Audit Services
Revolutionizing Audit Excellence: Internal Audit & External Audit
Internal audits are internal reviews of an organization's processes, controls, and risk management systems conducted by its own team or external specialists. The goal is to provide independent assurance to management and the board that internal operations are effective, compliant, and efficient, allowing for proactive improvements.
External audits, performed by independent audit firms, focus on verifying the accuracy and compliance of an organization's financial statements. These audits reassure external stakeholders, such as investors and regulators, about the reliability of financial information, contributing to transparency and confidence in the organization's financial reporting.
Understanding Internal Audits
Internal audits play a critical role in a company’s operations and corporate governance, especially now that the Sarbanes-Oxley Act of 2002 holds managers legally responsible for the accuracy of their company's financial statements. SOX also required that a company's internal controls be documented and reviewed as part of its external audit.
In addition to ensuring that a company complies with laws and regulations, internal audits also provide a degree of risk management and safeguard against potential fraud, waste, or abuse. The results of internal audits provide management with suggestions for improvements to current processes not functioning as intended, which may include information technology systems as well as supply-chain management.
Internal audits may take place on a daily, weekly, monthly, or annual basis. Some departments may be audited more frequently than others. For example, a manufacturing process may be audited on a daily basis for quality control, while the human resources department might only be audited once a year.
Audits may be scheduled, to give managers time to gather and prepare the required documents and information, or they may be a surprise, especially if unethical or illegal activity is suspected.
KEY TAKEAWAYS
- An internal audit offers risk management and evaluates the effectiveness of many different aspects of the company
- Types of internal audits include financial, operational, compliance, environmental, IT, or for a very specific purpose.
- Internal audits provide management and the board of directors with a value-added service where flaws in a process may be caught and corrected prior to external audits.
- Similar to external audits, internal audits are conducted through planning, auditing, reporting, and monitoring steps.
- Internal audits may enhance the efficiency of operations, motivate employees to adhere to company policy, and allow management to explore specific areas of its operations.
Warehouse Audit
A warehouse audit is a thorough evaluation of a facility's operations, processes, and inventory management aimed at enhancing efficiency, reducing costs, and improving customer service. The assessment includes inspecting the facility for safety concerns, validating employee qualifications, and reviewing inventory data accuracy. Warehouse audits serve to ensure compliance with safety regulations, measure productivity, and maintain accurate record-keeping. The primary objectives of the audit process can be categorized into identifying areas for efficiency improvement, uncovering operational mistakes, and providing a performance measure. Regular audits help businesses maintain safe, efficient warehouses, delivering maximum value to customers.
Compliance Audits
A company may be required to adhere to local laws, compliance needs, government regulations, external policies, or other restrictions. To demonstrate compliance with these rules, a company may task an internal audit committee to review, compile appropriate information, and provide an overall opinion on the status of the compliance requirement.
Internal Financial Audit
Public companies are required to perform certain levels of external financial auditing where a completely independent third party provides an opinion on the company's financial records. Companies may want to dive further into audit findings or perform an internal financial audit in preparation for an external audit. Many of the tests between an internal or external auditor may be similar; the nature of independence separates the two types of audits for financial audits.
Environmental Audit
As companies become continually more environmentally conscious, some take the steps of reviewing the business' impact on the planet. This results in an internal audit covering how a company safely sources raw materials, minimizes greenhouse gasses during production, utilizes eco-friendly distribution methods, and reduces energy consumption. Companies leveraging triple bottom line reporting may perform internal environmental audits as part of annual reporting.
Technology/IT Audits
An IT audit may have different objectives. The internal audit may be the result of an external lawsuit, a company complaint, or a target to become more efficient. An internal audit focused on technology reviews the controls, hardware, software, security, documentation, and backup/recovery of systems. The goal is likely to assess general IT accuracy and processing capabilities.
Performance Audits
An internal audit focused on performance pays less attention to the processes and more on the final result. The company will have likely have set performance objectives or metrics that may be tied to performance bonuses or other incentives. As a result, an internal auditor assesses the outcome of an objective that may not be easily quantifiable.
For example, a company may wish to have expanded its use of diverse suppliers; the internal auditor, independent of any purchasing process, will be tasked with analyzing how the company's spending patterns have changed since this goal was set.
Operational Audit
An operational audit is most likely to occur when key personnel leaves or when new management takes over an entity. The company may want to assess how things are done and whether resources are being used more efficiently. During an operational internal audit, the auditor will review whether current staff and processes fulfill the mission statement, value, and objectives of a company.
Construction Audit
Development, operating, real estate, or construction companies may perform construction audits to ensure not only appropriate physical development of a building but appropriate project billing along the life of the project. This mostly includes adherence to contract terms with the general contractor, sub-contractors, or standalone vendors as necessary.
This may also include ensuring the company has remit the appropriate payments, collected the appropriate payments, and internal project reports regarding project completion are correct.
Special Investigations
Many of the audits above may be recurring and performed each year. In some cases, it might make sense for an internal audit committee to evaluate a special circumstance that will occur only once. This may entail gathering a report on the efficiency on a recent merger, the hiring of a key employee, or a complaint from staff. When selecting the individuals for the special investigation audit, a company must be especially mindful to select members with appropriate expertise and independence.
Depending on the structure of the organization, the internal audit may be prepared by the board of directors or by upper management.
Recent Audits
Explore the recent audits done by Brighto team
