Activities and Responsibilities: Internal auditing is of three types: operational audits, financial audits, and regulation audits. Large internal auditing departments typically separate these three functions. All three are conducted through adherence to prepared audit plans, generally designed by senior internal auditors familiar with the audit-targeted operations within the corporation. Comprehensive written reports detailing the audit's findings and recommendations are prepared and submitted to senior auditors or the audit manager before submission to higher corporate management. The heads or managers of the audited departments receive the findings, discuss and negotiate them with the audit manager, and instigate agreed-upon recommendations. Follow-up audits determine compliance with previous audit's recommendations. Auditing department organizational structure varies with company size. In most cases it is an independent department reporting to high-level management. Junior auditors, either entry-level or with two or three years' experience, perform the bulk of the work under supervision of senior auditors. They may also participate in audit planning or report writing.
Senior auditors, who have three years' experience and up, perform less auditing and participate more in audit planning, report writing, supervising auditing staff, and meeting with heads of audited departments.
Operational audits-the broadest in scope-determine how closely the company's prescribed policies and procedures are being adhered to in various functional areas. Dependent upon the nature of the business, the operational audit seeks to improve operations, through either stricter employee compliance to company policy, elimination of inefficient operations, or altering company policies and procedures. For example, an operational audit of a retail clothing outlet would answer the following questions: Is merchandise properly recorded in inventory records? Are customer check and credit-card transactions being authorized according to company policy? Are personnel properly trained and supervised? Are security regulations correctly followed?
The operational audit's emphasis is necessarily placed on the proper functioning of internal controls. These controls are evaluated on the basis of whether functions are segregated in a way to ensure that different people handle various parts of a transaction, thereby acting as checks on one another. Restricted access to assets (cash, supplies, merchandise) or to items used to process transactions (such as checks or purchase orders) is another feature evaluated.
Operational auditing procedures vary in nature, although most are performed on site or within the department or division audited. Two important procedures are observation and inquiry. Observational audits are characterized by observing departmental operations, facilities, and location of assets, as well as how personnel perform individual tasks. The goal is to gain a working knowledge of the actual department functions. Often these observations are augmented by comprehensive pre-audit interviews with department personnel. Inquiry audits use predetermined questionnaires to solicit different types of information, such as employees' training and background and actual job duties and how individuals perform them. In addition to observation and inquiry audits, a sampling of documentation is inspected for proper authorization and correctness of the transaction process.
Financial and regulation audits employ procedures identical to operational audits but are narrower in scope. Financial audits are concerned with the efficiency and accuracy of the accounting function. Again, operational efficiency is the financial audit's priority: Are personnel properly trained, internal controls in place to ensure proper functioning of the accounting system, and transactions properly authorized? However, the financial audit is necessarily numbers-oriented. Samplings of financial accounts and data are analyzed through various audit procedures, including re-computation of figures and tracing transactions through the accounting system from initial entry to final disposition in accounting records.
Educational Background and Training: A four-year BS degree in accounting is the most common educational background of internal auditors, although general business degrees are not unusual. Emphasis is on the accounting degree, however, with computer courses or experience an added advantage, as many accounting systems and business operations are computerized.
The junior auditor position is filled generally from two sources: degreed accountants with or without experience and transfers from the general accounting department. Internal auditing work, more than an accounting background, requires a sound knowledge of the company's operations and policies. This is especially true for operational audits. Senior internal auditors are often recruited from public accounting firms. Such recruits possess two to three years' public accounting experience, and in most cases are CPAs.
Attributes of Successful Internal Auditors: There is much similarity between the attributes required for internal auditing and those for auditing in public accounting firms. Here too, highly developed interpersonal skills are a major requirement. The internal auditing function also is often viewed as a "policing" function with defensive and even hostile attitudes often encountered. As an internal auditor, you must develop an attitude and personal style designed to assure those being audited that your role is one of assistance and fraternity. You should also enjoy the interaction with fellow employees, as a great deal of time is spent interviewing, observing, and working with others-both the auditors and the audited.
For both financial and operational auditing, technical know-how specifically, accounting technical know-how-is important. Since internal auditing extends to almost every department within an organization, a general knowledge of how these departments function and interrelate is crucial.
Those persons who find the internal auditor's work interesting typically like detail work and have a spirit for inquiry. Coming up with audit findings and recommendations which may have major effects on company operations requires that you enjoy performing detective work.
The Institute of Internal Auditors conducts a twice-yearly, four-part exam leading to the Certificate in Internal Auditing (CIA). Candidates must satisfy specific experience and education requirements. Holding the CIA license gives the internal auditor both a salary and promotional edge over non-CIAs.
