Internal auditing is the process of taking the activities and processes of a company and analyzing any problems the company may have with organization. An internal audit can also refer to the process of checking on company finances as well, just like an official government auditor would during tax time.

Most of the time, a company will hire an objective, third party source to complete a corporate internal audit, but large corporations may have their own internal auditing department. Because information on financial internal audit basics is so varied, consider the following topics common to internal auditing before deciding which type of auditing could best benefit your company:

1. Audits can produce evidence of fraud or illegal actions.

2. An internal audit can turn up a variety of financial inconsistencies.

3. It's important to determine the reliability of the financial department to report the right numbers.

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Consider internal audit software to help produce error-free financial statements

Small businesses can benefit most from internal audit software because it is inexpensive and can get the job done without a professional service. The software examines financial records and points out any inconsistencies it finds. This will help to catch even the smallest mistakes. This can save you a lot of time and also help you avoid an audit by the government.

I recommend: AuditSoftware.Net provides many articles and reviews on auditing software, including what auditing software can do for your business and how each software title works. BPS, a company dedicated to creating software for internal audits, has a full audit program and a demo you can check out.

Hire an internal auditor to get a comprehensive overview of your company's operations

Computer software can only take a company so far. Once your company has moved on to more complex financial transactions and bookkeeping, then an internal auditor should be brought in to examine the books. An internal auditor can take the time and assess all a company's needs over time. This way, the auditor can make recommendations to improve your company's organization.

I recommend: The Institute of Internal Auditors provides listings for certified auditors all over the world and in all 50 states. For more information on the way internal auditors are hired and what exactly is their job is, read about internal auditors at Investopedia.

Choose an internal auditing service for a complete audit of your company

Internal audit services are hired by large companies to do a complete internal audit of all departments. This gives a company a clear picture of its organization, so it can then take suggestions from the auditing service on how to improve upon the current system.

I recommend: Protiviti offers many internal auditing services, including audits that cover reorganization, optimization and management. KPMG provides many articles on internal audit services, plus a beginner's guide video to internal audit practices.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Most publicly traded companies will hire their own team of internal auditors to keep up with best practices, so consider hiring a full time auditor or team of auditors as your business grows.

Internal audits play an essential role in making sure your business is running properly. By monitoring corporate procedures, controls, and accounting activities, you can find and fix any irregularities before they show up in a very public, embarrassing, and potentially costly way in your annual audit. An internal audit can reveal whether your company:

1. Has reliable and accurate financial reporting.
2. Complies with applicable laws and regulations for your industry.
3. Has adequate controls to guard against theft either from inside the company, from vendors or external business partners.

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Hire a specialized firm

An effective way to handle an internal audit is to hire outside help, usually from an accounting firm. Some firms specialize in internal audits or have dedicated units for that function. Don't hire the same firm that does your regular audit, of course, because that firm is prohibited from conducting an internal audit for the same company. Remember, the whole point of an internal audit is to monitor activities to complement the regular audit process.

I recommend: Get outside help on internal audits through an audit or accounting firm such as BKD Advisors, Navigant Consulting, PricewaterhouseCoopers, Hudson Financial Solutions or Case Sabatini. The Controller Group can help with an internal audit by bringing one of their staff in-house to assist you.

Check out internal audit software

Several software companies provide internal audit software that can help you conduct the review without engaging external help. Software can help you organize systems with appropriate checks and balances.

I recommend: Get internal audit software from Pentana, ApexAnalytix, Buy risk management or internal audit software from Methodware.

Develop written internal policies to guide your internal audit

Well-documented internal control procedures help you both conduct the audit and communicate your operating guidelines to all staff. A good internal audit will also highlight the weaknesses in your policies.

I recommend: CPA firm Harrison & Jump provides a list of internal controls intended to protect your assets and keep your firm financially ship-shape.

Conduct an internal information technology audit

With increased reporting requirements from regulators, and increased Sarbanes-Oxley reporting, your company must have a robust IT system with software that can handle a variety of tasks with ease. Consider conducting an internal IT audit to make sure your IT system is doing all it should.

I recommend: You can conduct an internal IT audit with the help of UHY Advisors, or Stout Casey Consulting, or other IT audit specialists.

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Helpful advice for making the most of this Guide

• •  To make the audit effective, select a wide range of transactions and activities over a sufficient period of time – at a least a month, if not a quarter.
• •  Ensure that the methodology and findings are appropriately documented and clearly state ways in which you can improve.
• •  Always implement the findings. No audit is effective without follow up and corrective action.
• •  If the audit uncovers serious problems or theft, report to senior management and to the board of directors, if you have one, and alert your external audit firm immediately.

Stay up to date with internal audit information and ensure your internal audit programs are properly assessing the effectiveness of the company’s operations. Whether you’re conducting internal audits on operational efficiency, compliance with regulations or risk assessment, proper education and training will help you analyze the data and implement necessary changes.

