picture of the situation. Lack of Formal Approvals: Real-time evidence should be recorded and preserved by the internal audit to document independent approvals, reconciliations, departmental financial statements, and other relevant activities. The individuals responsible for approvals should be identified, and access controls should be aligned with the appropriate roles.

To achieve compliance or other business objectives, an internal audit might evaluate how effectively the company adheres to the PCI DSS standard for protecting credit card data. It could also assess the compliance team’s ability to manage multiple obligations simultaneously, such as PCI DSS and HIPAA, the standard for protecting personal health information.

Importance of internal audit in risk management

Internal audit plays a critical role in risk management within a company. By carrying out regular audits, it helps to identify and understand the risks incurred in the various processes and to make recommendations for mitigating them. Thanks to this proactive support, the company can take preventive measures and anticipate risk situations, enabling it to optimise its performance and guarantee the continuity of its activities. It is important for an internal audit to be a strong and effective interviewer and communicator is vital in the information-gathering phase, as well as in the next steps of compiling that information and efficiently communicating it to the relevant management teams in a clear and concise manner.

When an internal auditor joins a company or organization, they review documents related to the company’s risks, objectives, and performance, and observe the implementation of specific strategies. They evaluate emerging technologies, analyze opportunities, examine global issues, assess risks, controls, ethics, quality, economy, and efficiency, and communicate their findings and opinions with clarity and precision.

For effective risk assessment, management must identify potential changes in both the internal and external environments that could hinder the organization’s ability to achieve its objectives. Additionally, managers must:

• Respond promptly to manage the impact of these changes
• Take risk tolerance into account when determining acceptable risk levels
• Evaluate the severity of risks by considering their velocity, persistence, impact, and likelihood

In addition, internal audit offers a systematic approach to assessing compliance with current standards and regulations. By putting in place appropriate controls and procedures, it helps the company avoid non-compliance and protect its reputation and brand image. In this way, internal audit contributes to improving the quality of the products or services offered by the company and reinforces customer confidence.

In short, internal audit is an essential tool for any company seeking to optimise its performance, minimise risks and ensure compliance with standards.

First objective: Ensure compliance of internal processes

One of the essential objectives of any internal audit is to ensure the compliance of the company’s internal processes. This means ensuring that the procedures and policies in place comply with current standards, regulations and best practice.

Evaluation of internal procedures and policies

During an internal audit, the auditors assess the company’s internal procedures and policies. They review the various processes in place and check that they are in line with regulatory expectations and company requirements. This ensures that internal processes are well structured, documented and aligned with the company’s objectives.

During this phase, the auditors also assess the effectiveness of the procedures in place. In particular, they look at the methods used, the tools implemented and the results obtained. This helps to identify any areas of weakness and to suggest improvements aimed at optimising the company’s performance.

Identifying gaps and non-conformities

Once the internal procedures and policies have been assessed, the auditors focus on identifying gaps and non-conformities. They compare current practices with standards and regulatory requirements to detect any discrepancies.

The identification of gaps and non-conformities is based on various investigative methods, such as interviews with those responsible for each process, analysis of data and performance indicators, and review of available documents and information.

Company policies and procedures should be documented in writing to ensure they can be referenced and updated as necessary.

Lack of Formal Approvals: Evidence must be recorded and maintained to document independent approvals, reconciliations, departmental financial statements, and other pertinent activities. The individuals responsible for these approvals should be identified, and access controls should be aligned with their appropriate roles. Evaluate the current processes and associated risks to establish the objectives for the audit steps to be undertaken. All audit recommendations and management corrective action plans are monitored to ensure they are implemented.

 The goal is to pinpoint compliance gaps and devise strategies to bridge them. Report the findings clearly. Prepare a final report that is easy to understand and review it with senior management. Additionally, create an action plan to address and improve any identified compliance gaps. The final report may also outline the next steps, including the changes to be implemented, future monitoring processes, and the scope of future reviews.

