An internal audit is an examination of an organization’s internal controls and procedures. The purpose of an internal audit is to ensure that these controls are adequate and are being followed. Internal audits are typically conducted by a company’s own employees, but they can also be conducted by outside firms.
When conducting an internal audit, there are four main steps that need to be followed: planning, fieldwork, reporting, and follow-up. Let’s take a closer look at each of these steps:
- Planning: The first step in any audit is planning. This involves obtaining an understanding of the company’s business activities, assessing the risks associated with those activities, and determining what controls are in place to mitigate those risks. This phase also includes developing an audit plan that outlines the specific procedures that will be performed during the audit.
- Fieldwork: The second phase is fieldwork, which is when the actual auditing is done. During this phase, auditors will test the controls that have been put in place to ensure that they are operating effectively. Testing methods can include interviews, observation, and analysis of financial data.
- Reporting: After the fieldwork has been completed, the auditor will prepare a report detailing their findings. This report will include a description of the control deficiencies that were found, as well as recommendations for corrective action.
- Follow-up: The final phase is follow-up, which is when the auditor makes sure that the recommendations from the report have been implemented. This usually entails conducting another audit after a period of time to verify that the corrective actions have been taken.
Internal audits play a vital role in ensuring that a company’s internal controls are adequate and effective. By following the proper steps and procedures, auditors can provide valuable insights into how a company can improve its operations.