Internal Audit – Definition

Cite this article as:"Internal Audit – Definition," in The Business Professor, updated January 17, 2020, last accessed August 13, 2020, https://thebusinessprofessor.com/lesson/internal-audit-definition/.

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Internal Audit Definition

Internal audit is an independent, objective, and consulting activity that improves and adds value to the operations of an organization. It ensures a systematic, disciplined approach for improving and evaluating the risk management effectiveness governance and control processes. All these help the organization to achieve its objectives.

A Little More on What is an Internal Audit

Generally, the role that internal audit plays in corporate governance and in the organization’s operations is crucial. Note that the 2002 Sarbanes-Oxley Act has legally given the managers the responsibility of ensuring that its financial statements are accurate.

The internal audit typically reports to senior management. These members must be independent of unbiased and internal politics so that they can be able to provide the management with information that is objective.

The internal audit is usually performed by professionals who are well conversant with the systems, culture, and processes of the business. They evaluate the internal controls of a firm, including its accounting and corporate governance processes. Some of their typical roles include the following:

  • Identify problems and correct lapses ahead of internal audit to ensure that the organization maintains efficiency in its operations
  • Monitor the results of operations and verify the accuracy of its organization as well as auditing trails
  • They also ensure that the company operations comply with the set laws and regulations
  • Provides value-added advice to both the management and board of directors and suggest improvements that can be done on the current practices and process. The improvement suggestions can be on supply chain management and technology systems, especially if their functionality is not meeting the organization’s expectations

Internal Audit’s Assessment Techniques

Assessment techniques are there to help internal auditors to understand procedures for internal control and follow up to ensure that employees within the organization comply with directives of internal control.

First, they make use of indirect assessment techniques to review flowcharts, departmental control policies, manuals, or other existing documentation. If during document reviews, the audit trails don’t fully answer the internal auditors’ question, they may resolve to conduct interviews with staff for clarification.

Also, where an internal auditor feels that there is a need to improve the internal control process, the officers will use analysis techniques to test specific data or random data.

Internal Audit’s Procedures for Reporting

During internal audit reporting, there is a formal report that may include a memo-style interim report or preliminary report. There is also what we call an interim report that usually consists of significant or sensitive results that the board of directors needs to know immediately.

A final intern audit report consists of procedures and techniques’ summary that auditors used to complete the auditing process. Also included are improvement suggestions to control procedures and internal controls.

References for “Internal Audit

https://www.iia.org.au/about-iia-australia/WhatIsInternalAudit.aspx

https://en.wikipedia.org/wiki/Internal_audit

https://www.investopedia.com › Investing › Financial Analysis

https://www.accaglobal.com/pk/en/student/exam-support…/internal-audit.html

https://www.iia.org.uk/media/91287/0731_what_is_internal_audit_dec_2012.pdf

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