Internal Audit
Internal audit is an independent and objective review function that evaluates and improves the effectiveness of an organization’s risk management, governance, and internal control processes. Unlike external auditing, which primarily reviews financial reporting, internal auditing takes a broad and forward-looking approach to help the organization achieve its goals.
What does the internal audit department do?
The internal audit function has a broad mandate and focuses on creating value through independent review:
- Reviews internal controls: Assesses whether the company's internal control is effective and works in practice.
- Assesses risk management: Assesses how well the organization manages its material risks; see risk management.
- Evaluates processes: Identifies inefficiencies and opportunities for improvement in the organization's processes.
- Reports independently: Typically reports to the board of directors or the audit committee to ensure independence.
Common Challenges in Internal Auditing
- Lack of independence: If the function reports problems within the organization, its objectivity is undermined.
- Shortage of resources and expertise: Many organizations lack the internal capacity to conduct a full-scale internal audit.
- Checkbox instead of a value: The audit becomes a formality rather than a tool for improvement.
- Weak connection to corporate governance: The results are not translated into decisions and actions.
How an Interim Resource Can Strengthen Internal Audit
Internal Audit is expanding the governance cluster and may require specialized expertise that is best brought in on an interim basis.
- Independent review: An interim resource provides precisely the independence and objectivity that the role requires.
- Specialist skills: One interim chief financial officer or an audit specialist can establish or strengthen the function.
- From review to action: Experience in turning observations into concrete improvements.
- Quick access: Interim Search's process ensures that you have the right talent in place within 48 hours.
Frequently Asked Questions About Internal Auditing
What is the difference between an internal audit and an external audit?
An external audit is conducted by an independent auditor who, as required by law, reviews and issues an opinion on the annual report on behalf of the owners. Internal audit is an internal, voluntary function that, on behalf of the board, broadly reviews and improves processes for risk management, governance, and internal control—with a broader and more forward-looking perspective.
Do all companies have to have an internal audit function?
No, internal auditing is not a general legal requirement; rather, it is most common in larger companies, financial institutions, and publicly traded companies, where it is often driven by codes of conduct, regulations, or shareholder requirements. Nevertheless, many small and medium-sized companies choose to establish this function—sometimes through outsourcing—to strengthen governance and control.
To whom does the internal audit function report?
To ensure independence, the internal audit function normally reports directly to the board of directors or its audit committee, rather than to the operational management whose processes it audits. This reporting structure is crucial to the function’s credibility and value.
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