Not to get confused with IRS Audits, Many companies use internal audits to protect sensitive information and stay compliant with industry regulations, but they also benefit from the audits in other ways as well. Here are a few of the extra ways internal audit procedures can boost your business:
- Fine-grained assessments of internal performance
- Substantial improvements in risk management
- Identifying inefficiencies and other problem areas
- Providing detailed instructions on how to improve these areas
Just as importantly, internal audits give top company personnel a lot to reflect on. After an internal audit, management and board members are in an ideal position to ask themselves several pointed questions. What could we do differently regarding compliance? Are we doing enough to improve our techniques for risk management? How about our company procedures? Are they up-to-date or do we need to rethink them?
An internal audit can answer these questions and more. You can help this process along by learning a bit about how these audits play out.
What Should You Expect from an Internal Auditor?
The main purpose of an internal auditor’s work is to make sure that their client companies can stay competitive in an increasingly globalized market. Here’s a sampling of what you can expect an internal auditor to do:
- Assess and track the organization’s areas of risk and formulate the steps it will take to mitigate them
- Check the organization’s compliance with laws, regulations, and other relevant rules at the local, state, and federal level
- Report findings to owners/managers of the organization and advise them how to make necessary improvements
To sum up, auditors are responsible for accurately recording information on how the organization operates. Then, they use this information to identify and improve problem areas.
If they’re to be truly unbiased and optimally effective, audits are best performed by professionals who don’t have any personal connections to the organization they’re assessing. Therefore, it’s a good idea to invest in outsourced or co-sourced audits.
Internal vs. External Audits: What’s the Difference?
There are substantial differences between external and internal audits. Many of these differences lie in their respective goals and procedures. Internal audits aren’t regulated the way external audits are. This gives internal auditors more flexibility in the way they make their assessments.
Here are some of the distinctions that show how an internal audit can be more effective than an external one:
The general goal of an external audit is to collect credible financial information for company shareholders. For internal auditors, the top priority is education. They’re designed to come up with actionable suggestions and help improve company business procedures.
Different Directions of Responsibility
External auditors don’t have any obligations to the company they’re assessing. Their work starts and ends with verifying the accuracy of the organization’s financial statements. In effect, internal auditors are consultants who play a performance-based role. Their chief responsibility is more than the collection of information; they also add value by helping decision-makers put this information into profitable action.
Reports are Intended for Different Recipients
External auditors deliver their findings to shareholders or regulatory bodies. Neither of these groups are directly involved in governing the organization. Internal auditors report directly to the company, advising decision-makers and employees within the organization. They can even give individualized recommendations to specific people.
What Actually Happens During the Internal Audit Procedures?
Internal auditors gather information by studying the company’s documentation and observing employees and business procedures directly. First, they identify the company’s objectives and levels of risk. Then, they assess performance in terms of these objectives and formulate actionable ways to reduce the company’s risk.
Professional auditors have the experience and training required to determine what information they need to collect. They review documentation, observe work, interview employees, and document their findings meticulously. A significant part of the auditor’s job is to assess how well employees understand the organization’s objectives, compliance policies, and safety standards.
Typically, an internal audit can be completed in a manner of weeks. The size of the organization or department the auditor is studying is the biggest factor in the length of the audit. The audit is not complete until the auditors report back to the managers who hire them and deliver their findings and suggestions.
Why Conduct Internal Audits?
Regular audits go a long way, ensuring that employees are working effectively toward organizational goals. This holds true for both large and small companies. While audits can be beneficial to every industry, they’re simply non-optional in sectors like healthcare and financial services. Businesses benefit from audits because they receive an objective report on performance and gain insights on how to improve it. Self-monitoring companies perform corporate audits with the help of internal auditors to provide them with a company performance report.
An internal audit should never be a source of stress or anxiety for employees. Auditors come into a company to collect information, not to blame or criticize anyone. When explaining an audit to your employees, emphasize that it’s an educational exercise designed to strengthen the company as a whole.
On balance, businesses who rely on third-party internal audit procedures run more efficiently, demonstrate better regulatory compliance, and manage risk more effectively. To bring these improvements about in your company, learn everything you can about selecting a reliable internal auditor.
About Zach Inghram
Zach Inghram is a CPA and holds a BBA in accounting from Loyola University Chicago. He has a diverse professional background having held analyst, accountant, and audit roles within the insurance, infrastructure services, and oil & gas industries. As the sole proprietor of Inghram CPA, he provides tax and bookkeeping services locally in the Austin, TX area and remotely around the country. His clients commonly remark that he holds himself to the highest standards of honesty, integrity, and professionalism. In his free time, he and his wife enjoy being outdoors hiking, camping, gardening, and fishing.