An audit is carried out to examine a company and how it works. Internal audit is an independent and objective consulting activity designed to add value and improve company operations. The role of internal audit is to provide independent assurance that the company’s risk management, governance, and internal control processes are operating effectively.
Internal audit is a catalyst for improving corporate governance, risk management, and management control by providing insights and recommendations based on analysis and assessment of data and business processes. With a commitment to integrity and accountability, internal audit provides value to management as an objective source of independent advice. These professionals called internal auditors are employed by the company to carry out internal audit activities.
Internal auditors deal with issues that are fundamentally important to the survival and well-being of any company. Unlike external auditors, they look more at financial risk and financial statements to consider broader issues such as reputation, company growth and its impact on the environment as well as how to treat employees.
In short, internal auditors help a company achieve success. What they do is a combination of assurance and consulting. Providing assurance means telling managers and leaders how well the systems and processes are designed to keep the company on track. Then, consultations are offered to help improve those systems and processes if necessary.
The internal auditor’s job is to provide an objective and unbiased view. They must be independent of the operations they are evaluating and will be reported to the highest levels in a company: senior managers and leaders. Usually, this is the board of directors or board of trustees as well as the audit committee.
To get into the difference between external and internal audit, external auditors will report to shareholders or members who are outside the corporate structure whereas internal auditors report to the board and senior management who are within the corporate governance structure. The basic objective of an external audit is to increase the credibility and reliability of the company’s financial reports to stakeholders by providing an opinion on the report. Internal audit evaluates and improves the effectiveness of governance, risk management, and control processes. This gives board members and senior management the confidence that will assist them in fulfilling their duties to the company and its stakeholders.
External audit mainly concentrates on financial reports, financial reporting risks. However, internal audit covers all categories of risk, its management, including reporting it. External audit does not have the responsibility for improvement but only has the duty to report problems. Improvement is the main objective of internal audit. But this is done by advising , coaching , and facilitating so as not to damage management responsibilities.
By reporting to executive management that critical risks have been evaluated and highlighting any necessary improvements, internal auditors assist executive management and the board to demonstrate that they are managing the company effectively. This is summarized in the internal audit mission statement which says that the role of internal audit is ‘to enhance and protect the value of the company by providing assurance, advice and insight on a risk-based and objective basis’.
Therefore, internal auditors, along with executive management, non-executive management and external auditors are an essential part of the top-level governance of any company.