An audit can be defined as a process where business records are examined by an auditor to determine whether a business’s financial statements appear to be accurate. There are two types of audits: external and internal. It is important to understand the meaning of the two as your organization may at one-point experience both. It’s important to remember conducting an audit can help an organization identify and avoid any potential issues or IRS triggers.
An internal audit is typically done by an employee of the company, and the information is passed on to the Board of Directors and/or members of management. If you do not feel as though you have someone who can perform an internal audit an outside firm can be hired. The purpose of an internal audit is to measure how the organization is performing in relation to set goals, making sure that your organization is performing to the best of its abilities.
Types of Internal Audits
There are several types of internal audits that can be conducted within your organization. However, there are three internal audits that you should consider conducting on a regular basis.
Financial Audit: An audit of a business’s accounting records, verifying income, expenses and liabilities for accuracy.
Management Audit: An audit of your roles and the roles of your employees and comparing them to the business goals.
Operational Audit: An audit of a business’s day-to-day activities like customer relationships, income from sales and expenses.
Internal Audit Process
When conducting an internal audit, it is important to understand that the process will typically consist of four general phases; Planning, Field Work, Reporting and Follow-Up.
Planning: A scheduled meeting by the auditors to go over focus areas and desired results, while also potentially reviewing prior year results.
Field Work: The actual act of auditing, boots on the ground, which can entail various details and processes, dependent on the organization being audited.
Reporting: At this point the audit will be drafted, reviewed with a member of management and issued.
Follow-Up: After an audit has been issued, follow up ensure that recommendations have been implemented and are functioning as desired.
Internal Audit Value
You may be asking what value does an internal audit bring to the organization as it’s a cost center and will not generate revenue. An internal audit can have a positive impact on the growth and survival of an organization. Internal audits look beyond the financial statements and provide an objective assessment of controls and how they can be improved. Through this process your organization’s weaknesses can be identified and improved on, allowing for more effective controls to encourage growth and survival.