Across industries, there’s a widespread notion that only large, complex establishments need to be subjected to internal audits. This, of course, paints an inaccurate picture of what internal audits are all about and the benefits they provide.
Besides, all companies need to abide by certain regulations or face compliance issues, and maintaining operational efficiency is always important – all these and more are just some of those many business concerns that an internal audit can address.
But what happens during an internal audit, and does your company need it?
Here, we’ll explore the world of internal audit and discuss 6 benefits it provides for businesses.
What Is an Internal Audit?
The Institute of Internal Auditors defines internal auditing as “an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes.”
In sum, an internal audit is designed to monitor the extent or level of effectiveness of internal controls set by management.
These so-called internal controls (aka “management controls”) include the following:
- Organizational plan or all those processes designed to organize, direct and control operations
- Methods, procedures and systems that measure, report and monitor performance
- Measures adopted by the management to bring reliability, accountability and traceability for every action, forming part of the organizations processes
Additionally, internal controls are a company’s first line of defense against fraud, non-compliance to laws and regulations, and violations of provisions embodied in contracts and agreements.
What Happens During an Internal Audit?
An internal auditor primarily focuses on reviewing and analyzing documents or paperwork concerning a company’s risks, goals and performance. They also observe the implementation of specific strategies designed to achieve company objectives.
During the audit, the designated professionals make their objective observations and take notes. They also interview employees with the aim of understanding the following:
- How they perform in their functional area
- What controls are being followed
An internal audit also includes a meeting with the director or board responsible for hiring the auditors. During this consultation, the auditors can discuss their findings and suggestions for improvement, and how these can best be implemented in the company.
Depending on the size of the company or department under review and the scope of the audit, the process may take a few weeks or months to finish depending on the audit plan.
Benefits of Internal Auditing
In general, internal audits provide companies opportunities to improve and grow; that is, if areas of improvement are targeted and addressed.
The internal auditing process also offers many specific benefits, including the following six:
1. Strengthens Internal Controls
Since internal audits are focused on what internal controls are in place, such as your enterprise control environment, they give companies the opportunity to ensure these are well-designed, effective and efficient.
An internal audit lets business owners know if established management controls are working as they should and working to achieve their objectives.
2. Enhances Efficiency
Is there a better way of doing things?
This is just one of the questions an internal audit answers when it comes to efficiency concerns. With an internal audit, it becomes easier to identify redundant business practices and procedures, and come up with recommendations to improve or streamline processes. This, in turn, can save businesses both time and money.
3. Improves IT Security
During an internal audit, your cybersecurity environment is subjected to close scrutiny.
An IT audit, for example, includes creating an inventory of all your company’s digital devices and checking how these are secured in line with your policies. Auditors will also assess your digital systems and networks for vulnerabilities and provide valuable advice on how you can work on plugging gaps or weaknesses.
4. Verifies the Accuracy and Integrity of Financial Statements
Integrity is a major requirement for businesses to flourish. If there’s any indication of corruption or financial irregularities in a company, this could signal its eventual demise. Investors and partners could pull out, and a company’s instability and subsequent collapse may be just a few steps away.
With an internal audit, you can establish with accuracy (and with the help of objective professionals) that your finances are intact and that everything is in order. This, in turn, helps earn the trust (and investment) of various stakeholders.
5. Helps Minimize Risk
An internal audit takes into account any or all identified risks to your enterprise. It also evaluates whether your risk mitigation strategies are working as intended.
When there are gaps, risks or inefficiencies that remain unaddressed, an audit reports provides the information you need to resolve such concerns.
6. Ensures Compliance
Internal audits are designed to check and ensure your organization is compliant with relevant laws, regulations, and industry standards.
If the compliance issues are found during the audit, the auditors give recommendations on how your business can remedy the problem effectively.
Schedule an Internal Audit Today!
An internal audit can assist management with its risk assessment process and ensure that a company’s established system of internal controls is delivering as it should.
If problems are identified, management can take this as an opportunity to strengthen internal controls, improve efficiency and security, minimize risk and ensure integrity and compliance – all of which are essential to business growth.