6 Reasons Why an Internal Audit is Important
- November 22, 2022
Many business owners ask: Is an internal audit necessary? What if we have limited resources? Is it worth it to spend on an internal audit program?
If you want to provide secure and compliant services, then you need internal audits. Likewise, you can use an internal audit company checklist to ensure compliance.
Internal audit provides insight into the policies and guidelines of an organization. It ensures that the company is compliant and reliable. It also gives assurance that the business is operating as it should.
6 Reasons Why an Internal Audit is Important
Here are six top reasons your company should have an internal audit.
It Assesses Risks.
An internal audit helps identify and focus on risks. You can recognize any environmental gap in your company and recommend a plan for its remedy. You can also track and document changes and resolutions to risks.
It Ensures Compliance.
Relevant laws and regulations exist for compliance by businesses. An internal audit will check if your company complies with these laws. It can also prepare your organization for the succeeding external audit.
It Improves Efficiency.
Internal audits make companies more efficient by monitoring and reviewing their processes. These can identify control recommendations that can then improve operations.
It Ensures Objective Evidence.
Get a team of internal auditors to perform an internal audit. It provides objective evidence and works in checking your operations. It also adds value to your business through an unbiased perspective.
It Increases Productivity.
An internal audit helps your company realize its objectives through a systematic method. It evaluates your risk management policies to see if they are effective. The audit also improves the processes in your organization. These then help to improve productivity levels in your company.
It Protects Your Assets.
An internal audit can uncover fraud. You can get recommendations from auditors on how to manage this. They can advise how to put up systems to prevent the misuse of company assets. When your company has established rules, it can avoid risks and maintain compliance.
FAQs on Internal Company Audits
Below are some of the crucial questions when conducting internal company audits. These will help you understand the internal audit process. It will also shine a light on its significance to your business.
What are the steps in an internal audit?
An internal audit often starts with identifying reasons for the audit. There are many reasons for the need to conduct an audit. It is also critical to determine the scope of the audit. Auditors will use these in collecting evidence.
After identifying the reasons, auditors will determine the critical areas of risk. It is a must to know what these areas are and to see if they pose a danger to your business operations. Auditors then organize their audits based on the following:
- Company structure;
- Sources of information that need auditing; and
- Other factors that are relevant to the task.
The auditors will continue working with you to develop the audit team. It will often consist of internal staff and consultants from the auditing company.
Once the team is complete, the auditing process will start. Once done, the auditors will make recommendations based on the findings.
They will process the relevant information that will help you make informed decisions. They then endorse these to you so you can make the necessary improvements in your operations.
The auditors will then schedule a follow-up. It will allow them to check if your company has implemented the recommendations and if these have the desired results.
What do I need to know about internal audit checklists?
An internal audit checklist is a tool that functions as a guide for the audit process. Auditors use it to assess if the company meets requirements. It may include reviews of financial reports, assessments of systems, and employee interviews.
An internal audit checklist ensures the auditors cover all the areas for auditing. It also makes their auditing process systematic and organized. Furthermore, it improves the quality of their audits.
What items are on an internal audit checklist?
It will depend on the specific needs of a company. The following are the most common items in an internal audit checklist:
- Context of the company. This section includes the size of the company, its structure, and its products/services.
- Document control. It includes quality management system documentation, procedures, and records.
- Management responsibility. It specifies how the management is responsible for ensuring the systems are effective.
- Resource planning. It checks whether the company addresses the identified risks. It also evaluates if the company plans for it by allocating resources.
- Support and resources. This section shows if the company has the needed resources. It includes having competent and qualified employees.
- Operation. It shows if the company is implementing the established processes. It also checks if the processes meet the set requirements.
- Performance evaluation. It evaluates the effectiveness of the quality management system of the organization.
How often should my company conduct internal audits?
The answer to this will depend on several factors.
The Compliance History of Your Company
A company with experience of frequent deficiencies needs regular internal auditing. If you need help achieving company targets, performing regular internal auditing can help.
The Complexity of Your Processes
Crucial business processes need regular auditing. Low-risk business processes can have less frequent audits.
New and Existing Business Processes
If your company has new processes, you can have regular audits to assess its stability. You can audit established processes that run efficiently once each year or every other year. You can also choose to audit various processes at different times.
Companies that get certifications from an industry standard organization need annual internal auditing. Regular auditing ensures their systems remain compliant. With continuous auditing, companies can detect errors and fraud and prevent opportunities to misuse funds. It also improves business systems and contributes to productivity.
Does my company need a consulting firm to perform an internal audit?
If you get a third-party consultant, you get the following benefits:
- Trained experts. You can access the expertise and experience of a professional audit firm. Their authorized reports are crucial in improving your business.
- Independence. A third-party auditor is free from the influence of the audited parties. They have fresh eyes that can identify deficiencies in your company. They can also recognize areas where you need to improve.
- Expert insight. You can get valuable advice from a third-party auditor. Their recommendations can help you make better decisions about your company’s future.
What should my company do if the internal audit shows failure in compliance?
It would be the best time for your company to implement changes to your system. An internal auditor can determine what you need to do to resolve the issues that came up during the audit.
You can get guidance and recommendations from a consulting service in addressing non-compliance. You can work with them to develop plans and strategies to resolve the deficiencies.
You can also get support and practical advice to make informed decisions.
How can my company prepare for a successful internal audit?
To prepare for an audit, you need to do the following:
Train your employees.
Your employees are fundamental to an internal audit. Train them to ensure that they can better understand the auditing process. Give them feedback to help improve their performance.
Establish objectives for an internal audit that will promote better reporting from employees. Goals include business objectives, control methods or systems, and regulatory compliance standards. Doing that ensures your staff understands how the audit will measure their performance.
Develop policies that encourage employees to report problems without worrying about them. Some employees may be hesitant to report issues due to repercussions. Set guidelines that can give them the confidence to provide the necessary information.
Prepare the required documents.
Organize and update your documents, such as company policies and procedures. These will be the standard that auditors will use to review your operations.
Ensure that your third-party service providers have secure methods for protecting sensitive information.
Make sure they have systems that protect valuable data. Check that the service agreements you signed are fully covered.
What can outsourced internal auditors offer my business?
Third-party consulting firms provide different types of internal audits.
- Pre-Audit Due Diligence. Auditors will determine the scope of the audit and identify relevant data sources. They will then decide who to involve among your internal personnel.
- Audit Structuring and Planning. The auditors will develop and plan your internal audit. It is to ensure that the process will be efficient and comprehensive.
- Audit Execution. This service includes conducting all aspects of your internal audit. It also covers working with third-party data storage. It may also involve methods like scanning devices employees use for relevant data.
- Management and oversight. Auditors will work with internal staff during the audit process. They will manage your personnel so you can focus on your business.
- Data Analysis and Reporting. Consultants will analyze the information and consider the issues or compliance obligations. They will then report recommendations that help you make informed decisions.
Why do I need an external consulting firm to do internal auditing?
To conduct an internal audit, you should have expertise in auditing. You need to be knowledgeable about auditing procedures. Unless you have an internal expert, you should entrust auditing to professionals.
Third-party auditors have broad expertise in best management practices. Their skills come from performing audits across different industries. They also have up-to-date knowledge of regulatory requirements that you should consider.
With a regular internal audit, your company complies with standards and regulations. Get your clients to continue trusting you with the help of these internal audits. Moreover, you can avoid hefty fines caused by non-compliance.