Internal audit is not exactly a household name in North America and is rarely portrayed in the media, so it’s understandable that many people don’t know much about it — even many first year new audit analysts. But fear not, we’ve compiled a list of eight things that new internal auditors should know to help you navigate this unique and often-hidden field in a truly meaningful and robust way that will give you a good shot at having a fulfilling time doing what is sometimes downright boring work.
Before we start — first and foremost, you should know that internal audit is a critical function within organizations of all shapes and sizes. As an internal auditor, your job is to provide independent and objective assurance that your organization’s internal controls and processes are functioning effectively. This means you’ll need to have a strong understanding of the organization’s operations, risks, and regulatory requirements/environment.
1. Understand the role of internal auditing
Internal audit is a critical function within any organization, responsible for ensuring that the organization’s risk management processes are effective, and that the organization is operating in compliance with applicable laws, regulations, and policies. Internal audit plays an essential role in risk management, serving as part of the three lines of defense model that ensures the organization is prepared for any potential disruptions or crises.
The three lines of defense model is a key/fundamental risk management framework that provides a clear delineation of roles and responsibilities for risk management within an organization. The first line of defense is operational management, which is responsible for identifying, assessing, and managing risks on a day-to-day basis. The second line of defense is the risk management and compliance functions, which provide oversight and guidance to the first line of defense. Finally, internal audit provides independent assurance and insight into the effectiveness of risk management and control processes.
Internal audit’s role as part of the three lines of defense model is crucial to ensuring the organization’s success and sustainability. It provides assurance to the board of directors and senior management that the organization’s risk management processes are effective, and that the organization is operating in compliance with applicable laws, regulations, and policies.
Internal audit identifies risks that may have a significant impact on the organization’s ability to achieve its objectives. These risks may be operational, financial, or strategic in nature and may arise from internal or external sources. Internal audit assesses the likelihood and potential impact of these risks and provides recommendations for managing or mitigating them.
The importance of internal audit in risk management has become increasingly important in recent years. Organizations are facing an ever-increasing range of risks, including cyber threats, geopolitical risks, and regulatory changes. Internal audit helps organizations to identify and manage these risks, ensuring that they are prepared for any potential disruptions or crises.
In addition to providing assurance and insight into risk management and internal controls, internal audit plays an important role in promoting continuous improvement within the organization. By identifying areas where processes can be streamlined or improved, internal audit helps the organization become more efficient and effective in achieving its objectives. Internal audit also provides recommendations for improvements in risk management, governance, and compliance, which can help to enhance the organization’s overall performance.
The role of internal audit in ensuring compliance with laws and regulations is essential for organizations to avoid legal and reputational risks and to maintain the trust of stakeholders, including customers, employees, and investors. Internal audit assesses the organization’s compliance with applicable laws, regulations, and policies and provides recommendations for improvements where necessary.
Internal audit is responsible for evaluating the effectiveness of the organization’s internal controls, which are policies, procedures, and practices that are designed to safeguard the organization’s assets, ensure the accuracy and completeness of its financial reporting, and promote compliance with applicable laws and regulations. By evaluating the effectiveness of these controls, internal audit can identify weaknesses or deficiencies that need to be addressed.
Internal audit provides a variety of benefits to an organization. One of the main benefits is that it helps to identify potential risks before they become actual problems. By conducting regular audits, the internal audit team can identify potential weaknesses in the organization’s systems and controls and recommend improvements to prevent potential risks from becoming actual problems. This can help to mitigate the impact of risks on the organization’s operations, reputation, and financial performance. Another benefit of internal audit is that it helps to improve the efficiency and effectiveness of an organization’s operations. By identifying areas where processes can be streamlined or improved, the internal audit team can help to reduce costs and increase productivity. This can lead to improved financial performance and a more competitive position in the market.
2. Familiarize yourself with the International Standards for the Professional Practice of Internal Auditing (IIA Standards)
The International Standards for the Professional Practice of Internal Auditing (IIA Standards) is a set of guidelines established by the Institute of Internal Auditors (IIA) to promote consistency and professionalism in the field of internal auditing. The IIA Standards were first developed in the 1970s and have since been updated periodically to reflect changes in the profession.
The IIA Standards provide a framework for internal auditors to follow when conducting audits and performing other related activities. The Standards cover a range of topics, including the nature of internal auditing, the responsibilities of internal auditors, and the elements of an effective internal audit function.
One of the key principles of the IIA Standards is objectivity. Internal auditors must remain independent and free from any undue influence that could compromise their ability to provide an objective assessment of the organization’s activities. The Standards also emphasize the importance of professional competence and due care, requiring internal auditors to maintain a high level of expertise and stay up-to-date with the latest developments in the field.
The IIA Standards are used by internal auditors around the world and have been translated into many languages. Compliance with the Standards is considered a hallmark of professionalism and helps to ensure that internal auditors are providing high-quality services to their organizations.
