Understanding Internal Audits: Process Types, Values, and Standards

No matter how well you think your business is operating, there are always areas that can be improved on, which is why internal audits can be so valuable for organizations looking to optimize their operations.

These audits aim to assess the company’s internal processes, their compliance standards, and how management operates. The actionable insights the audit provides help strengthen decision-making, protect existing assets and can act as a catalyst for unlocking growth and greater efficiency.

In this guide, we’ll explore the internal audit process, different types of audits, and the key values and standards that guide internal auditors.

The Internal Audit Process

To ensure a thorough analysis takes place, an internal audit typically follows a structured approach to ensure consistency. Each phase of the process is tailored to gather data, assess risks, and provide insights into your organizational efficiency.

• Planning Phase: The Preliminary Review is where the internal auditor formally notifies the client about the upcoming audit. This is where the scope of the audit is established and its objectives made clear. An Opening Conference brings the audit team and client together to align on these goals and outline the resources required.

• Fieldwork Phase: During fieldwork, the auditor uses different sampling methods to conduct Transaction Testing to assess the accuracy of records and the effectiveness of controls. Advice and informal communications take place as auditors inform clients about significant findings and potential resolutions.

• Audit Reporting: An Audit Summary compiles key findings, conclusions, and recommendations. This is followed by the Internal Audit Report, which documents observations, suggestions for improvement, and management responses. Audit Report Discussion Drafts are reviewed with the client before finalization, ensuring alignment on the content and recommendations. Exit Conferences act as a final meeting to review the draft and ensure all feedback is incorporated.

• Follow-Up and Review: Post-audit, the Follow-Up Report tracks the client’s actions on audit recommendations, ensuring issues are resolved. Regular Internal Audit Quarterly Reports to the board further promote transparency and accountability, maintaining continuous oversight of progress.

Types of Internal Audits

Internal audits cover various aspects of an organization, and each type serves a unique purpose to support governance, risk management, and compliance. Some common types include:

Compliance Audits: Compliance audits help ensure that processes meet established laws and regulations, reducing the risk of penalties.

Financial Audits: Financial audits evaluate your organization’s transactions, ensuring accurate accounting and proper resource use are taking place. 

Operational Audits: Operational audits review compliance, financial controls, and IT systems to ensure optimal performance.

Information Technology (IT) Audits: IT audits include checking security measures, backup protocols, and system reliability to reduce data security risks.

Investigative Audits: Investigative audits are conducted when there are allegations of policy violations or suspected fraud. 

System Development Reviews (SDRs): SDRs ensure that effective controls are integrated into new systems before they go live. This proactive approach helps ensure the system’s reliability and functionality.

Values and Standards in Internal Audits

Internal audits are underpinned by key values and standards that ensure integrity, reliability, and alignment with industry practices.

• COSO Framework (Committee of Sponsoring Organizations): The COSO framework lays out a comprehensive process for risk management and control, structured around five components: Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring. 

• COBIT (Control Objectives for Information and Related Technology): The COSO framework lays out a comprehensive process for risk management and control, structured around five components: Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring. 

• Professional Standards and Independence: Internal auditors adhere to industry standards, such as those from the Institute of Internal Auditors (IIA), ensuring objectivity, confidentiality, and professional competency. Independence is maintained by reporting directly to the audit committee or board.

Benefits of Internal Audits

Internal audits can help proactively identify and point the way forward to reduce risks across departments, allowing you to address potential issues before they escalate. By ensuring compliance with policies and regulations, they reduce legal and financial risks while offering insights into potential operational improvements. Internal audits strengthen governance and promote a culture of accountability and transparency, ultimately enhancing your organization's credibility and trustworthiness.

Conclusion

Internal audits are essential if your organization is one that seeks continuous improvement. They can uncover new ways to optimize processes and safeguard assets. Through a structured audit process carried out to the highest professional standards, internal audits can provide actionable insights that enable your organization and its leadership to make more informed decisions and more easily maintain regulatory compliance. 

Whether you’re considering introducing an internal audit or need other advisory services, Swift Audit & Advisory is here to help. Contact us to learn more about how we can support your organizational goals and help drive sustainable growth.