Everything You Should Know about An Internal Audit

Internal Audit

Regardless of the industry, most businesses face stiff competition throughout the year. Whether you are a start-up or a large company, it’s crucial to monitor and maintain the operational efficiency of your company. This is the reason why internal audits have become a necessary component for the success of any business. The dynamic pace of the business landscape also means that you cannot afford to effectively evaluate and manage risk as it can ruin any type of organization. 

Remember that you can use internal audits to evaluate the quality of the hospital system based on specific standards. Any healthcare organization should use top rated internal audit services for hospitals to continuously improve the quality of its services. If your clients expect services or products that are compliant and secure, you must make sure that you make the most out of internal audits. This article discusses everything you should know about an internal audit.

Internal audit explained

The role of an internal audit is to offer independent assurance that a company’s risk management, internal control processes, and governance are operating effectively. Internal auditors perform various activities and they are independent of the operations they evaluate and report to the senior management. In most cases, they tend to report to the board of directors, the audit committee, or the accounting officer.

The internal audit service provider needs to have skilled, qualified, and experienced team members who can work according to international standards and code of ethics. Keep in mind that internal auditors handle issues that are fundamentally necessary to the prosperity and survival of any company. Unlike external auditors, internal auditors usually look beyond financial risks. They can consider wider issues like the company’s reputation, its impact on the environment, growth, and the way it deals with its employees.

In short, internal auditors can help your company succeed by combining assurance and consulting. When it comes to assurance, internal auditors can tell your managers and board of directors the effectiveness of the systems and processes that are designed to keep the company on track. With consulting, internal auditors assist to improve these systems and processes.  

Internal audit is often concerned with evaluating the management of the risk of your company. All companies face risks. For instance, there can be health and safety risks, risks to the reputation of your organization if it handles clients incorrectly, cyber risks, market failure risks, and financial risks. The key to the success of your organization is to effectively manage these risks. 

Therefore, an internal auditor needs to evaluate how you are managing these risks. In such cases, they can assess the risk management processes to determine their quality. They can also assess your corporate governance processes and systems of internal control, across all areas of your company. After the assessment, the internal auditors report their findings to the most senior management and the audit committee of the board. 

Internal auditors can also help your management to improve internal controls. They usually have good knowledge of the management of risks, so they can work as consultants offering advice and help in improving the practices of your organization.

For instance, if your line manager is worried about a certain area of responsibility, then working with an internal auditor can assist to identify improvements. Alternatively, if there is a major new project you intend to launch, an internal auditor can help to make sure the project risks are identified and assessed, and have a course of action to manage them. 

As explained earlier, an internal auditor can evaluate the management of risk. Take note that everyone in your organization including those from the boardroom and mailroom is usually involved in internal control. Therefore, the work of an internal auditor is to assess the risk management culture of your company. They also evaluate and report on the effectiveness of management policies.

It’s worth mentioning that it’s the job of management to identify the risks that the organization is facing and understand how they can affect the delivery of its objectives, especially if they are not managed properly. A manager needs to understand the level of risks the company is ready to live with and implement controls to make sure that the limits are not exceeded. You can find some companies that can deal with higher risks that come from changing economic or business conditions and trends. 

Therefore, the techniques used in internal auditing have changed. Internal auditors no longer want to be control-based and reactive, so they are now opting for a risk-based and proactive approach. This helps an internal auditor to expect potential future opportunities and concerns providing advice, assurance, and insight. 

Managing valuable organizational resources and achieving objectives requires processes, systems, and people. An internal auditor works closely with line managers so that they can review operations and report their findings. This is why an internal auditor understands the strategic objectives of most companies and the sectors in which they operate. This means that they have a good understanding of the operations of organizations. 

The benefits of performing internal audits

Internal auditors report to executive management that crucial risks the organization is facing have been evaluated and recommend areas for improvement. In this way, the internal auditor assists executive management as well as board members to demonstrate that they are handling the company effectively for their stakeholders. 

The evaluation is summarized in the audit report’s mission statement which emphasizes that the role of internal audit is to enhance and protect the value of the organization by offering objective and risk-based assurance, insight, and advice. Therefore, an internal auditor alongside the executive management, the external auditors, and the non-executive management are a crucial part of the governance of any organization. 

As risks continue to change, internal audits are still a critical process for offering quality assurance. Your organization needs to do internal audits for control assessment. Perhaps, one of the key reasons for doing internal audits is for control assessment. It gives you the chance to assess your internal controls to ensure that they are efficient and operationally effective. As a result, this can help you to enhance the control environment of your organization. Ideally, the main assessment here is to determine whether or not the controls are doing their purpose. You can also determine whether or not they are enough for risk mitigation. 

Internal audits also help you to determine if you are meeting compliance requirements. Besides the peace of mind that comes after doing an internal audit, it also makes sure that you are compliant with several relevant standards and regulations. For example, compliance benchmarks like ISO 27001 information security standards require an internal audit before they can deem you compliant. You need to perform internal audits so that you can manage risks and protect your company’s data.  

An internal audit can also improve operational efficiency. Because internal audits offer an objective review of your company’s policies and procedures, you can be confident that the company’s processes are enough for mitigating related risks. Aside from this, when you constantly monitor the processes, you can be in a good position to quickly identify operational gaps, so you can improve efficiency.

Also, internal audits tend to provide independent and unbiased insight. Regardless of whether it’s for the whole company or some departments, internal audits offer you an unbiased insight into the effectiveness of your internal controls. If your company has limited resources and you cannot set up independent audit teams, you can decide to cross-train your members of staff to audit the departments of each other.

Above all, an internal audit helps in risk mitigation and asset protection. They can assist you to identify gaps in your company that can be corrected to protect your assets. In most cases, this can assist senior management to identify and prioritize risks and mitigate them in your business.

Assuring senior management as well as the audit committee of the board that risks are being handled properly is not the only role of an internal audit. There are good chances that there can be other assurance providers who do a similar role. This may include compliance officers, risk management professionals, quality managers, fraud investigators, and security managers. But there is a difference between internal auditors and assurance sources. You should note that an internal audit is often independent of management operations and can offer unbiased and objective opinions about how risks are managed and reported. Internal audit achieves this independence by reporting to the audit committee’s chair and having administratively report to the chief executive. 

The good thing about this structure is that an internal auditor can work well with other assurance providers to ensure that the audit committee of the board gets all the assurance they need to help them have opinions about how the company is managing its risks. Also, it means that the assurance resources are maximized so that there is no duplication and gaps in the provisions of assurance. The key features of an effective internal audit are developing effective working relationships and teamwork. Simply put, conducting internal audits is important for all organizations so that they can confirm that controls are in place and identify opportunities for improvement.

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