The audit is a control and inspection system that occurs within a company in any sector of activity. In order to improve processes, for example, or in order to verify that it really acts within the legal terms in accounting. There are many types of audits, however the purpose of internal audit is to help a company to meet its objectives, evaluating. Moreover improving the effectiveness of its risk management and control processes.
What is an Internal Audit?
The internal audit is a system of internal control of the company and consists of the set of measures. Along with policies and procedures established in a specific organization. Just to protect its assets, minimize risks, increase the efficiency of the operational processes and optimize and make business profitable.
As a company increases in volume, the internal audit becomes evident. The more the company grows, the more impossible it is to control each and every one of the processes that the company uses. Thus the purpose of internal audit is to make it easier for management to verify that all the functions in each of the departments are effectively being carried out. Moreover analyzing them objectively and taking measures when necessary.
Purpose of an Internal Audit
The internal audit allows carrying out an updated monitoring of the management of a business. As well as a method of control of financial management. Thanks to the performance of an internal audit, the percentage probability of an organization increasing the achievement of its objectives is very high. Because an internal audit serves to detect scams, fraud, and any diversion of money or goods, among other things.
The internal audit is precise to detect any deviation of an organization and be able to correct it as quickly and efficiently as possible.
The purpose of internal audit will be carried out by people with sufficient technical knowledge. Such as the auditors or a person from the company with sufficient professional capacity to do so. They must perform their work in an impartial, independent and objective manner and always remain professionally rigorous.
Likewise, the organization must provide the auditor with all the information and files necessary to carry out an investigation that is as accurate as possible. Thus allowing to evaluate in a faithful and truthful manner. Actually what really happens in the accounting and financial field of the company.
Objectives of the Internal Audit
Internal audit becomes necessary as a company grows. Otherwise, the revision and control by management would be very complicated and the analysis. Also the study of the progress of the company would be done, possibly, in a non-objective manner and far from reality.
An internal audit must be done based on a plan previously drafted and designed, according to the policies and procedures of the company in question. Likewise, the internal audit is directed towards compliance with the following points:
- To what extent are the plans and procedures derived from management fulfilled.
- Review and evaluation of the application of operational, accounting and financial controls
- Conduct an inventory control so that all the assets that the company possesses are registered, protected and subject to the pertinent regulations.
- Verify and evaluate the accounting information , that it is true and responds to the economic reality of the company
- Realization of special and extraordinary investigations that the management requires
- Preparation of audit reports on the irregularities that may be found at the end of the investigations, also determining possible recommendations to resolve those.
- Monitoring compliance with the recommendations determined in reports and audits.
How to Conduct an Internal Audit
Internal audit is a tool for observing an activity with an outside eye to ensure that the operating rules are followed and that the activities are effective. I propose to explain the methodology of a four-step audit. The article “Doing an internal audit of the sales department” will propose you to deploy the methodology with a concrete example.
Manage the Skills of your Internal Auditors
When one is in his daily life, it is not always easy to take a step back from his mode of operation. An outside eye, with the competence of the audit methodology, will be able to challenge the actors of the activity by relevant questions: Why do you do that? What is the added value of this action?
The external eye is also a requirement of “management system” standards (ISO 9001, ISO 14001,) based on the auditor’s independence from the audited subject. Indeed, the auditor must not have any responsibility in the audited subject so that he can carry out his mission objectively and impartially. In the case of small company, it is necessary to call on an outside resource of the company so that the audit is carried out in the rules of the art. The real question for the entrepreneur is: What is the added value of internal audits?
For the internal audit tool to be one of the drivers of continuous business improvement, it is necessary to:
- Select listeners on their skills
- Train auditors in audit methodology
Prepare the Internal Audit Topic
It is important to be well prepared because it is about your credibility with the auditors. The starting point is to collect all the requirements that apply to the subject:
- Requirements related to the applicable standards: ISO 9001
- Requirements defined by the company: internal documentation
Be careful not to fall into the excess of reading the documentation because if you enter a level of detail “too thin” you will get lost. The conduct of the audit will allow you to access the detail, if it is necessary, it is a technique exposed in step 2.
I propose to always start from the blank sheet and define its guiding line for conducting interviews. This is the best way to appropriate the subject. This requires starting from the requirements related to the applicable standards: ISO 9001.This avoids falling into a too fine level of detail.
The guideline is to use words corresponding to the subjects to be developed. We must not want to list exhaustively the questions to ask. With a good preparation, the keywords are enough to introduce the questions with the audited ones.
The starting point is an opening meeting to present the topics audited, the methodology deployed and the schedule. So the difficulty of the interview lies in the fact that it is necessary:
- Listen to the people being audited,
- Be able to take the relevant notes
- Cover all elements of the guideline prepared in step 1.
Being attentive means avoiding having your nose permanently in your notes, hence a guideline based exclusively on keywords to address. Being able to take relevant notes also avoids having your nose permanently in your notes. In addition, note taking should only be used to build the audit report. I invite you to associate symbols with your notes: PF for strong points, OA for improvement opportunities, and NC for non-compliance and R for risk of drift, for example.
How do you approach the different topics with the audited people?
The first question will always be: How are you doing in combination with the key word of the guideline. This open question will give maximum latitude to the audited for his answer. Then QQOQCP questions are used (Who? What? Where? When? How much? Why?). We also rely on techniques: refocusing the subject “, reformulation, for example, because the objective of the auditor is to cover all the points prepared in the guideline. Use it as a checklist to process.
Restore Internal Audit Results
Note taking during the interview should allow you to make a quick synthesis. For example, a four-hour internal audit should take less than an hour to complete the audit report. By taking up your notes, very quickly identify the points to take into account in the results of your audit:
- Strong point
- Risk points
- Opportunities for improvement
Once the elements are reformulated, you just have to make a general conclusion to finalize your audit report. The closing meeting then makes it possible to return the results of your audit to the head of the auditors.
In conclusion, the purpose of internal audit requires relying on a methodology, knowing the auditor’s skills. Basically in terms of knowledge of the different business lines are fundamental. Although if you want, as a company manager, to have internal audits with high added value.
Hello everyone! This is Richard Daniels, a full-time passionate researcher & blogger. He holds a Ph.D. degree in Economics. He loves to write about economics, e-commerce, and business-related topics for students to assist them in their studies. That's the sole purpose of Business Study Notes.
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