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What is Internal Audit Management?

What is Internal Audit Management?

What is Internal Audit Management?
Why is Internal Audit Important?
Internal audit management is the process of planning, directing, and conducting internal
How is an Internal Audit Different from audits, which are comprehensive, independent reviews of an organization's procedures,
an External Audit? practices, policies, and accounting controls. The primary goal of internal auditing is to
provide assurance that an organization is effectively managing its risks and operations and
Who Conducts an Internal Audit? to evaluate the adequacy and effectiveness of its risk management, control, and
governance processes. Internal auditing is an objective process designed to add value and
Who is the Reporting Authority for an improve an organization's operations, and it helps organizations accomplish their
Internal Audit? objectives by using a systematic approach.

What are the Types of Internal Audits? It is also an analysis of the effectiveness of risk management and governance. The internal
audit function must continuously adapt to changes in the business environment and the
What is the Process of Conducting an needs of the organization and must be aligned with the strategic objectives of the
Internal Audit? organization and the risks it faces. It was formerly known as the "Internally Generated
Report", or "IGR" for short.
Using Technology for Internal Auditing
In this article, we will delve into the different aspects of internal audit management,
Why MetricStream? including its responsibilities and the benefits of strong management practices. We will also
examine some of the challenges and trends facing internal audit professionals today.

1:31

Why is Internal Audit Important?

Internal auditing is continually evolving. The function must continuously adapt to changes
in the business environment and the needs of the organization. Internal audit activities
must be aligned with the strategic objectives of the organization and the risks it faces.

Deloitte states that internal auditing "can help management to implement mechanisms in
the business that eliminate or reduce the need for the second or third line to assure
processes or controls.”

Here are some key reasons why the internal audit is important for an organization:
 It provides an independent, objective assessment of an organization's internal
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 It provides an in-depth, objective examination of financial and operational issues and

helps to maintain accurate and timely financial reporting and data collection

 It can identify potential areas of improvement and help organizations mitigate risks

 It plays a critical role in helping to identify and mitigate the risks that may arise from
non-compliance

 It can help organizations comply with laws and regulations

 It can improve organizational efficiency and effectiveness

There are many reasons why an organization might choose to conduct an internal audit.
Typically, an internal audit is conducted to assess risks and compliance within the
organization. By conducting an audit, organizations can identify potential areas of
improvement and take steps to mitigate risks. Additionally, internal audits can help
organizations ensure that they are adhering to internal policies and procedures.

An internal audit can also be conducted in response to external pressures. For example, if a
company is facing increased regulatory scrutiny, it might choose to conduct an internal
audit to demonstrate its commitment to compliance. Additionally, if a company is planning
to go public, it might need to conduct an audit to meet Securities and Exchange
Commission (SEC) requirements.

Ultimately, internal audits are conducted to improve organizational efficiency and

effectiveness. By identifying risks and areas for improvement, organizations can make
necessary changes to operate more smoothly and avoid potential problems down the line.

However, there are two primary reasons why an internal audit is conducted:

Credibility
An internal audit is conducted in detail to ensure that the company's financial statements
and other financial information are accurate and reliable. An internal audit is conducted to
ensure that an organization's financial statements and disclosures are free of material
misstatement and compliant with generally accepted accounting principles.

The audit also helps to identify any potential areas of risk or fraud.

Efficiency
An internal audit also assesses the effectiveness of an organization's internal controls.
Internal controls are processes and procedures implemented by an organization to ensure
the integrity of its financial statements and disclosures. They include processes for
recording, storing, and processing transactions; methods for collecting and reviewing
financial information; and systems for ensuring compliance with laws and regulations.

How is an Internal Audit Different from an

External Audit?
Although both internal and external audits are conducted to achieve fairly similar goals,
they are vastly different in their nature and origin. Here are some of the differences
between internal and external audits:

Conducting Body
An external audit is conducted by an independent body, whereas an internal audit is
conducted by the organization itself. Internal audits are conducted by a company's own
employees, while external audits are conducted by independent third parties.
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Since the objective of internal audits is to conduct an assessment on the spot, external
audits are conducted as an outcome of regulatory requirements. External audits are
required by law in some countries, while internal audits are voluntary.

Focus
Internal audits focus on a company's internal controls and procedures, while external
audits focus on financial statements.

Frequency
Since external audits are mandated by authorities, they have a prescribed and defined
period within which they must be regularly conducted by an organization. However, since
internal audits are not mandatory, they can be conducted at the desired frequency.