In conclusion, internal audit plays a major role in ensuring the compliance of a company’s internal processes. It makes it possible to assess the procedures and policies in place, identify gaps and non-conformities, and propose corrective actions to optimise the company’s performance. By carrying out an internal audit, a company can ensure that it complies with standards and regulations, to maintain sound and efficient management of its activities.

Second objective: Guarantee operational efficiency

Internal checks involve peers or team members reviewing each other’s work as part of a process. These checks are a type of control activity within processes. Internal audits, on the other hand, are assessments of processes carried out by team members of the same organization who are independent and do not have responsibilities for performing the process being audited.

The main objective of internal auditing is to ensure operational efficiency within the company. This involves rigorously analysing the performance of internal activities, identifying inefficiencies and proposing improvements. Internal auditing is therefore an essential tool for optimising process management and strengthening the organisation’s competitiveness.

Analysing the performance of internal activities

Internal audit plays a central role in assessing the performance of a company’s internal activities. By identifying potential problems and areas for improvement, internal audit helps to improve the efficiency of company operations and optimise the management of resources.

Detecting inefficiencies and suggesting improvements

One of the key aspects of internal auditing is the detection of inefficiencies within the company. Through rigorous checks, the auditors identify processes that do not comply with established criteria and standards. In this way, they can highlight potential risks, non-conformities and shortcomings in internal activities. On the basis of these findings, the internal auditors formulate specific recommendations and corrective actions to improve the company’s operational performance.

In conclusion, internal audit is a key vector for guaranteeing operational efficiency within a company. Thanks to an in-depth analysis of the performance of internal activities and the detection of inefficiencies, it enables precise areas for improvement to be identified and appropriate corrective action to be taken. By enhancing the efficiency of operations, internal audit contributes to the company’s competitiveness and the achievement of its strategic objectives.

Third objective: Strengthen financial control

When it comes to strengthening financial control within a company, internal audit plays a vital role. It enables the reliability of accounting information to be verified and fraud and financial errors to be prevented.

Verifying the reliability of accounting information

The aim of internal audit is to guarantee the accuracy and quality of the financial information produced by a company. It provides a detailed analysis of financial statements, operational processes and accounting systems. Using rigorous methods, the auditors examine transactions, identify any non-compliance and propose corrective action. This in-depth audit ensures that accounting information complies with current standards, guaranteeing greater transparency and confidence in the company’s financial statements.

Preventing fraud and financial errors

Preventing fraud and financial errors is a major challenge for companies. Internal audit intervenes upstream to detect potential risks and put in place effective control measures. It assesses internal processes, identifies areas of vulnerability and proposes solutions to overcome them. Thanks to its precise methodology and the expertise of its auditors, internal audit helps to reduce the risk of fraud and financial error, thereby ensuring better management of the company’s assets.

In conclusion, strengthening a company’s financial control is essential to guarantee its performance and long-term future. Internal audit, by verifying the reliability of accounting information and preventing fraud and financial errors, plays a key role in this objective. Thanks to a rigorous methodology and skilled auditors, it enables potential risks to be identified and the necessary measures to control them to be put in place. By ensuring compliance with standards and promoting transparency, internal audit helps to strengthen the confidence of stakeholders and guarantee sound and efficient financial management.

Fourth objective: Assessing risks and opportunities

In a constantly changing world, assessing risks and opportunities is essential to ensure the sustainable development of the company. This is why it is essential to carry out an internal audit to identify the potential risks to which the company is exposed and to put in place recommendations to maximise opportunities for growth.

Identifying potential risks to the company

Identifying risks is a key stage in internal auditing. It involves carrying out an in-depth analysis of the company’s various processes and activities to determine the risks to which it is exposed. This can be done by interviewing managers and employees, analysing data and performance indicators, and reviewing internal procedures. Evaluate the current processes and associated risks to establish the objectives for the audit steps to be undertaken. Following these efforts, teams prepare an official audit report to be shared with line management, senior management, and the audit committee.

