Your All-Inclusive Internal Auditing Checklist

Organizations of all sizes are susceptible to fraud and financial mismanagement, with an estimated five percent of total revenue lost yearly due to fraudulent activities. But how do you know whether your organization follows best practices in order to avoid costly missteps?

Internal audits can help you identify and address problems before they become significant issues. However, internal audits require careful planning, and it can be challenging for accounting and audit professionals to ensure they cover all the bases.

This all-inclusive internal auditing checklist will ensure your internal audit is comprehensive and efficient in your quest for optimal financial health.

Internal auditing’s crucial role

Internal auditing is an assessment of the internal control system within an organization. It looks at several areas, including financial reporting processes, compliance with laws and regulations, and organizational objectives.

An effective internal audit process can help you identify previously undetected risks or issues and uncover opportunities for improvement. Additionally, internal auditing can help you improve the accuracy and reliability of financial statements, increase operational efficiency, enhance data governance and boost employee morale.

7-step internal audit checklist

Let’s look at these seven key factors that go into a quality audit:

1. Provide reasoning for your audit

Audits can make employees feel like their work is being monitored and scrutinized, so explaining why the audit is necessary is essential. You should clearly state the audit criteria and define the scope. This will help employees understand the importance of the process and ensure everyone remains cooperative throughout.

There are many reasons why you might need to conduct internal or external audits, but some of the most common include the following:

• identifying areas for improvement
• meeting compliance requirements
• increasing financial accuracy
• monitoring the accuracy of internal processes

Whatever the reason, it’s important to make it clear so everyone is on the same page.

2. Establish the goal for internal auditors

Once you’ve provided the reasoning for your audit, it’s time to set a goal. This should be an overarching objective that everyone involved in the process can strive toward.

For example, if your goal is to increase financial accuracy, internal auditors will focus on identifying areas where processes and procedures can be improved. Internal auditors should look at financial statements, records, reports and other documents where irregularities could occur.

Similarly, if the goal is to ensure compliance with laws and regulations, your internal audit manager will pay special attention to business practices, policies and procedures that could be subject to noncompliance.

When setting a goal, it’s crucial to ensure all participants understand what needs to be achieved and how they can contribute. Your goal should also be realistic and attainable.

3. Determine the type of audit

After establishing the goal for your internal audit, you’ll need to decide on the type of audit that best fits your needs. To determine your internal audit plan, consider your goal and the areas you need to examine. 

Internal audits can be divided into three categories:

• Financial audits. You can use these to examine and verify financial statements and identify areas where changes or improvements could be made.
• Operational audits. An auditor can evaluate the efficiency and effectiveness of operational processes and procedures, such as quality control, workflow, staffing levels and administration. 
• Compliance audits. Compliance with applicable laws and regulations is essential to any organization. These audits examine policies, procedures and practices to meet all applicable laws and international standards.

4. Request the necessary documents

Audits will require extensive documentation, so it’s important to request the documents you’ll need for the process. This includes financial statements, internal records, reports and other materials pertinent to your audit evidence. Software designed to enable quality internal audits can often make this process easier, as it automates the gathering and tracking of documents.

All requested documents should also be up-to-date. For example, if you’re conducting a financial audit, request the most recent financial statements. Outdated information can lead to inaccurate results.

If you have an audit trail, such as audit reports from previous years, this can be useful in providing additional context and helping to identify areas of improvement. However, data from these reports should meet current internal auditing standards to be useful.

5. Identify performance indicators

Performance indicators measure how well an organization is achieving its objectives. You can use both qualitative and quantitative indicators, and they should be tailored to the specific goals of your audit.

For example, if you’re conducting a financial audit, performance indicators could include cash flow, profitability, return on investment (ROI) and net income. You can also use qualitative measures like customer satisfaction surveys or employee engagement scores.

6. Start the documentation review

A careful review of all documents is essential to an effective internal audit. Auditors should read each document thoroughly, taking notes and identifying any discrepancies or irregularities.

Keep a record of your findings by establishing a system. This should include notes from the document review process and any observations or recommendations you make. You should be thorough when examining documents. Even minor errors can significantly impact the accuracy of your results.

7. Create an action plan to address areas of improvement

An action plan is what makes your internal audit truly valuable. You’ll use internal audit reports to identify any areas that need improvement and develop a plan to address these issues.

Your action plan should include specific steps, timelines and resources you need to achieve your desired results. It also helps to provide milestones along the way to track progress over time.

Transform the way you do internal audits

Whether looking for ways to improve financial accuracy or ensure compliance with applicable laws and regulations, an internal audit can provide the information you need to take corrective action and make decisions that will benefit your business.

To discover how you can streamline your internal audit program, explore Caseware’s audit solutions.