Internal auditing improves business performance, adds value to essential business activities, and streamlines objectives by integrating a disciplined and systematic approach to analyse and boost the efficiency of control, risk management, and governance processes.
The primary role of an internal audit is to provide independent assurance over an organisation’s internal controls and risk management framework. It also checks whether or not an organisation follows internal standards, protocols, and regulations.
But conducting an internal audit isn’t like assigning an employee a task and being done with it. When performing an internal audit, you have to meet specific milestones or stages to ensure legal and operational efficiency.
Wondering what these stages are? Let’s look at the four stages of an internal audit that demand the most focus.
Planning
The internal audit and the audit committee should have a strong relationship because they’re essential sources of information and advice.
For an internal audit to be effective, it’s essential to indicate the audit topic before you begin clearly. That means the auditor should be capable of demonstrating an understanding of critical topics, objectives, and issues and be able to hold an informed discussion with management on the topic.
The planning stage also involves research for the topic of the audit. The research may include a review of laws, regulations, procedures, relevant reports, financial statements, etc.
The audit objectives should also be made clear at this stage. Internal auditors should clearly outline everything to be achieved by the audit. A fundamental internal audit perspective is looking for efficient ways rather than ensuring compliance or financial correctness.
Moreover, the internal auditor should use a recognised internal control framework that provides a structure for audit objectives. Other instances to take care of during the planning stage include:
- Audit criteria
- Audit scope
- Terms of reference
- Audit budget
- Audit work plan
- Audit sampling
- Opening meeting.
Once the internal auditor has performed sufficient research, settled on an audit frame, and outlined auditing goals, they’ll create a thorough audit work plan to provide a pathway for investigation. The outcome of the internal audit is an internal audit report.
Fieldwork
After the planning stage, the internal auditor will use the step-by-step audit work plan and make amendments to the audit as necessary. The internal audit will gather evidence to support the plan’s conclusion.
The fieldwork also includes reviewing documents and papers that aid in audit planning, performance, and review. They also help support the accuracy and completeness of the internal audit.
Another critical factor is audit supervision. Internal auditors should adequately supervise the internal audits to ensure quality is assured, objectives are achieved, and the audit objectives have been met.
Moreover, the fieldwork stage also includes the audit resource summary, interim meetings, and closing meetings. The closing meeting is held between the internal auditor and audit sponsor to discuss the audit results and address any concerns raised by the audit sponsor or the auditor.
Reporting
The reporting stage includes providing a conclusion and insights into every audit objective. However, a conclusion that requires remediation must be analysed critically before being entered into an audit report.
Critical analysis helps find the fundamental cause of business issues and provides valuable recommendations that lead to meaningful change. It is also good practice to ask the audit sponsor to provide feedback at this stage.
Once all feedback has been incorporated into the conclusion, a root cause analysis, a problem-solving methodology, must be performed to find the underlying cause of business issues. The analysis uses a systematic process to reveal the underlying root cause of an error, problem, or missed opportunity.
Monitoring and Follow-up
The last stage of the internal audit is monitoring and follow-up, where a system should be established to monitor the progress of management in implementing the audit recommendations.
The follow-up can be conducted through audit recommendations across several audits.\
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