What is an Internal Auditor (IA)?
An internal auditor (IA) is a trained professional employed by companies to provide independent and objective evaluations of financial and operational business activities, including corporate governance. They are tasked with ensuring that companies comply with laws and regulations, follow proper procedures and function as efficiently as possible.
How an Internal Auditor (IA) is Used
The main job of an internal auditor (IA) is to identify problems and correct them before they are discovered during an external audit by the Securities and Exchange Commission (SEC) or any other governmental regulatory body. To achieve this goal, they examine financial statements, expense reports, inventory and so forth, as well as creating risk assessments for each department.
Detailed notes are taken, interviews with employees are conducted, work schedules are supervised, physical assets are verified and financial statements are scrutinized to eliminate potentially damaging errors or falsehoods and find ways to boost productivity.
When an internal auditor (IA) has gone through everything he or she has been asked to examine, the findings are presented in a formal report. This report describes how the audit was done, what it discovered and, if necessary, suggestions for what improvements could be made. It is usually is presented to senior executives at the company.
In the case that changes are recommended, it is common for an internal auditor (IA) to later be asked to complete a follow-up audit to determine how well the advised changes have been executed.
Properly-managed publicly-traded companies also get internal auditing teams to carry out compliance with outside regulatory agencies such as the SEC and with auditing guidelines as laid out by the Generally Accepted Accounting Principles (GAAP).
- An internal auditor (IA) is a trained professional tasked with providing independent and objective evaluations of company financial and operational business activities.
- They are employed to ensure that companies follow proper procedures and function efficiently.
- Final reports are presented to senior management and can include recommendations.
Internal Auditor (IA) Requirements
The Institute of Internal Auditors (IIA), established in 1941 and headquartered in Florida, is the international professional organization that sets standards, guidance, best practices, and code of ethics for practitioners. On its website, the IIA defines internal auditing as: “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.”
Internal Auditor (IA) Vs. External Auditor
Sometimes the role of internal and external auditors can be confused. The main difference between the two is that internal auditors (IA) work on behalf of company management. Internal auditors (IA) are hired by the company, while external auditors are appointed by a shareholder vote.
Internal auditors (IA) are employed to educate management and staff about how the business can function better. External auditors, on the other hand, have no such obligations. They are responsible for reviewing financial statements to ensure that they are accurate and conform to GAAP. Their findings are then reported back to shareholders, rather than management.
According to the Association of Certified Fraud Examiners, the role of the external auditor is to: “inspect clients’ accounting records and express an opinion as to whether financial statements are presented fairly in accordance with the applicable accounting standards of the entity, such as Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). They must assert whether financial statements are free of material misstatement, whether due to error or fraud.”
It is a legal requirement for all financial statements from public companies to be audited by a third-party accountant, in accordance with the Securities Act of 1933 and the Securities Exchange Act of 1934.
Advantages of an Internal Auditor (IA)
Many companies choose to employ an internal auditor (IA), despite not being legally obligated to do so. Robust internal audits are viewed as a key way to correct issues quickly, maintain a good reputation and prevent money from being wasted.
Reports filed by internal auditors (IA) can help companies to prosper and operate at maximum efficiency. For this reason, many executives view them as a necessary expense.