Speaker 1: Hello friends and welcome to my youtube channel auditing tricks. In this video I am going to share details about what is internal audit, what are internal auditors responsible for, how are internal and external audits different, what are the type of internal audits and what is the internal audit process and procedure. But before starting the main video, if you are new to my channel, please click the red subscribe button below to this video and subscribe my channel. Let's start with our first topic today, what is internal audit. Internal auditing is an independent, objective assurance and consulting activity designed to add value to and improve the organization's operations. Internal audits evaluate a company's internal controls, including its corporate governance and accounting processes. The role of an internal audit is to provide independent assurance that an organization's risk management, governance, and internal control processes are operating effectively. Internal audits provide management and board of directors with a value-added service which flaws in a process may be caught or corrected prior to external audits. Internal audit answers the following questions. First, are we making progress towards our company's objectives? Whether various risks are being managed effectively? Are policies and procedures being applied correctly in the company? What all activities and processes can be improved? Now let's see what are internal auditors responsible for. Routine internal audits ensure that the company has the ability to survive in a competitive business environment and continue to prosper. To be effective, the internal audit activity must have qualified, skilled, and experienced people who can work in accordance with the code of ethics and international standards. Auditors can do this by monitoring, analyzing, and assessing the risks and controls of the organization, reviewing the organization's compliance with policies and laws, and making reassurances and recommendations to the company's owners. Now let's see how are internal and external audits different from each other. Internal audits and external audits are quite different, both in terms of their objectives and procedures. The main difference is that internal audits are not regulated and can, therefore, be applied as per flexibility. These are some of the differences which demonstrate how an internal audit can be more effective than the external audit. First one is objective. Internal audit's objective is to educate management and employees about how they can improve the business operations and their efficiencies. The objective of external audit is to give reliability and credibility to the financial reports that go to the shareholders. Next is purpose. The purpose of internal audit is to review the financial reporting, operations process, internal control system, risk management, corporate governance, and fraud detection. However, external audit purpose is to review the financial statements or other compliance matters. Next is focus. Internal audit focus on the continuous improvement and meet strategic goals. However, external audit focus on fair reporting of financials and other compliance matters. Next difference is of reporting. Internal audit reports to the board and senior management who are within the organization's governance structure. However, external audit reports to the shareholders or members who are outside the organization's governance structure. Other than that is perspective. Internal audit perspective is historical and future. However, external audit is primarily historical. In summary, internal audit helps to improve companies from inside while external audit ensures that what they present to outside world reflects what really happened. Both type of audit keep an engine of our economy running efficiently and effectively. Now let's see what are the different type of internal audits. There are five type of internal audits. First one is related to the compliance audits which evaluate the compliance with applicable laws, regulations, policies and procedures. Some of these regulations may have a significant impact on the company's financial well-being. The next one is operational audits which assess the organization's control mechanism for their overall efficiency and reliability. The third one is performance audits which evaluate whether the organization is meeting the metrics set by the management in order to achieve the goals and objectives set forth by the board of directors. Next ones are information technology audits which may evaluate information systems and the underlying security infrastructure. They will typically include the assessment of general IT controls, related logical access, change management, system operations and backup and recovery. The last type of internal audit includes environmental audits which assess the impact of the company's operations on the environment. They may also assess the company's compliance with environmental laws and regulations. Now let's see what is the internal audit process and procedures. An internal audit should have four general phase of the activities which includes planning, fieldwork, reporting and follow-up. Let's start with the first phase of internal auditing which is planning. During planning the auditor notifies the client of the audit, discuss the scope and objectives of the examination in a formal meeting with the organization management and gathers information on important processes, evaluate the existing controls and plan the remaining audit steps. The next phase of audit is fieldwork. In this the audit team will execute the audit plan. This usually includes interviewing key personnel to confirm an understanding of the process and controls, reviewing the relevant documentations, testing the controls for a sample over a period of time, documenting the work performed, identifying exceptions and giving recommendations. The third step of audit is reporting. The process of issuing an internal audit report includes drafting of the report, review the draft with management to ensure the accuracy of the findings and issuance and distribution of the final report. The fourth phase of internal audit is follow-up. This process includes appropriate follow-up with the process owners needing to implement the recommendations as well as the board insight of the company's overall status in addressing findings identified by the internal audit.