In conclusion, the International Standards for the Professional Practice of Internal Auditing (IIA Standards) provide a set of guidelines for internal auditors to follow when conducting audits and performing other related activities. The Standards emphasize the importance of objectivity, professional competence, and due care, and are considered a hallmark of professionalism in the field of internal auditing. For more information on the IIA Standards, please visit the IIA website.
3. Understand the importance of building relationships as an internal auditor
As an internal auditor, building strong relationships with audit stakeholders is crucial for success in the role. This includes relationships with the audit team, management, and other stakeholders within the organization. The importance of these relationships becomes even more critical as an internal audit director, and even more so as a senior director.
One of the most critical reasons for building relationships is to gain buy-in and support from management and other stakeholders for audit recommendations. Without their support, it can be challenging to implement recommendations and affect change within the organization. By building strong relationships with stakeholders, internal auditors can ensure that their recommendations are taken seriously and implemented effectively.
Another reason why building relationships is important is to facilitate communication and collaboration between the audit team and other departments. This can help to identify potential issues or concerns before they become actual problems, and to ensure that all stakeholders are on the same page when it comes to risk management and compliance.
As an internal audit director, the importance of building relationships becomes even more critical. Internal audit directors must be able to establish trust and credibility with senior management and other stakeholders to be effective in their role. This involves building relationships based on mutual respect and understanding of each other’s perspectives and objectives.
Finally, as a senior director, building relationships is essential for ensuring that the organization’s risk management and internal control processes are operating effectively. Senior directors must have a deep understanding of the organization’s business objectives, risks, and internal controls, and be able to communicate effectively with all stakeholders to ensure that everyone is aligned and working towards the same goals.
Building strong relationships with audit stakeholders is crucial for success as an internal auditor, and becomes even more critical as an internal audit director or senior director. By establishing trust and credibility with management and other stakeholders, internal auditors can gain support for their recommendations, facilitate communication and collaboration, and ensure that the organization’s risk management and internal control processes are operating effectively. New internal auditors should prioritize building relationships as they develop in their role and advance in their career.
4. Sharpen your communication skills
It’s essential to understand that good communication skills are key to success in this role. Internal auditors need to be able to communicate effectively with a wide range of stakeholders, including management, auditees, and other members of the audit team.
Effective communication helps to ensure that audit findings are understood and implemented by the organization. It also helps to build relationships and trust with stakeholders, which can be crucial for gaining buy-in and support for audit recommendations.
As an internal auditor, you may encounter resistance or pushback from stakeholders when presenting audit findings or recommendations. Good communication skills can help you navigate these situations and address any concerns or objections in a professional and effective manner. Remember that communication is a two-way street, and it’s essential to listen as well as speak. Active listening is a critical component of effective communication, as it helps you to better understand stakeholders’ perspectives and concerns.
By communicating effectively and building relationships with stakeholders, you can ensure that audit findings are understood and implemented, and that the organization’s risk management and internal control processes are operating effectively. So don’t be afraid to speak up, listen actively, and build those key relationships that will allow you to protect and improve your firm.
5. Be objective and independent
You don’t bring in the money, but civilization depends on quasi-bureaucratic functions like internal audit – the more these functions are staffed by strong, knowledgeable, intelligent, and independent/objective people, the better off the world/system will be overall. See the big picture and you’ll see why objectivity and independence are fundamental.
It’s bigger than your job and it’s bigger than your firm – this gets to the heart of the matter; this is a systemic concern. Our ever-more-complex world needs independent and objective people in roles like internal audit, not yes people or people just collecting a paycheck or those that are afraid to speak up when they see something wrong.
Every time you strengthen your firm’s control environment or risk culture/approach, you strengthen civilization – it’s a very small impact when considered at an individual level (and super tiny when you think of it from a project perspective), but it adds up and we all must do our parts in keeping civilization going.
6. You’ll need to stay up-to-date on technology and technological developments
As a new internal auditor, staying up-to-date on the latest technology is crucial. Technology is rapidly evolving, and it plays an increasingly important role in how businesses operate. By staying informed on the latest technological advancements, you can better understand the risks and opportunities that technology presents and ensure that your audit processes are efficient and effective.
Luckily, as a new auditor, you are likely to be more up-to-speed on technology than many of your more experienced colleagues. After all, you have grown up in a world where technology has been an integral part of your life. However, that doesn’t mean you can afford to be complacent. Technology is constantly changing, and it’s essential to keep yourself updated with the latest developments.
First and foremost, technology is essential to almost every aspect of modern business. From communication to finance to operations, technology plays a critical role in how companies operate. As an internal auditor, you need to understand the technology that your organization uses and how it affects your audit processes. By staying up-to-date, you can identify areas of risk and ensure that your audits are effective in addressing those risks.
Secondly, technology is constantly evolving, and new risks emerge all the time. Cybersecurity threats, for example, have become increasingly sophisticated, and it’s essential to stay informed about the latest techniques and tools that hackers use. By staying updated, you can ensure that you are aware of potential vulnerabilities and take steps to protect your organization.
