What is an Internal Audit?
An internal audit is performed by companies to evaluate and provide objective assurance that an organization’s internal controls, corporate governance, and accounting processes are operating effectively. They provide an introspective look into the current state of things and analyze what can be done better or what lessons can be learned from situations that go awry.
Internal audits help to put into practice new processes, promote accountability, and bring value to senior management and stakeholders alike. Internal auditing often does not encompass one field, but rather many facets of business operations, like compliance, financial reporting, operations, and legal affairs.
The audits are often seen as an effective way to ensure compliance and execution with established policies. It can also help discover best practices and new synergies throughout a company.
- Internal audits provide objective assurance that internal controls, corporate governance and accounting processes are operating effectively.
- Internal auditors often aid a company in utilizing methods of fraud deterrence and Enterprise Risk Management (ERM).
- Internal audits are often seen as an effective way to ensure compliance and execution with established policies in a company. It can also help discover best practices and new synergies within the company.
What Do Internal Audits Accomplish? A Closer Look
Internal auditors are generally not a part of a company’s business operations, but rather serve as advisors to various oversight bodies or the internal leadership team at a company. Internal auditors are often accredited and formally recognized by the Institute of Internal Auditors (IIA), which serves as a regulatory body that oversees the standards and best practices of internal auditors.
Often, the best practices for internal auditors found in the IIA are built around the processes of internal auditing in the government. Internal audit reports seek to achieve the four standards below:
- Objective: Unbiased and informative opinions expressed in the report’s recommendations
- Clarity: Concise language is used to convey recommendations and analysis
- Accuracy: A cost/benefit analysis is used to determine the level of accuracy required to produce a relevant recommendation
- Timeliness: Report is released promptly after the analysis is done, to ensure prompt rectification of any weaknesses identified
Employing internal auditors who are formally recognized by the IIA lets employers and contractors know that the auditors they are utilizing understand and adhere to specific best practices. Often, internal auditors utilize the best practices from accounting and management consulting firms.
Management consultants are often brought into companies to fulfill similar roles as well. They can be brought on after an internal audit or before (in some instances to aid with the audit) in order to help bring about structural change or further develop new best practices that can be implemented at a company.
Risk Management and Compliance: A Closer Look at Internal Audits
Risk management departments of many companies seek to identify, respond, and gather information about a company’s actions in order to monitor risks and forecast potential situations that can negatively impact its ability to achieve its mission and objectives.
Internal auditors often aid a company in utilizing methods of fraud deterrence and Enterprise Risk Management (ERM). Quality assurance systems help maintain the company’s integrity and ensure compliance with professional standards. Also, they help create risk assessments for internal operations and potential new processes.
In corporate governance, internal auditors help the management and leadership team ensure that they are doing their jobs effectively. They help in the reporting of critical issues that may affect management and departmental abilities to lead and the ethical standards upon which leadership is instituting corporate best practices.
Internal auditing and the internal auditor are considered one of the four pillars of corporate governance that guide companies on how their top executives can lead effectively and ethically. The Institute of Internal Auditors (IIA) takes a formal evaluation approach regarding corporate governance, particularly in the areas of ethics and fraud.
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