Training and information about internal audit processes will also keep you up to date on compliance issues and regulations, such as ISO commercial and industrial standards. Ensure you’re analyzing your company’s business practices, financial integrity or compliance properly by trying to:

1. Sign up for classes to assist your internal auditing service and ensure your company is efficient and in compliance with pertinent laws.
2. Participate in seminars to learn specialized auditing skills or discover how to use new tools like internal audit software.
3. Seek online education that you can complete while on the job to enhance your internal audit process.
   

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Attend classes for specialized training in internal audit services

Ensure you're enacting your company's internal audit programs with the most effective and current standards by completing classes for auditors. Receiving a degree or certificate through an internal audit program will add value to your work experience should you seek a position as a Chief Audit Executive, for example.

I recommend: The MIS Training Institute offers a curriculum to help you receive your Internal Audit Certificate. In addition to in-house training, the institute also offers online training courses. Courses offered through the American Management Association will help your company’s internal audit program comply with laws, contracts and regulations.

Take seminars to learn new tactics and facets of the internal audit process

Because the standards for internal audit controls are often updated on the national and international levels, continuing education in areas like internal financial assessment or corporate internal audit programs will ensure you're processes are current. Seminars may also introduce you to new tools like software to simplify your analysis.

I recommend: Seminars offered by The Institute of Internal Auditors cover such topics as corporate internal audit fraud curriculum and reporting standards. Audit Trends presents seminars to help internal auditing firms with best practices, risk management, internal auditor skills and audit report writing.

Enroll in online classes to update internal audit knowledge at your own pace

Even if you're already working as an internal auditor, you can still improve your knowledge and skills with online classes. Learn about new internal audit objectives or risk assessment criteria, for example, without taking time off your current job.

I recommend: Take an online self-study course through Innovative Quality Products and Systems that covers internal auditing topics like identification of processes, checklist development and ISO training. Choose from a slate of web-based internal auditing classes through Quality WBT Training Center. Subjects range from communication skills and ISO 9001 requirements to process auditing techniques and continual improvement assessment.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Get additional value when you take courses and seminars on internal audits by retaining any books, literature or standards specifications provided. Use the materials to build a reference library that your internal audit team can use to research processes or devise new audit organization or reporting structures.

Internal audits are essential if you want to make sure your business is functioning properly. Contrary to popular belief, internal audits can analyze more than just financials and can include virtually every aspect of a business.

Large companies usually have an internal audit function that reports regularly to the company’s board of directors. Small to medium sized businesses can contract with a consulting company to perform this function for them. In any case, an internal auditor certification is your best guarantee that the person doing your auditing has the proper amount of training and expertise to do the job properly. As you investigate this topic, you should familiarize yourself with some key terms.

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Enterprise risk management

Enterprise risk management (ERM) refers to the processes and methods that an organization uses to manage the risks associated with achieving its objectives. It involves identifying risks and opportunities, assessing the likelihood or magnitude of impact, identifying a response and then monitoring progress. ERM typically includes internal audit and operations management in a collaborative effort to create and protect value for all the stakeholders in the organization.

I recommend: TechTarget explains enterprise risk management in detail.

Certified internal auditor

Certified internal auditor is a designation offered by the Institute of Internal Auditors (IIA) and is a globally recognized certification for internal auditors. In order to be certified, the individual must demonstrate their competency and professionalism as an auditor, have a college degree, pass a four hour exam and complete 24 months as an auditor.

I recommend: Find more information at The Institute of Internal Auditors.

Audit committee

In a publicly-held company the audit committee is an operating committee that is part of the board of directors and is responsible for the oversight of financial reporting and disclosure. Members are drawn from the board of directors and there is a chairperson selected from among the members, one of whom is typically an expert in finance. The company's internal audit department works closely with the audit committee.

I recommend: See AllBusiness.com for a complete definition of an audit committee.

Sarbanes-Oxley

Sarbanes-Oxley, commonly called Sarbox or SOX, was enacted in 2002 after numerous major accounting and corporate scandals cost investors billions of dollars when the companies involved collapsed. Internal audit departments are familiar with this law and are charged with ensuring that the company follows all of its regulations.

I recommend: Soxlaw.com contains a good summary of Sarbanes-Oxley.

GAAS

GAAS or generally accepted auditing standards are the ten standards developed by the American Institute of Certified Public Accountants and consist of general standards, field work standards and standards of reporting and interpretations. GAAS are used routinely by internal auditors.

I recommend: Go to BusinessDictionary.com to find out more about GAAS standards.

Auditable activities

Auditable activities are those subjects or systems that are usually able to be defined and evaluated by an internal audit department. They include: policies, procedures and practices, general ledge account balances, information systems and major contracts and programs to name a few.

I recommend: Indiana University defines Auditable activities in a glossary. Just scroll down to the term.