Notably, internal audits are usually conducted annually, while external audits are
conducted every two to three years.

Cost
Internal audits are less expensive than external audits. This is one of the reasons why
internal audits are conducted more frequently than external audits, even when not
mandated.

Outcomes
External audits provide an objective opinion on a company's financial statements, while
internal audits provide an objective opinion on a company's internal controls and
procedures.

Who Conducts an Internal Audit?

An internal audit is usually conducted by a team of internal auditors who are qualified
professionals.

In order to be considered qualified, internal auditors should possess the following

attributes:

 A strong understanding of the internal audit process and its principles

 Knowledge of the organization's industry and its operations

 Familiarity with relevant laws, regulations, and standards

 Strong analytical and problem-solving skills

 Excellent communication and interpersonal skills

 Ethical conduct and objectivity

Internal auditors may also be certified by professional organizations to demonstrate their

competence and commitment to the profession.

The internal audit team reports to the internal audit committee, which typically includes
senior management members such as executives from the board of directors or the board
of trustees, the accounting officer, or other highly qualified personnel. The internal audit
committee is responsible for overseeing the internal audit function and ensuring that it is
effective and aligned with the organization's goals and objectives. The internal auditors
conduct the internal audits and submit their findings and recommendations to the internal
audit committee and senior management for review and action.

Internal auditors typically have a broad range of skills and experience. They use their skills
and experience to help organizations achieve their goals by providing objective, unbiased
assessments of risks and controls. Internal auditors are often involved in providing
assurance on the adequacy and efficacy of an organization's operational and financial
activities. They may also be involved in providing assurance on the effectiveness of internal
controls over financial reporting. In addition, internal auditors may provide consulting
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services on a variety of topics, such as enterprise risk management, business continuity
planning, and fraud prevention.

Who is the Reporting Authority for an Internal

Audit?
The reporting authority for an internal audit is the board of directors.

The board of directors is responsible for the overall governance of the organization. This
includes setting the strategic direction, approving the annual budget, and ensuring that
the organization is compliant with all relevant laws and regulations. Further, the board of
directors also appoints the internal audit committee, which is responsible for overseeing
the internal audit function.

What are the Types of Internal Audits?

Financial audit
A financial audit is an objective examination and evaluation of an organization's financial
statements and accompanying disclosures. The purpose of a financial audit is to express an
opinion on the fairness and accuracy of an organization's financial statements and
disclosures. Financial audits are conducted by independent public accounting firms.

Operational audit
An operational audit is an examination of an organization's internal controls and
procedures related to its operations. The purpose of an operational audit is to assess the
efficiency and effectiveness of an organization's operations. Operational audits are
conducted by internal auditors.

Compliance audit
A compliance audit is an examination of an organization's compliance with external
regulations or internal policies. The purpose of a compliance audit is to ensure that an
organization is adhering to all relevant laws and regulations and is following its internal
policies. Compliance audits can be conducted by external agencies, such as government
agencies, or by internal auditors.

Information system audit

An information system audit is an examination of an organization's information systems,
including hardware, software, databases, and networks. The purpose of an information
system audit is to ensure that the information systems are functioning properly and
securely. Information system audits are conducted by internal and external auditors.

Performance audit
A performance audit is an independent, objective evaluation of an organization's or
program's effectiveness, efficiency, and compliance with laws, regulations, and established
policies. It is essentially used to assess whether an organization is achieving its objectives
and goals.

Fraud audits
A fraud audit is an examination of an organization's financial statements and records to
identify potential instances of fraud. Fraud audits are designed to detect fraudulent
activities such as embezzlement, kickbacks, and money laundering. It is typically used to
investigate potential instances of fraud within an organization.
Risk management audits
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A risk management audit is the process of assessing an organization's ability to identify,

manage and respond to risks. It can be used to evaluate the effectiveness of an
organization's risk management practices and procedures, as well as its overall risk
management strategy. Its primary goal is to examine an organization's risk management
practices to ensure they are adequate and effective.

What is the Process of Conducting an Internal

Audit?
An internal audit includes several sections that help organizations achieve the desired
results. One of the first components required to conduct an internal audit is an audit plan.
The plan should include the scope of the audit, the objectives, the timeline, and the
resources required. Next, the auditor should develop audit procedures. These procedures
should be designed to assess the risk of material misstatement and to test the
effectiveness of internal controls. The auditor should then perform the audit procedures
and document the results. Finally, the auditor should issue a report detailing the findings of
the audit.

