An internal audit allows for a risk assessment to be made.
An internal audit is a monitoring process aimed at detecting errors and failures in an entity's procedures . It is a control mechanism that consists of examining, in an orderly manner, methodologies and practices with the aim of improving them and confirming that they comply with certain criteria or standards.
It should be noted that an audit is the systematic inspection of a situation or operation to determine whether it complies with the precepts and rules that apply to it. The internal , meanwhile, is what is internal: that which is proper.
Therefore, a company carrying out an internal audit seeks to minimise its operational risk, ensure proper regulatory compliance and optimise its overall operation. Audit reports provide valuable information for an assessment of operational effectiveness, although the analysis may focus on specific areas or processes.
Function of internal audit
Internal audit procedures help to meet regulatory requirements and achieve corporate goals . They enable ongoing evaluation of tasks, jobs, techniques, etc., in order to detect problems or inconsistencies.
The results of audit tests indicate what needs to be changed or eliminated. This is why these implementations are very useful for corporate governance .
The improvement that an internal audit brings about contributes to adding value. On the other hand, these audits promote transparency and help to determine responsibilities accurately.
An assessment of organizational culture is possible thanks to an internal audit.
Its development
It is important to note that an internal audit is not a mandatory procedure . It arises from the will and conviction of the managers, unlike what happens with external audits (mandatory for certain companies depending on their size and other characteristics).
Once the decision has been made to implement an internal audit plan, it must be developed objectively . Without the auditor's independence, it cannot be guaranteed that ongoing monitoring includes thorough and adequate oversight of all areas to be examined. Impartiality is essential so that personal issues do not interfere with the investigation.
Internal auditors, however, are employees of the organization . Their exclusive and specific task is to carry out the audit, and therefore they do not participate in the productive, administrative, commercial or other tasks that the firm carries out on a day-to-day basis. Internal auditors must possess theoretical knowledge, technical skills and, of course, impeccable ethics.
In certain cases, however, the internal audit is carried out by external professionals (i.e. experts who are not employees). This is why we speak of an outsourced internal audit .
An internal audit can help prevent losses.
Types of internal audit
Although internal auditing can be referred to in a broad sense, it is common for enquiries to be limited to activities or areas. Thus, audit tests are geared towards particular issues or topics.
The audit of financial statements is carried out after the end of each financial year. This financial analysis reviews the accounts and results.
Compliance audits inspect compliance with the company's own policies and rules. In this way, it is possible to detect if any member is not acting in accordance with the corporate culture.
An operational audit , on the other hand, aims to review the firm's core processes. This is relevant to examining how available resources are being used.
Human resources auditing , on the other hand, focuses on employee management. It can inspect everything from a company's compliance with labor laws to employee performance.
Energy audit , environmental audit , supply chain audit and service quality audit are other types of internal audits that can be performed.
The stages
The development of an internal audit is carried out in stages. The first phase consists of identifying the sectors or processes to be controlled since, as we indicated above, audits can be aimed at specific aspects.
A timetable must then be established: this is key to making it possible to examine the progress of the procedure and to inform the heads of the various offices when they have to prepare and present the documentation to be studied. Once this is done, the work itself begins.
When the internal auditor completes his work, which includes reviewing documents, interviewing and conducting questionnaires with employees and managers, and observing practices, he must make the results public. This phase involves submitting a report with recommendations.
The last stage of internal auditing is monitoring to implement improvements and evaluate their results.
Common mistakes in an internal audit
There are several mistakes that frequently occur when carrying out an internal audit. A common mistake is not carrying out the corresponding planning , which leads to deadlines not being met or even the process ending in failure.
Poor collection of documents and evidence is another shortcoming. Without these records, proper monitoring cannot be carried out. In other cases, the failure appears at the monitoring stage: recommendations are not implemented correctly .
It should be noted that the problem often lies with the internal auditor himself . If he does not have the necessary professional training, is not objective or communicates poorly, the result of the process will be far from optimal.