Implementing an internal audit requires a meticulous and unified process flow which is why it is imperative to select the correct approach.
In contrast with the more traditional controls-based approach which reviews and confirms compliance and financial controls, the risk-based methodology can yield more productive and insightful results.
Companies must establish and confirm their understanding of the company’s management. This allows the identification of the scope of the company services. The internal control must be assessed at an entity level and commercial risks and others, such as fraud, IT etc., must be identified. This assessment process can be used to design services to address the risks which have been identified as well as the implications of such risks on the company’s financial performance and financial statements.
The company’s financial reporting risk can be assessed by considering existing knowledge. This is particularly true in business-critical areas. The Risk Assessment step assists in pointing out issues and their impact early-on whilst allowing enough time for a systematic investigation into setting up a strong risk response framework.
Robust internal controls are important for the maintenance of a stable organization as they confirm that the essential protections are in place to certify the effective achievement of the financial reporting objectives of the organization. In this step, internal controls are evaluated and possible alternatives may be suggested in order to minimize the risk of the occurrence of inaccuracies or misstatements in the financial statements.
This step includes reaching an understanding of the organization’s business and the risk assessment in respect thereof. It encompasses, amongst others, tests of journal entries, tests of controls, as well as tests fraud procedures and general audit procedures. Ongoing communication is vital for conducting a successful and seamless audit.
This is the final step of the audit engagement and the key deliverables here are the provision of review reports or opinions on the financial statements and management, in order to bring to light audit, system and control issues within the organization.
Read More: What is the Difference Between a Qualified and Unqualified Audit Report?
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