SOX also required that a company's internal controls be documented and reviewed as part of their external audit. Internal controls are processes and procedures implemented by a company to ensure the integrity of its financial and accounting information, promote accountability, and help prevent fraud. Examples of internal controls are segregation of duties, authorization, documentation requirements, and written processes and procedures. Internal audits seek to identify any shortcomings in a company's internal controls.
In addition to ensuring a company is complying 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. Cybersecurity is becoming increasingly important as companies need to protect their confidential electronic information from outside attacks. 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. Internal auditors generally identify a department, gather an understanding of the current internal control process, conduct fieldwork testing, follow up with department staff about identified issues, prepare an official audit report, review the audit report with management, and follow up with management and the board of directors as needed to ensure recommendations have been implemented.
Assessment techniques ensure an internal auditor gathers a full understanding of the internal control procedures and whether employees are complying with internal control directives. To avoid disrupting the daily workflow, auditors begin with indirect assessment techniques, such as reviewing flowcharts, manuals, departmental control policies or other existing documentation. If documented procedures are not being followed, direct discussion with department staff may be necessary.
Auditing fieldwork procedures can include transaction matching, physical inventory count, audit trail calculations, and account reconciliation as is required by law. Analysis techniques may test random data or target specific data, if an auditor believes an internal control process needs to be improved. Internal audit reporting includes a formal report and may include a preliminary or memo-style interim report.
An interim report typically includes sensitive or significant results the auditor thinks the board of directors needs to know right away. The final report includes a summary of the procedures and techniques used for completing the audit, a description of audit findings, and suggestions for improvements to internal controls and control procedures.
The formal report is reviewed with management and recommendations for improvement are discussed. Follow up after a period of time is necessary to ensure the new recommendations have been implemented and have improved operating efficiency. Congressional Research Service. Accessed Aug. Unlike external auditors, they look beyond financial risks and statements to consider wider issues such as the organisation's reputation, growth, its impact on the environment and the way it treats its employees.
In sum, internal auditors help organisations to succeed. We do this through a combination of assurance and consulting. The assurance part of our work involves telling managers and governors how well the systems and processes designed to keep the organisation on track are working. Then, we offer consulting help to improve those systems and processes where necessary.
While sharing some characteristics, internal and external audit have very different objectives. These are explained in the table below:. Internal auditors have to be independent people who are willing to stand up and be counted. Their employers value them because they provide an independent, objective and constructive view. To do this, they need a remarkably varied mix of skills and knowledge.
They might be advising the project team running a difficult change programme one day, or investigating a complex overseas fraud the next. From very early on in their careers, they talk to executives at the very top of the organisation about complex, strategic issues, which is one of the most challenging and rewarding parts of their role. It is also immensely rewarding to go back and follow up my work after a year or so and see how my efforts have not only resulted in quantitative improvements, but also been accepted by the relevant people in charge.
Assessing the management of risk. All organisations face risks. So, for example if a line manager is concerned about a particular area of responsibility, working with the internal auditor could help to identify improvements. Or perhaps a major new project is being undertaken — the internal auditor can help to ensure that project risks are clearly identified and assessed with action taken to manage them. By reporting to executive management that important risks have been evaluated and highlighting where improvements are necessary, the internal auditor helps executive management and boards to demonstrate that they are managing the organisation effectively on behalf of their stakeholders.
Hence, internal auditors, along with executive management, non-executive management and the external auditors are a critical part of the top level governance of any organisation. Below are the key things an internal auditor does. Within these areas, it is important to think of the internal auditor as the organisations critical friend — someone who can challenge current practice, champion best practice and be a catalyst for improvement, so that the organisation as a whole achieves its strategic objectives.
Managers need to understand how much risk the organisation is willing to live with and implement controls and other safeguards to ensure these limits are not exceeded. This follow-up should be recorded alongside the rest of the audit information to be taken into account during future audits.
Internal auditors should not design or implement the controls — the policies, procedures, processes, and technical components put in place within their organization. Their job is to objectively assess the controls the operations teams e. Hyperproof reduces the amount of administrative overhead in typical auditing processes. Instead of sending emails and manual calendar invites to colleagues to remind them to review evidence or submit new evidence, internal auditors can use Hyperproof to issue tasks with due dates and reminders.
This way, internal auditors can focus on testing the evidence instead of spending lots of time just trying to gather the data. To learn more about Hyperproof or see a demo of all its capabilities, visit Hyperproof. JC is responsible for driving Hyperproof's content marketing strategy and activities.
She loves helping tech companies earn more business through clear communications and compelling stories. JC spent the past several years in communications, content strategy, and demand generation roles in market-leading software companies such as PayScale and Tableau. She is originally from Harbin, China. Brandi is responsible for creating and implementing an innovative people strategy. Her experience in leading people teams and cultural stewardship spans over 17 years and in multiple industries including SaaS, WiFi, healthtech and non-profit healthcare.
She is passionate about leading people-first and believes that employee happiness is critical to company success. Peter Chase Chief Customer Officer. Outside of Hyperproof, Peter enjoys skiing, mountain biking, basketball, travel, and good times with family and friends. Dave Brennen Vice President, Development. Dave is a hands-on engineering leader who has over 30 years of experience working at Data General, HaL Computer Systems, and Microsoft. He's helped design and build software used by hundreds of millions of people including Outlook, Xbox, Bing, and Azure.
Dave is passionate about collaborative company culture and software that "just works," so he is excited to be making both a reality at Hyperproof. Lynn Harrington Vice President, Partnerships. Lynn is passionate about identifying key growth plays and then creating and implementing the plans that result in opportunity and mutual success.
Bob Heddle Vice President, Product. Bob led software innovation teams at startups and large companies, including: Microsoft, Sony, Wildseed, Aol, and Azuqua. He has 28 years of experience incubating and building new software platforms that surprise and delight customers.
Bob is obsessed with building a software platform that makes compliance easier for everyone. Prior to founding Hyperproof, Craig founded Azuqua and was a leader at Microsoft where he led the development of Microsoft Dynamics, Access, and Excel.
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