Internal audit is a way to correctly identify sensitive and important issues within companies. It is also an essential tool to implement improvement programs, within the Kaizen principles , the Japanese philosophy that preaches continuous improvement .
Furthermore, without a rigorous audit, there is no way to qualify an organization to receive any of the ISO seals.
It is the first in a series of audits that are essential to ensure process compliance and drive continuous improvement.
It is recommended that it be done by specialists, however, nothing prevents company managers from learning and conducting this type of work.
What Is Internal Audit?
Internal audit is a “scan” of management processes , so that management can detect the exact point at which a problem starts to happen .
It is also a way to raise quality standards , which is essential when the objective is to expand markets or outperform the competition.
No matter how competent a manager is, it is certain that there will be aspects related to internal processes that will escape his control on a day-to-day basis .
In the industrial segment, for example, it can be very difficult to find the exact focus of a failure that is causing a batch of products to fail.
For these and other issues, an auditor’s intervention may be the only way to know which way to go and what to do to eliminate a production bottleneck.
ISO 19011 And Audit Guidelines
Although it can be done by non-experts, an audit is not a simple process.
In order to be credible and valid before the market and quality control bodies, it needs to be guided according to the principles set out in the ISO 19011 standard .
It contains the fundamental elements of an audit, so that its nature and objectives can be dimensioned.
It is through this document that those responsible for the audit will be able to manage the activities and determine where and how the due diligence will be carried out .
It also provides guidance on issues involving resource management, taking into account the responsibilities and goals to be met.
What Is The Purpose Of Internal Auditing?
The purpose of internal auditing is to tidy up the house and pave the way for a company or organization to achieve its business objectives .
To do so, she carries out a highly rigorous, we can even say fearless, self-analysis, with the aim of finding faults and correcting them , whatever the cost.
Even if internal, the audit needs to have an independent sector or department, with full autonomy to scour the processes in different sectors.
It doesn’t sound very nice , but in most cases, this is the only way to correct a flaw, even more so when that flaw is related to addictions or some problem to be solved within the company culture .
Who Does The Internal Audit?
The internal auditor, as the term implies, is someone who is part of the staff of the company being audited.
To carry out this mission, he needs to be qualified to conduct the procedures according to the guidelines set out in ISO 19011 .
As it is an exhaustive investigation process, the internal auditor generally works as a team .
However, depending on the extent of the audit and the size of the company, he may be able to carry out the process himself.
The most important thing is that he is qualified to carry out the necessary steps and to lead the people who are part of his team.
What Activities Are Carried Out In The Internal Audit?
Internal audit is made up of an extensive list of activities , such as the following:
- Analyze the quality standard achieved in relation to the tasks determined to fulfill the responsibilities determined
- Assess the organization’s strategic and business risks
- Point out the exact extent of compliance with operating standards, as well as procedures
- Indicate the level of credibility of the company’s data sources and financial, accounting, tax and tax information
- Examine and determine the extent to which the company’s asset controls are effective, in order to protect it against eventual losses
- Measure, review and analyze how effective the accounting, financial and operational controls are, as well as assess whether they are sufficient for the proposed objectives.
What Types Of Internal Audit?
An accounting sector demands control and evaluation instruments that are very different from what would apply to the IT sector, for example.
For this reason, the audit is categorized according to the segment in which it will be conducted.
It makes perfect sense, as different areas call for different approaches.
Another important point is that, as it is carried out by people from the company itself, it is only fair that the audit begins with someone who knows the sector.
In this way, it is the sum of all audits that will, in the end, compose the general audit of the company.
Find out below the main types and how they can be performed.
Accounting
Accounting is one of the most critical sector, as it takes care of fiscal and financial information .
An audit applied to the accounting part serves to validate the balance sheets made and to determine possible irregularities or discrepancies , based on data from previous closings.
The accounting audit analyzes the real situation of the company by examining documents and making a thorough investigation with internal and external sources about various financial aspects of the organization.
The cash flow, the balance sheet and the Income Statement (DRE) are among the internal items that can – and should – be audited.
Operational
In turn, operational auditing is the control instrument used for governance , as well as checking and correcting processes related to their routines.
In the definition of the Federal Audit Court, it consists of a process of systematic analysis and collection of data from an organization, program or activity.
It is a type of audit applicable mainly in segments such as the industrial sector , in which the focus of failures is usually on routines in assembly lines.
As it is a process that depends on the chaining of a series of steps, any mistake can lead to a dangerous ripple effect.
The internal audit is, therefore, the most suitable solution to detect where a failure can come from, as well as to point out where the production process can improve.
Systems
Brazil is the second country in Latin America that suffers the most from cyberattacks , second only to Mexico.
This condition only reinforces the need to invest in digital security , an aspect for which the audit proves to be quite a reinforcement.
Among its attributions are taking care of risk management, preventing possible attacks and any action by intruders .
It also analyzes the suitability of available hardware, which is essential in companies that still use on-premises systems.
Another of its many responsibilities is to investigate and point solutions to issues involving data access, as well as IT procedures.
Quality
For certain companies, setting a quality standard can be a very challenging task.
After all, where to start when looking to raise the standard of a product or service?
While it is necessary to listen to the consumer’s opinion , it does not always indicate the way forward to improve quality.
Therefore, internal audit is a solution to determine where, how, when and what the company can improve.
It is an integral part of Total Quality Management (TQM), a set of principles used by companies around the world to raise their standards.
