13 Apr 2021 Ankit Chadha

5 Myths That Shadow Awareness About Internal Audit

Internal Audit | TRC Corporate Consulting

Myths have been an age-old thing and should be busted well in time to have necessary procedures and processes in place. Internal Audit deals with activities beyond the company's finances, and that's where it differs from an external audit. Internal Audit is meant to work for the organizational efficiency, organization's reputation, impact on the environment, strategic growth, management of human resources, and such.

Incorporating internal control in auditing gained more importance when the Sarbanes-Oxley Act became law in 2002. It includes reforms stressing the required corporate responsibility, measures to combat corporate accounting fraud, and corporate disclosures. The important section relating to compliance with the Internal Audit procedures in Section 404 states the importance of including the Internal Control Report in the annual financial statement. It mandates compliance with adequate internal control in auditing and measuring the effectiveness. Also, gaps need to be spotted and worked out in compliance with the established laws.

Types of Internal Audit 

Find below three types of Internal Audit which have different Internal Audit procedures:

  1. Compliance Audit 

Under this, the Internal Audit process is performed to keep a check on the level of compliance with the laws, regulations, and policies. This is a part of the statutory requirement. Ultimately, the objective is to have complete internal control in auditing.

  1. Operational Audit 

This audit deals with evaluating the operations of a particular department to measure their effectiveness and efficiency. The pieces of evidence and the bases used for it are operational policies and pre-defined organizational goals, which might include financial factors as well.

  1. Management/Performance Audit 

This covers the check of organizational efficiency considering the division of work amongst the employees and whether it can be done better to achieve efficiency. As the internal is carried out independently, an excellent review of management operations and efficiency can be given.

  1. Informational Technology Audit 

Under IT Audit, the information processing system of the organization is audited. It keeps an eye on whether the processes are in compliance with the laws and if required safety is in place or not. IT Audit aims to maintain data integrity, achieve organizational efficiency, and safeguard assets. Accordingly, recommendations are made to the management.

Myths That Shadow Awareness About Internal Audit 

Few myths need to be busted in time to put the Internal Audit Process in place and encourage the inclusion of the same in the financial reports.

Myth 1: Like accountants, internal auditors are 'number crunchers' 

It is a general misconception that the Internal auditors just focus on the company's numbers and metrics, i.e., financial records. The Internal Audit Process requires a background in accounting, but they differ to a great extent from an external audit.

Internal Audit deals with compliance issues, operational efficiency, fraud risk, and the achievement of organizational objectives, which are indirectly related to accounting. Internal auditor's knowledge-base is not limited to finance and is as diverse as the operations he/she handles for overall efficiency.

Myth 2: Auditors are Faultfinders 

Most of the organizations and their management have a mindset that auditors are faultfinders. With the changing business environment and increasing scope of Internal Audit Procedures, it has no relevance.

Internal auditors work in favour of the organizations and help them find out and make them aware of the loopholes or non-compliances. Unlike most organizations think, internal auditors do not distract the management from handling the significant issues and responsibilities.

Rather than focussing on the minor issues, they concentrate on significant problems that might prove harmful for the organization in the long run. If organizations leverage Internal Audit services to experts, like, TRC Consulting, a fair amount of money can be saved by having a suitable mechanism for internal control in auditing.

Myth 3: Serve Auditors with Limited Information 

Misinformed people usually advise it; organizations should provide internal auditors only with the information they ask for. This way, the whole Internal Audit Process might become faulty due to the missing data. The process will prove to be a total waste of time.

To support the organization's growth, the auditors should be provided with all the material information without intentionally hiding any information, which serves everyone's interest in the best way.

Myth 4: Internal Auditors Have a Standard Checklist For Every Year 

It is assumed that the auditors have some set audit targets and a standard checklist ready with them. And, every year, they make a comparison of financial records with the same checklist for auditing.

It is essential to know that preparing standards require risk-based planning and risk changes every year due to the dynamic business environment. The auditors keep up with the changing trends to make alterations accordingly. A standard checklist prepared for one year might become obsolete for the next one. Different checklists are designed for varied types of Internal Audit. 

Myth 5: Internal Audits Are Authoritative 

Internal Audits are considered authoritative and corporate 'police function' by a fair portion of the population. Internal auditors are portrayed to be aggressive.

In contrast, the auditors maintain good relations with their clients to carry out all types of Internal Audit smoothly. Auditors put forward their findings in the form of opportunities to facilitate improvements and help accomplish organizational objectives. Auditors should be considered as a coach striving to prepare your organization to achieve the best.

How Can TRC Consulting Help Your Organisation in Efficient Internal Audit Reporting? 

Organizations must understand the evolving scope of Internal Audit and its necessity with the changing business environment and landscape.

At TRC Corporate Consulting, we understand the importance of adding value to the organization and work for its efficiency to achieve goals. We opt for a systematic and disciplined approach to assess and evaluate risk management's effectiveness and compliance with the governance regulations. 

With the practical experience gained over the years, our experts provide constructive internal control in auditing. Help your organization grow in the right way. Got any queries? Contact us now