In this article, we look at the question “What is an internal audit?” and more. 

An internal audit is a process that evaluates a company’s internal systems, focusing on the organisation’s corporate and accounting procedures. It ensures that a business is compliant with relevant laws and helps ensure accurate and timely financial reporting and data collection. Internal auditors can either be employees or hired by external companies and work on behalf of management to identify and correct lapses, providing the tools necessary to achieve operational efficiency before any issues are discovered in an external audit. In this piece, we will unpack the role of internal audits in maintaining organisational integrity and efficiency.

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Internal Audit Definition

An internal audit is defined as an unbiased, objective assurance and consulting activity aimed at adding value to and improving an organisation’s operations. It involves a meticulous evaluation of a company’s internal controls, corporate governance, and accounting processes to verify compliance with laws, regulations, and to uphold accurate and timely financial reporting and data collection.

Internal auditors can be hired externally or act as employees. They are professionals that work diligently on behalf of management teams, and scrutinise the organisation’s workflows and systems, identify potential shortcomings or lapses in controls or processes. With this information, they provide recommendations for improvements, thus enabling management to make informed decisions and achieve operational efficiency.

Internal audits are instrumental in fortifying a company’s resilience, allowing for the identification and rectification of issues proactively, before being unearthed in an external audit. 

In essence, internal audits serve as a proactive measure to ensure organisational robustness and compliance, acting as a safeguard against potential future discrepancies and operational inefficiencies.

The Types of Internal Audit

There are many different types of internal audits, and the type will vary based on the organisation’s needs:

Compliance Audits

Compliance Audits are designed to assess whether a company is following external laws, regulations, and internal policies. These audits are crucial for avoiding legal penalties and maintaining a company’s reputation by addressing compliance issues proactively.

Financial/Controls Audits

Financial/Controls Audits focus on the monetary aspects and controls within an organisation. They scrutinise financial transactions and reporting processes to ensure accuracy, legality, and adherence to internal protocols, identifying any irregularities or areas for improvement.

Information Systems (IS) Audits

Information Systems (IS) Audits evaluate the organisation’s information systems to ensure the integrity, confidentiality, and availability of information. These audits focus on IT infrastructure, software applications, and data protection measures to mitigate information security risks.

Operational Audits

Operational Audits evaluate the effectiveness and efficiency of operating procedures and processes within an organisation. These audits aim to improve productivity and operational performance by identifying bottlenecks, wastages, and areas for improvement.

Integrated Audits

Integrated Audits combine aspects of financial, operational, and IT audits to provide a comprehensive overview of an organisation’s functions. They focus on interconnected risks and controls, offering a holistic approach to improving overall organisational effectiveness.

Construction Audits

Construction Audits scrutinise the costs and contracts related to construction projects. They assess whether the project adheres to the agreed terms, budgets, and timelines, ensuring optimal use of resources and mitigating the risk of project overruns.

Special Investigations

Special Investigations are typically initiated in response to specific concerns or allegations, such as fraud or misconduct. These investigations aim to uncover facts, determine accountability, and suggest corrective actions to resolve and prevent recurrence of the issue.

Follow-up Audits and Validation Testing

Follow-up Audits and Validation Testing are conducted post-implementation of audit recommendations. They assess whether the corrective actions taken are effective in resolving the identified issues and validate whether the desired outcomes are achieved, ensuring sustained compliance and improvement.

You can rely on Allen Audit & Advisory for all your internal audit needs.

How Often are Internal Audits Conducted?

The frequency of internal audits varies widely depending on the organisation’s size, type, industry, and associated risks. Some organisations conduct internal audits annually, while others may perform them more frequently, such as quarterly or even monthly, especially when addressing high-risk areas or undergoing significant operational changes.

An internal audit schedule is developed in consultation with key stakeholders and management, taking into account the organisation’s risk assessment and business objectives. The schedule is usually flexible to accommodate any unexpected issues or areas of concern that may arise during the year and need immediate attention.

Internal vs External Audits

  1. Appointment:

External auditors are appointed by a company’s shareholders, whereas internal auditors are typically employees or can be externally appointed, reporting to the audit committee and/or directors. 

  1. Area of Focus:

Internal auditors concentrate on evaluating and improving an organisation’s processes and control systems, focusing on operational business activities and ensuring compliance with internal policies and procedures. They also preemptively address issues that could arise during an external audit. 

External auditors, conversely, verify that an organisation’s policies and procedures are compliant with regulatory requirements, focusing primarily on financial compliance and accuracy. Hence, internal auditors have a more diverse scope than external auditors.

  1. Roles:

Internal auditors delve deeply into understanding and examining company processes, developing long-term relationships with clients, and assessing and optimising company procedures. External auditors review financial records and control systems, providing opinions on financial statements for reporting to entities like ASIC.

  1. Mode of Operation:

Internal auditors collaborate with staff and management to enhance business functionality, while external auditors independently review financial statements against regulatory standards and report to stakeholders. 

  1. Engagement Period:

Internal auditors work over extended periods, focusing on finances, business practices, and risks. External auditors, however, have a set engagement period, concluding their involvement once the audit is completed.

Find out more about internal vs external audits

Choose Allen Audit & Advisory for All Your Auditing Needs

At Allen Audit & Advisory, we offer a breadth of both internal and external auditing services, offering extensive knowledge and personalised service to ensure your business is operating at its most efficient, compliant, and resilient. Whether you are looking to delve deep into your organisational processes, or you need assurance on your financial compliance, our team is committed to providing you with the expertise and insights necessary to navigate the intricate landscape of corporate governance. We foster long-term relationships, focusing on delivering value and fostering organisational development and optimisation. For tailored audit solutions that align with your unique needs, contact Allen Audit & Advisory.