Knowledge of the procedures that an internal auditor goes through and understanding why audits are carried out will make it much easier to start a career in audit.
Why do organisations Audit?
An alarming amount of companies waste money unnecessarily, whether this is because of issues that they were ignorant of or other problems that they are unsure of how to deal with. An auditor goes through a detailed process to uncover these problems and suggest solutions which will help reduce this wastage.
Auditors are able to assess internal information and financial status without bias to determine any irregularities or mistakes. Businesses rely on this information to guide decisions on a daily basis. And in some cases there are legal implications for inaccuracy whether these are intentional or not.
In some cases organisations misuse their assets either by not making full use of them or other inefficiencies. Auditors may be able to highlight to companies an over-capacity in their manufacturing or illustrate the cost of unused office space.
Finally the amount of money that organisations lose every year from theft and embezzlement is significant and in most cases the organisations are completely unaware of this loss. Auditors are trained to identify any signs of this kind of misconduct and can help the organisation rectify the situation.
The Audit Process
The processes used by audit firms can be very complicated, however there are 5 steps which any auditor must go through:
Identify Objectives – what is it the company wants to achieve; these goals can also be taken to a macro level, department by department, team by team. By isolating what the company is hoping to achieve the auditor is able to benchmark their aims and understand the processes required to achieve them.
Risk that could affect Objectives – the auditors in consultation with the companies must outline risks which would prevent them from being able to achieve their strategies. These can be simple unpredictable factors like a product which relies on the weather to more complicated factors such as the outcome of an ongoing inquiry that might introduce legislation that would affect the company.
Controls to Manage Risk – once the risk has been identified the auditor is able to help introduce controls that can help negate the risk, whether it is widening the product portfolio or taking appropriate insurance. The financial auditors are able to help bring in these controls to reduce the risk.
Are Controls Cost Effective? – it’s also the responsibility of the auditors to make recommendations as to whether the suggested controls are cost effective. While the risk might be quite small, would the financial damage justify the expense to manage them?
Review of Introduced Controls – the process is completed by reviewing the controls to see whether they are successfully managing the risk and whether new risk which wasn’t present in the past would now be needed.