The aim is to identify potential risks such as operational risks, financial risks, regulatory compliance risks, risks to the company’s reputation and so on. Once these risks have been identified, they can be assessed in terms of the probability of occurrence and the severity of the consequences. This makes it possible to prioritise the actions to be taken to prevent or manage them.

When reviewing policies and procedures, assess whether the written policies meet the needs of your “customers” (your employees) and contribute value to the organization. Focus on continuous improvement in how work is performed within your policies and procedures. Consider if the team environment is healthy and supports compliance with these policies and procedures.

Recommendations for maximising growth opportunities

In addition to assessing risks, the internal audit also aims to identify growth opportunities for the company. In a competitive environment, it is vital to capitalise on the organisation’s internal strengths and seize opportunities as they arise.

To maximise growth opportunities, internal audit can recommend specific actions, such as improving processes, optimising performance, developing strategic partnerships, exploring new markets and so on. These recommendations are based on an analysis of the information gathered during the audit, as well as an in-depth knowledge of the company and its environment.

In conclusion, assessing risks and opportunities is a key objective of internal audit. By identifying potential risks and proposing recommendations to maximise growth opportunities, this tool enables the company to make informed decisions and improve its overall performance. Internal audit thus offers an effective method for ensuring compliance, managing risks and seizing opportunities as they arise.

Fifth objective: Improve corporate governance

In an environment where corporate governance is of paramount importance, it is essential to put in place strategies to improve corporate governance. This objective consists of strengthening governance practices, ensuring greater transparency and guaranteeing ethics within the company.

Optimising decision-making processes

The audit doesn’t just end with the audit report; the auditor will also follow up with the organization to check on its progress and ensure continual improvement. To achieve this objective, it is necessary to focus on optimising the decision-making processes within the company. This involves assessing how decision-making processes currently operate, identifying any bottlenecks and implementing measures to improve them. The use of proven methods of analysis and evaluation will optimise the decisions made and promote more efficient and effective decision-making.

Strengthening ethics and transparency

Another essential aspect of improving corporate governance is strengthening ethics and promoting transparency. This involves putting in place mechanisms and policies aimed at preventing situations of conflict of interest, encouraging a culture of ethics and compliance, and ensuring transparent and regular communication of information. Strengthening ethics and transparency helps to build stakeholder confidence and consolidate the company’s reputation.

Thanks to these initiatives to improve corporate governance, companies can enhance their performance, competitiveness and capacity for innovation. They can also reduce the risks associated with poor governance and encourage better use of resources. By demonstrating transparency and adopting an ethical culture, companies can strengthen their links with their stakeholders and improve their reputation.

Frequently Asked Questions :

What Services Are Internal Auditors Responsible for?

A.Regular internal audit services help ensure the company’s ability to thrive in a competitive business environment and sustain its prosperity.

What is the Purpose of an Internal Audit ?

The Role of Internal Audits, “Internal audit’s role is to provide independent assurance that an organization’s risk management, governance, and internal control processes are functioning effectively.”

What are the 5 essential objectives of a corporate internal audit?

The 5 essential objectives of a corporate internal audit are: risk management, compliance, financial reporting, operational efficiency, and safeguarding assets.

How does an internal audit help with risk management?

An internal audit helps with risk management by identifying potential risks and evaluating the effectiveness of existing controls to mitigate those risks.

Why is compliance an important objective of a corporate internal audit?

Compliance ensures that a company is following all relevant laws, regulations, and industry standards. An internal audit helps to ensure compliance and prevent legal and reputational risks.

How does an internal audit contribute to financial reporting?

An internal audit provides an independent and objective review of a company’s financial processes, controls, and reporting. This helps to ensure the accuracy and integrity of financial information.

What role does operational efficiency play in a corporate internal audit?

Operational efficiency is an important objective of an internal audit as it helps to identify areas for improvement and cost-saving opportunities within a company’s processes and operations.

Why is safeguarding assets a crucial objective of a corporate internal audit?

A corporate internal audit helps to protect a company’s assets by evaluating the adequacy of controls to prevent fraud, theft, and misuse of company resources.