Audits can be either top-down or bottom-up. A top-down audit selects a control area to
examine based on predetermined criteria, while a bottom-up approach looks at a broad
range of issues before choosing a test group. There is no one-size-fits-all answer to this
question, as the process for conducting an internal audit will vary depending on the
organization being audited and the specific goals of the audit.

However, here is a typical sequence of steps that organizations typically follow to conduct
an internal audit:

Determine the scope of the audit

The first step in conducting an internal audit is to determine the scope of the audit. This
means deciding which areas of the organization will be audited and what aspects of those
areas will be included in the audit. This includes defining objectives, scope, and
methodology for the audit.

While defining scope, auditors must find answers to questions such as – what areas of the
organization will be covered by the audit or what specific goals does the audit hope to
achieve?

Develop an audit plan

Once the scope of the audit has been determined, an audit plan must be developed. This
plan will detail the specific steps that will be taken during the audit, who will be responsible
for each step, and the resources and time that will be used.

Conduct the audit

The next step is to conduct the audit. This involves carrying out the steps detailed in the
audit plan, collecting data and evidence, observing processes, reviewing documents,
interviewing employees, and documenting the results. Once the audit activities are
completed, an audit report is created with key findings, observations, and issues and
suggesting the next steps or recommendations for improvements.

Communicate the results

Once the audit is complete, the results must be communicated to the appropriate parties
in the form of an audit report. This usually includes the organization’s management team
as well as any external stakeholders.

Follow up
The final step is to follow up on the audit results. This may involve taking corrective action
to address any problems that were uncovered or implementing new procedures to prevent
similar problems from occurring in the future. Once the report has been issued, it is
 important to follow up with the relevant employees and managers to ensure that the
recommendations are implemented.
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Using Technology for Internal Auditing

Technology can be a powerful tool for improving the efficiency and accuracy of the internal
audit function. By leveraging technology, internal auditors can automate many of the
manual, time-consuming tasks associated with the audit process, such as data collection,
analysis, and reporting. This allows them to focus on higher-value activities, such as
evaluating the effectiveness of controls and identifying opportunities for improvement.

There are several ways in which technology can be used to enhance the internal audit
function:

- Data Analytics
Internal auditors can use specialized software to analyze large volumes of data quickly and
accurately, identifying trends, anomalies, and patterns that may indicate potential risks or
areas for improvement. This can help them to identify issues and trends that may not be
immediately obvious through traditional manual processes.

- Automation
Technology can be used to automate many routine tasks associated with the internal audit
process, such as data collection and analysis, document management, and report
generation. This can help to reduce the time and resources required to complete audits
and improve the accuracy and consistency of audit findings.

- Collaboration
Technology can facilitate collaboration among internal auditors and other stakeholders,
such as management and external auditors. For example, auditors can use collaboration
tools, such as cloud-based platforms, to share documents and communicate in real-time,
which can help to streamline the audit process and improve the exchange of information.

- Risk Assessment
Technology can also be used to support risk assessment activities, such as by providing
real-time data on operational and financial performance, or by helping to identify and
prioritize areas of risk. This can help internal auditors to focus their efforts on the areas
that are most critical to the organization's risk profile.

Overall, the use of technology can help to make the internal audit function more efficient,
accurate, and effective, by enabling auditors to access and analyze data more quickly and
comprehensively, and to collaborate more effectively with other stakeholders.

Why MetricStream?
Internal audit management software is important for organizations to manage their
internal audit processes. MetricStream offers state-of-the-art Internal Audit Management
capabilities that allow organizations to significantly decrease their audit review time and
issue resolution time, as well as save up on the cost of audits.

At MetricStream, we help organizations streamline their internal audit processes, improve

communication between internal audit and management, and track and report on internal
audit activities. Additionally, it helps organizations improve their overall internal audit
effectiveness and efficiency.

What is Internal Audit Management?

 +1-650-620-2955 Contact Us Request Demo
Why is Internal Audit Important?

How is an Internal Audit Different from an External Audit?

Who Conducts an Internal Audit?

Who is the Reporting Authority for an Internal Audit?

What are the Types of Internal Audits?

What is the Process of Conducting an Internal Audit?

Using Technology for Internal Auditing

Why MetricStream?

What is Internal Audit Getting Started with UK SOX Multinational Bank

Management? Compliance: The First Steps Audit Productivity w
What is internal audit management? Learn Here is a practical guide for organizations
Future-Ready Aud
all about how to effectively conduct an as they embark on the journey to prepare Managing an internal aud
internal audit… for UK SOX… a highly regulated sector
and…

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