A successful audit depends on sound planning, constructive involvement, and great communication. Here is a step-by-step guide for achieving a successful internal audit process.
The planning process of most of the audit firms in India includes the auditor notifying the client of the audit, discussing the scope and objectives of the examination in a formal meeting with organization management, gathering information on important processes, evaluating existing controls, and planning the remaining steps.
The client is then informed about the audit through an announcement or engagement letter from the Chief Audit Executive, which will communicate the scope and objectives of the audit and the auditors assigned to the project.
This will be an open conference meeting wherein the client (process owners) describes the unit or system to be reviewed, the organization, and available resources. The internal auditor meets the process owners directly during this meeting.
The internal audit service providers will conduct a survey that includes the auditor gathering relevant information about the unit in order to obtain a general overview of operations. The discussion takes place with the key personnel and also reviews reports and files.
Internal control review
In this stage, the unit’s internal control structure will be reviewed by the auditor. This is a time-consuming process wherein the auditor uses a variety of tools and techniques to gather and analyze information. This helps in determining the areas of high risks and design tests are performed.
This step concludes the preliminary review phase and also outlines the fieldwork necessary to achieve the audit objectives.
This includes transaction testing and informal communications. In this step, the auditor determines if the controls that are identified during the preliminary review are operating properly and in the correct manner. The auditor will then prepare a draft of the audit report.
Many of the audit firms in Mumbai perform transaction testing that includes evaluation of effectives of internal controls and efficiency of processes and systems.
Advice and informal communications
The discussion of significant findings takes place with the client, who can offer insights and work with the auditor to determine the best method of resolving the finding. These communications are usually oral.
Once the fieldwork is complete, the auditor summarizes the audit findings, conclusions, and recommendations necessary for the audit report discussion draft.
Working papers are a vital tool as they form the support of the audit opinion, that connect the client’s accounting records and financials with the auditor’s opinion.
This is the final report in which opinions are expressed, the audit findings are presented and improvements are discussed. At ZMAS, we use a proprietary software to communicate audit findings and obtaining responses from the client.
The audit working papers and discussion draft is thoroughly reviewed before it is presented to the client. It is prepared for the operating management of the unit and is submitted for the client’s review.
After the discussion draft is approved by the audit management, the auditor meets the unit’s management team to discuss the findings, recommendations, and text of the draft and they reach an agreement on the audit findings.
In this step, the auditor prepares a formal draft, by considering any revisions that result from the exit conference.
The auditor then distributes the final report to the unit’s operating management, reporting supervisor, and other authorities. At ZMAS, we issue reports through our software called RISE (Review, Implement, Sustain and Elevate) where process owners can update responses and action status.
The final step gives the client an opportunity to respond to the audit findings, before issuing the final report. Client also updates the action status against each response and action plan.
The clients comment on the internal audit’s performance.
Internal audit should perform a follow-up review after defined period of the final report.
Follow-up review and follow-up report
Then the client response is reviewed and the actions taken are tested to ensure if the results were achieved. This will conclude with a follow-up report, listing the actions taken by the client to resolve the original report findings.
Internal audit annual report to the board
The various documentations like contents of the audit report, client response, and follow-up report are communicated to the Audit Committee of the board.
This concludes the entire internal audit process.