01.01. Defining Internal Auditing

Key Questions

Briefly reflect on the following before we begin:

• What is internal auditing?
• What role do internal auditors play in an organization?

Performed by professionals with an in-depth understanding of the business culture, systems, and processes of an organization, the internal audit activity assures that internal controls are adequate to mitigate the risks and that organizational goals and objectives are met. The Institute of Internal Auditors (IIA) defines “Internal Auditing” as,

Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.

Definition of internal auditing by The Institute of Internal Auditors. (n.d.).
https://www.theiia.org/en/standards/what-are-the-standards/definition-of-internal-audit/

This definition emphasizes the following key points:

• Systematic Process: Internal auditing is not a random or ad-hoc activity. It follows a structured approach, which includes planning, performing, documenting, and communicating results. This systematic process ensures consistency and reliability in the audit activities.
• Evaluation of Effectiveness: The primary purpose of internal auditing is to assess how well the organization’s risk management, control, and governance processes function. This evaluation helps identify areas of improvement and ensures that the organization achieves its objectives efficiently and effectively.
• Risk Management: Internal auditors examine the organization’s processes to identify and assess risks that could hinder the achievement of its objectives. By understanding and evaluating these risks, internal auditors help management make informed decisions to mitigate them effectively.
• Control Assessment: Internal auditors evaluate the adequacy and effectiveness of the controls implemented by the organization to manage risks. Controls can include policies, procedures, systems, and mechanisms to ensure compliance with laws, regulations, and internal policies.
• Governance Processes: Internal auditors also review the governance processes within the organization, including the roles and responsibilities of the board of directors, management, and other stakeholders. By assessing governance practices, internal auditors contribute to the overall effectiveness and accountability of the organization.
• Improvement of Processes: Internal auditing identifies problems and recommends solutions and improvements. Internal auditors provide valuable insights and recommendations to management to enhance processes, strengthen controls, and optimize operations.
• Independence and Objectivity: Internal auditors maintain independence and objectivity in their assessments. They remain free from bias and undue influence, allowing them to provide impartial evaluations and recommendations that serve the organization’s best interests.
• Internal auditors adhere to high standards of professionalism and ethics. They uphold integrity, confidentiality, and competence in all aspects of their work, ensuring the trust and confidence of stakeholders in the audit process.
• Communication of Results: Internal auditors communicate their findings, conclusions, and recommendations to relevant stakeholders, including management and the board of directors. Effective communication is essential for ensuring audit results are understood, accepted, and acted upon appropriately.
• Continuous Improvement: Internal auditing is a dynamic process that evolves to meet the changing needs and challenges of the organization. Internal auditors continuously seek opportunities to enhance their skills, methodologies, and practices to deliver more excellent organizational value.

Overall, the IIA’s definition highlights the multifaceted nature of internal auditing, encompassing assurance and consulting activities to enhance organizational performance and effectiveness.