Audits are a critical internal audit process for businesses and organizations to ensure compliance, manage risk, and validate that your business follows processes and procedures correctly. But what exactly are the audit steps involved in conducting an effective audit?
In this post, we’ll walk through the end-to-end audit process so you understand the methodology and best practices for an effective internal audit. Along the way, we’ll emphasize key components, such as audit procedures, that play a crucial role in the process.
Why are audits important?
Audits are fundamental to Governance, Risk management, and Compliance (GRC) for organizations, universities, and industries. Though different types of audits require time and resources, they serve critically essential functions. There are compelling reasons why every organization should conduct regular audits:
- Verify compliance with regulations, policies, procedures, and internal controls. Audits ensure the organization is operating legally and ethically.
- Identify areas of risk or non-compliance. The audit risk assessment pinpoints problems to address.
- Assess the effectiveness and efficiency of operations. Audits find opportunities for improvement.
- Uncover fraud or unethical practices. Audits can reveal misconduct.
- Provide an independent, objective review to instill stakeholder confidence. Audits demonstrate accountability.
Well-executed audits protect organizations and enable continuous improvement. The audit report and results are critical for senior management and the audit committee to provide oversight.
When should my business complete an audit?
Organizations should conduct regular audits, such as annually. Audits may also be performed on a rolling basis, with different departments or entities examined yearly.
Additional ad hoc audits may be warranted after major changes like:
- New leadership or reorganization. New executives often want an audit.
- Acquisitions or divestitures. Newly acquired entities need auditing.
- Implementation of new systems. Verify the system works as intended.
- Regulatory changes. Confirm compliance with new rules.
Evidence of potential fraud or compliance issues also necessitates an immediate, focused audit.
The audit committee and internal audit team should actively review the audit plan and program whenever operations shift significantly. They may need to adjust the schedule and scope.
Consult the internal audit office for all audits to obtain needed background and ensure comprehensive coverage based on prior audits. Taking these proactive steps leads to more effective auditing.
The Steps of the Audit Process
An audit is an objective examination and analysis of some part of an organization’s operations to determine if it’s complying with applicable standards.
To ensure a successful audit, companies should follow these specific audit steps:
Before the audit, an auditor from an Audit and Management Advisory Services (AMAS) firm performs a preliminary planning and information-gathering phase to define the objectives and scope of the audit. Such auditors are typically from a third-party organization that serves independent and objective audits and offers management consulting.
After defining the objectives of the audit, AMAS issues a formal audit engagement memo to a company’s executives outlining the audit plan. The memo’s goal is to present the audit’s objectives, outline the review process, and set expectations for the course of the audit.
Audit entrance meeting
AMAS meets with the head of the area that will be audited to discuss the scope, time frame, and steps of the audit. During this step, company management provides an overview of operations, relevant policies and procedures, and other pertinent information.
The auditor gathers the relevant information and conducts audit testing to understand internal controls. During this step, AMAS examines documents and other records to determine if adequate internal controls are in place. They evaluate compliance with external rules and regulations. And review system-related controls for data security.
Reviewing and communication results
During the audit fieldwork phase, the assigned auditor discusses with the organization’s leaders any potential weaknesses in the internal controls, violations of policies or procedures, or corrective actions to take. Throughout the audit, the auditor communicates any issues with the executives to ensure they understand the risks and to obtain agreement on proposed recommendations. The audit report spells out the audit results.
Audit exit meeting
When AMAS finishes the fieldwork, it meets formally with management to discuss any issues and the recommendations contained in the audit report. Both parties discuss and agree on the advice and, in most cases, determine when any problems will be corrected.
Company executives review the audit issues and recommendations to ensure they’re complete and draft a formal response and action plan. AMAS then issues the formal audit report to management.
Common mistakes during internal audits
Several pitfalls can diminish audit effectiveness if the internal audit team does not follow sound practices:
- Inadequate audit planning and scoping leads to an incomplete or ineffective audit program. The objectives need to be clarified.
- Failure to gather comprehensive, objective audit evidence through sufficient fieldwork, interviews, and data analysis leaves gaps.
- Poor organization and changing directions during the mid-audit process were confusing. You should define the audit procedures upfront.
- Ineffective communication channels with the auditees and management lead to misaligned expectations.
- Lack of independence or objectivity from internal auditors raises credibility concerns about the audit findings.
- More accurate reporting in the draft and final audit reports is needed to maintain usefulness.
Common audit mistakes can be prevented by following audit best practices around planning, communication, fieldwork, reporting, and general project management. The internal audit office should provide templates, tools, and training to help guide the process.
Best practices for your business’s internal audit
Conducting robust and successful internal audits takes careful planning, execution, and audit follow-up. By implementing these five best practices, organizations can optimize their audit process:
- Maintain open communication and feedback channels:
Establish clear communication protocols for the audit team, auditees, and management throughout the audit process. Conduct thorough entrance and exit meetings.
- Align audit scope with business objectives and top risks:
Let the organizational goals and key risk areas guide the audit planning and development of the audit program. Focus on high-risk zones.
- Adhere to formal audit procedures:
Follow documented audit procedures and methodologies the Office of Internal Audit outlines to ensure consistency. Use the provided templates and tools.
- Use risk-based sampling and data analytics for efficiency:
Leverage technology for data-driven fieldwork, statistical sampling, and analysis to cover more scope efficiently. Target high-risk transactions.
- Issue audit reports promptly with rankings and remediation guidance:
Provide precise audit results and detailed audit findings in the draft audit report and final audit report. Include specific corrective actions and action plans for remediation.
Maintain and manage compliance and risks with ZenGRC
Regular internal audits are critical, but managing the end-to-end process can strain resources and workflows. ZenGRC provides powerful automation to streamline audit management. Critical features like workflow tagging, task prioritization, and centralization of requirements help auditors work more efficiently.
ZenGRC maps controls across frameworks to eliminate duplicate work. It also provides templates for various audit types. With ZenGRC, you can complete audits faster and more effectively.
To learn more about how ZenGRC can optimize your audit process, contact us today for a demo.