An internal audit allows for a risk assessment.
An internal audit is a supervision process that aims to detect errors and flaws 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 the systematic inspection of a situation or operation to determine whether it respects the precepts and rules that apply to it is called an audit . The internal , meanwhile, is what is internal: that which is one's own.
Therefore, a company that carries out an internal audit seeks to minimize its operational risk , ensure correct regulatory compliance and optimize its overall operation. Audit reports provide valuable information for an evaluation of operational effectiveness, although the analysis may focus on specific areas or processes.
Internal audit function
Internal audit procedures help satisfy regulatory requirements and achieve corporate goals . They make possible a constant evaluation of tasks, jobs, techniques, etc., in order to detect problems or inconsistencies.
The results of the audit tests indicate what should be changed or eliminated. That is why these implementations are very useful for corporate governance .
This improvement brought about by an internal audit contributes to adding value. On the other hand, these supervisions promote transparency and help to determine responsibilities accurately.
An evaluation of the 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 its implementation has been decided, an internal audit plan must be developed objectively . Without auditor independence, it cannot be ensured that continuous monitoring includes comprehensive and adequate oversight of all sectors that need to be examined. Impartiality is essential so that personal issues do not intervene in the investigation.
Internal auditors, however, are employees of the organization . Their exclusive and specific task is the development of the audit, which means they do not participate in the productive, administrative, commercial or other tasks carried out by the firm on a daily basis. Internal auditors must possess theoretical knowledge, technical skills and, of course, impeccable ethics.
In certain cases, however, the internal audit is entrusted to external professionals (that is, experts who are not employees). That is why we talk about an outsourced internal audit .
An internal audit can contribute to loss prevention.
Types of internal audit
Although internal audit can be referred to in a broad sense, it is common for inquiries to be limited by activity or area. Thus, audit tests are oriented toward particular issues or topics.
The audit of financial statements is carried out after the end of each accounting year. This financial analysis reviews the accounts and results.
The compliance audit inspects compliance with the company's own policies and rules. In this way, you can notice if any member is not acting in line with the corporate culture.
With an operational audit , on the other hand, the aim is to review the core processes of the firm. This is relevant to examining how available resources are being used.
The human resources audit , meanwhile, focuses on the management of workers. You can inspect everything from the 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 audit that can be executed.
The stages
The development of an internal audit is carried out in stages. The first phase consists of identifying the sectors or processes that you want to control since, as we indicated above, audits can be aimed at specific aspects.
Then a schedule must be established: this is key so that it is possible to examine the progress of the procedure and to inform those responsible for the different offices when they have to prepare and display the documentation to be studied. Once this is done, the work itself begins.
When the internal auditor completes his work, which includes reviewing documents, interviews and questionnaires with workers and managers, and observing practices, he must make the results known. This phase includes the delivery of a report with recommendations.
The last step of the internal audit consists of monitoring to implement improvements and evaluate their results.
Common errors in an internal audit
It is possible to mention several errors that frequently occur when carrying out an internal audit. A common failure is not carrying out the corresponding planning , which leads to deadlines not being met or even the process ending up failing.
Poor collection of documents and evidence is another shortcoming. Without these records, proper monitoring cannot be carried out. In other cases, the failure appears in the monitoring stage: the recommendations are not applied correctly .
It cannot fail to be mentioned that many times the problem lies with the internal auditor himself . If you do not have the necessary professional training, are not objective or communicate poorly, the result of the process will be far from optimal.