Finally, staying up-to-date on technology can help you be more efficient and effective in your role as an internal auditor. New technologies can streamline audit processes, automate routine tasks, and improve communication and collaboration between auditors and stakeholders. By leveraging the latest tools and techniques, you can deliver better results and add more value to your organization.
While you may be more up-to-speed on technology than many of your colleagues, it’s essential to remain vigilant and stay informed about the latest developments. By doing so, you can identify areas of risk, protect your organization from cybersecurity threats, and streamline your audit processes to deliver better results. So, don’t be afraid to dive into the latest technology trends and tools – it’s an investment in your career as an internal auditor.
7. Robust understanding of risk management
As a new internal auditor, you must have a robust understanding of risk management. The field of internal auditing is all about risk management. As an internal auditor, your job is to identify, evaluate, and manage risks that could impact your organization’s operations, finances, reputation, and compliance with laws and regulations. A solid understanding of risk management principles and practices is essential for effective internal auditing.
Risk management is the process of identifying, assessing, and prioritizing risks and taking steps to mitigate or manage those risks. Risk management is an integral part of all areas of a business, from operations to finance to compliance. Effective risk management can help organizations reduce losses, protect their reputation, and improve overall performance.
One of the basic principles of risk management is the risk assessment process. This involves identifying and analyzing potential risks to the organization. The risk assessment process should be comprehensive, taking into account all areas of the business that could be impacted by risks. Once risks have been identified, they should be prioritized based on their likelihood and potential impact.
Risk management in operations involves identifying and managing risks that could impact the organization’s ability to produce products or provide services. This could include risks related to supply chain disruptions, quality control issues, equipment failure, and employee safety. Effective risk management in operations involves developing contingency plans to minimize the impact of potential risks and regularly reviewing and updating those plans.
Risk management in finance involves identifying and managing financial risks that could impact the organization’s ability to meet its financial goals. This could include risks related to currency exchange rates, interest rates, credit risk, and liquidity risk. Effective risk management in finance involves developing strategies to manage those risks, such as hedging, diversification, and maintaining appropriate levels of liquidity. Other types of risk management include risk management in compliance, risk management in information technology, and risk management in environmental and social responsibility.
Regulatory guidance related to risk management is an important consideration for internal auditors. Many regulatory bodies, such as the OCC, SEC, FDIC and the Federal Reserve, provide guidance on risk management practices that organizations should follow. Internal auditors should be familiar with this guidance and ensure that their organizations are compliant with regulatory requirements.
8. Analytical skills will become more important in internal audit over time
The field of internal audit has traditionally been more focused on qualitative analysis, such as reviewing policies and procedures, and less on quantitative analysis, such as data analysis. However, this is slowly changing, and it’s important for new internal auditors to have strong analytical skills to succeed in the profession.
Analytical skills are essential for internal auditors because they allow them to extract insights and meaning from data. This is becoming increasingly important as organizations generate more data than ever before. With the rise of big data, internal auditors need to be able to analyze large volumes of data to identify patterns, trends, and anomalies that could indicate fraud, errors, or other issues.
In addition, analytical skills are critical for testing internal controls. By analyzing data, internal auditors can test the effectiveness of controls and identify areas where improvements can be made. This can help organizations reduce their risk of financial loss or regulatory non-compliance.
But what exactly are analytical skills? In general, analytical skills refer to the ability to collect, analyze, and interpret data to make informed decisions. This includes the ability to:
- Identify patterns and trends
- Identify cause-and-effect relationships
- Synthesize information from multiple sources
- Draw conclusions based on data analysis
- Communicate findings effectively
To develop strong analytical skills, new internal auditors need to be proficient in data analysis tools and techniques. This includes proficiency in Excel and other data analysis software, as well as a basic understanding of statistics and probability.
Internal auditors also need to be able to work with large data sets and understand how to manipulate data to extract meaningful insights. This might involve using data visualization tools to create charts and graphs, or using machine learning algorithms to identify patterns in data.
However, analytical skills aren’t just about technical proficiency. Internal auditors also need to be able to ask the right questions and think critically about the data they are analyzing. This means understanding the business context and knowing what data is relevant to the audit objective.
For example, when conducting a financial audit, an internal auditor might need to analyze revenue and expense data to identify potential fraud. They would need to know which data fields to focus on, how to manipulate the data to identify anomalies, and how to communicate their findings effectively.
Similarly, when conducting an operational audit, an internal auditor might need to analyze production data to identify bottlenecks or inefficiencies in the production process. They would need to know which data fields to focus on, how to calculate key performance indicators (KPIs), and how to communicate their findings effectively.
In addition to technical proficiency and critical thinking skills, new internal auditors also need to be able to work collaboratively and communicate effectively. This means being able to explain technical concepts to non-technical stakeholders and working effectively as part of a team.
Finally, new internal auditors need to be able to stay up-to-date with the latest developments in data analysis and data-related risks. This might involve attending training courses, reading industry publications, or participating in professional development programs.
Leave a Reply