Not only is an internal audit important for ensuring information security and regulatory compliance, but it’s also a valuable way to evaluate company performance and manage risk. It is a helpful tool for businesses of all types. An internal audit assists an organization in defining areas where it could improve, while also providing information it needs to accomplish its goals.
For company boards and management, an audit is a great time to reflect and ask the following questions:
- Are we making progress towards our compliance goals?
- Is risk being managed effectively? Are policies and procedures being applied correctly?
- Could they be improved?
These are just some of the questions that an internal audit can successfully answer.
Now, let’s go through some of the main questions that organizations have about how internal audits work.
How Are Internal and External Audits Different?
Internal audits and external audits are quite different, both in terms of their objectives and procedures. The main difference is that internal audits are not regulated and can, therefore, be applied more flexibly. Internal audits may be used to highlight information that is helpful to a company seeking ways to increase information security, manage other risks more effectively and guarantee compliance.
These are some of the differences which demonstrate how an internal audit can be more effective than external audit:
|Internal Audits||External Audits|
|Objective||The objective of an internal audit is to educate management and employees about how they can improve business operations and efficiency.||The objective of an external audit is to give reliability and credibility to the financial reports that go to shareholders.|
|Owed Responsibility||An internal auditor is a trusted consultant charged with advising upper management on how to best manage the company’s risks and goals.||External auditors have no responsibility to the organization other than determining the accuracy of annual financial statements.|
|Reports to||An internal auditor reports to those within an organization||An external auditor reports to shareholders who are outside the governing structure of an organization|
What Happens During an Internal Audit?
When an internal auditor comes into a company or organization, they analyze documents regarding the company’s risks, objectives and performance, as well as observe how particular strategies are being implemented. Experts recommend relying on outsourced auditors as they are better able to view the operations of the company objectively and without the bias typical of actual employees.
During the audit, skilled professionals who know what to look for will observe, take notes, review documents and interview employees. Auditors will often test employees’ knowledge of company objectives, safety standards and compliance rules.
How Long Does an Internal Audit Take?
The time needed may take up to a few weeks, depending on the scope of the audit and the size of the company, or department, being assessed. Before it is concluded, an audit includes a consultation with the director or board that hired them to discuss how their suggestions for improvement can best be implemented.
What is the Purpose of an Internal Audit?
Auditing on a periodic basis keeps a company – big or small – and all of its employees at the top of their game. Regular internal audits are important for organizations in a wide range of industries, including financial institutions and healthcare providers. They are positive experiences for the business aimed at evaluating performance and identifying actionable ways to improve in the future.
This should not be considered an intimidating process for employees because the auditor is not there to place blame. When staff is informed of upcoming audits and their scope, the process provides excellent insight that will help strengthen your company and help it dominate the market.
Related article: Why Should You Consider Outsourcing or Co-Sourcing Your Internal Audit?
Businesses who periodically bring in a third party auditor, like I.S. Partners, LLC, are shown to have better performance, risk management, regulatory compliance, management control and governance processes over time.
Is Your Company Operating at Peak Performance?
If you want to make sure your company or organization is meeting the highest standards in every area, including data compliance and security, trust a third party auditor like I.S. Partners, LLC. It is an excellent investment in your company’s future.
Regular auditing will ensure your company is always in compliance, operating efficiently and one step ahead of the competition. To schedule an initial consultation, call I.S. Partners, LLC at 215-675-1400 or internal audit quote.
This blog was originally published in May 2017 and has been updated for accuracy and comprehensiveness.