Internal Audit - Definition & Advantages of Internal Audit | What is Internal Audit?

Internal audits are independent evaluations of a company's controls and risk management processes to ensure they effectively mitigate risks and comply with regulations. 

Types of Internal Audits

1. Compliance Audit: Verifies compliance with laws, regulations, policies, and procedures.

2. Financial Audit: Assesses the accuracy of financial statements, transactions, and records.

3. Environmental Audit: Evaluates a business's impact on the environment.

4. IT/Technology Audit: Assesses IT infrastructure, data management, and system security.

5. Performance Evaluation: Focuses on outcomes rather than processes, usually tied to performance benchmarks or metrics.

6. Investigation Audit: Conducted when there is suspicion of fraud or other irregularities.

7. Operational Audit: Evaluates an organization's operational procedures to identify inefficiencies and areas for improvement.

The Five Cs of Internal Audit

The 5 C’s of internal audit are criteria, condition, cause, consequence, and corrective action. These elements detail the reasons for the audit, the events leading to it, the audit's methodology, objectives, and post-audit actions. 

Internal Auditing Process

1. Planning: Involves creating the audit plan and defining the scope and objectives.

2. Performing or Fieldwork: Execution of the audit plan through various audit procedures.

3. Reporting: Formal report and interim report are produced.

4. Observation: Post-audit actions are taken and monitored for effectiveness.

Importance of Internal Audits

1. Enables effective management by identifying areas for improvement.

2. Helps companies save money.

3. Improves the business's control environment.

4. Enhances business productivity.

5. Gives management an early insight into potential issues.

6. Ensures required oversight for certain agencies.