Its main reference is the ISO 9001 standard , which gives general guidelines for implementing TQM in companies.
Environmental
In turn, the reference standard for environmental auditing is ISO 14001 .
In this aspect, it can be voluntary, when the company is willing to review its processes and environmental impacts , or compulsory, when the environmental authority requires it to be carried out .
Whatever the motivation, the environmental audit aims to systematically assess the performance of a certain activity, with a focus on protecting the environment.
Considering the relevance that the sustainability agenda has already achieved, the audit gains even more strength and representativeness in the business context.
Management
The management of a company can and should be subject to an internal audit.
Auditing a management is a broad process, with dozens of activities and processes that can also be “unbundled” in other audit modalities.
It can start with the management processes , in order to detect failures, inconsistencies, blind spots or to indicate ways to improve what already works.
In the financial part, she is indicated to audit the accounts, checking if the results match the company’s cash flow and balances.
There is also the audit of management systems , indicated for companies in search of an ISO seal.
Why Is An Internal Audit Important?
In a way, an audit is like “cutting into the flesh”.
The company is willing to make an entire effort of internal evaluation , so that it can correct its flaws and, with that, continue to grow.
It seems like a sacrifice, but in fact the audit is more about dealing with the pains that are inseparable from the entire growth process .
After all, those who don’t correct themselves, don’t improve, and those who don’t improve, stay behind.
In this aspect, everything starts with an intense investigative process and the determination of responsibilities through an internal audit.
Also known as a first-party audit, it is the starting point for a true “cure”, in view of objectives such as those described below.
Find Problems
In certain cases, the detection of a problem is beyond the control of the people involved in it.
The solution to a failure cannot be expected to come from some person or sector that is responsible for causing the failure.
Although it is carried out by people from the company, there is an entire preparation for them to acquire an impartial view of the situation .
In this way, they are able to detect with high precision the focus of a problem, thus being able to point out ways to solve it.
Define And Regularize Processes
Without processes, there is no business that moves forward.
The truth is that, in most cases, it is the faulty processes that lead an activity to perform poorly.
Not to mention the risks due to fraud and misconduct, which are directly related to the lack of control and compliance processes and mechanisms .
Auditing is fundamental not only because it investigates and detects errors in processes, but also because it acts as a kind of invisible inspection .
That is, knowing that they can be audited, potential fraudsters end up thinking twice before committing any irregularities.
Likewise, lax employees try harder not to leave “holes”.
Transparency
Ethics and transparency are non- negotiable values .
As we have pointed out, internal auditing is a way of eliminating from the inside out everything that could jeopardize the corporate reputation .
By doing this, the company sends a powerful message: that it does not tolerate the lack of smoothness in its processes and activities.
There is nothing better than an audit in this sense, considering its investigative and corrective nature .
This applies to all sectors of a company, with special emphasis on accounting, finance and activities with greater potential to cause damage to the environment.
How Does An Audit Work In Practice?
Simplicity is the term that best defines the modus operandi of an audit.
It all consists of detecting the need for improvement or determining responsibility for eventual failures, errors and deviations.
From this, the company must appoint a professional to conduct the routines of an audit and indicate people who can help throughout the journey.
If the person chosen to conduct the audit is specifically qualified to do so, the better.
If no one is prepared, however, it is up to the company to invest in their training .
Once the people responsible for the audit are defined, the investigative and verification work begins.
Identified the flaws or points of improvement, the auditor points out what to do to correct them or improve something.
It will then be up to the company to provide the means for this, hiring or relocating people in view of the objectives proposed by the auditor.
What Are The Most Common Situations To Carry Out An Audit?
The range of circumstances in which an audit can be carried out is extensive.
To be among the most frequent , we highlight the following:
- Investigation of causes of irregularities
- Improvement projects or to establish quality standards
- Identify critical points in processes
- Determine cause and effect relationships.
Checklist For Designing An Internal Audit
Below is a super summary of the steps to be followed in carrying out an internal audit:
- Setting goals and targets ( SMART , preferably)
- Schedule assembly
- Team briefing
- Verification of any pending issues from past audits
- Preparation of a checklist of specific activities
- Exit “in the field”
- Review and assembly of the final report.
What Can’t Be Missing From The Report?
As the document that formalizes the audit, the report must inform everything that was carried out , as well as the proposed solutions.
Your text should report the:
- Audited processes and activities
- Problems found
- Actions to be implemented
- Critical areas of improvement actions
- Investments to be made.
Internal And External Audit: What’s The Difference?
Because it is performed by “native” personnel, the internal audit is classified as a first-party audit.
There is also the second part, carried out with the suppliers.
The external one, on the other hand, aims to obtain a certification and is called a third-party audit.
Internal Audit Frequently Asked Questions
A subject as broad as audit naturally raises many questions.
So you don’t have to do so many searches, we went looking for the most recurring ones and we bring their answers in one place.
When Should An Internal Audit Be Performed?
The internal audit can be performed whenever a company detects losses, failures, frequent errors or inconsistencies in its processes.
It can also be the precursor to third party audits or be used to implement improvements.
What Precautions Should You Take When Performing An Internal Audit?
As it is in charge of people from within the organization, it is necessary to ensure that the person responsible for the audit is qualified for the task .
In this way, the necessary exemption for future investigations and analyses is guaranteed.
What Time Interval To Perform Internal Audits?
There is no agreed time frame for an internal audit.
Everything will depend on the needs of the company and its availability of time and resources .
