Define: Internal Audit

The purpose of an internal audit is to assess and evaluate an organisation’s internal controls, risk management processes, and compliance with laws and regulations.

Internal audits are typically conducted by a team of internal auditors who are independent from the areas they are auditing. They may be employees of the organisation or external consultants.

Having an internal audit function provides several benefits, including identifying and mitigating risks, improving operational efficiency, ensuring compliance with laws and regulations, and enhancing the overall governance and control environment of the organisation.

An internal audit is conducted by employees or consultants within the organisation, while an external audit is conducted by independent auditors from outside the organisation. External audits are typically focused on financial statements, while internal audits cover a broader range of areas, including operations, compliance, and risk management.

Internal audit findings can be used as evidence in legal proceedings if they are relevant and admissible. However, organisations can take steps to protect the confidentiality of internal audit reports and ensure that they are not easily discoverable in litigation.

Internal audit plays a crucial role in detecting and preventing fraud by conducting risk assessments, implementing controls, and performing regular audits to identify any irregularities or suspicious activities. They also provide recommendations for strengthening controls and mitigating fraud risks.

Internal auditors can be held liable for their audit findings if they are found to be negligent or if they fail to exercise due professional care. However, they are generally protected by professional standards and may have limitations on their liability through engagement letters or contracts.

The frequency of internal audits depends on various factors, including the size and complexity of the organisation, industry regulations, and risk exposure. Generally, internal audits are conducted annually, but some organisations may require more frequent audits, especially in high-risk areas.

The qualifications and certifications required to become an internal auditor vary depending on the jurisdiction and industry. However, common certifications include Certified Internal Auditor (CIA), Certified Fraud Examiner (CFE), and Certified Information Systems Auditor (CISA). A degree in accounting, finance, or a related field is often required.

To ensure independence, the internal audit function should report directly to the board of directors or an independent audit committee. Internal auditors should have unrestricted access to all areas of the organisation and should not have any conflicts of interest that could compromise their objectivity. Regular assessments of the internal audit function’s performance and independence should also be conducted.