Do you ever feel like you’re drowning in a sea of audit jargon? Fear not. This is a simplified explanation for those who are not involved in Audits, and see it as a nuisance, or struggle with the jargon used (particularly in technology). Many organizations either overcomplicate the audit process or fail to make their employees aware of its importance to the organization’s performance. This post will help you navigate the murky waters of internal and external audits, and even make it sound fun.Trust me, it’s possible.
“Audits are like Spa Days”
Let’s start with internal audits. Think of it as a self-reflection session for your company or organization. Your employees, or an auditor, take a closer look at your systems and processes to help improve the way you manage them. It’s like a spa day for your company’s wellbeing. Not only does it improve your systems, but it also raises employee awareness and participation in improving the management system. They are performed periodically or when the senior management seeks an opinion on internal controls related to financial, contract and vendor management, security and technology, or other critical processes.
On the other hand, external audits are like a yearly check-up with your company’s doctor. Except your doctor is an external independent audit company, and they’re checking if your financial reporting and compliance requirements are up to par. The results of this audit are used externally, and by law, they must be published for everyone to see. It’s like airing out your dirty laundry for the world to see.
Now, the process, standards, frameworks, and tools used in audits are critical for the sustainability of the organization. ISO 19011 is a Standard describes how to perform audits. The company must define the scope of the audit, which systems, departments, applications, and processes are covered. A ‘risk-based approach’ is taken because, let’s face it, you can’t cover everything. Risk and audit assessments go hand in hand. And in this digital age, computer technology is always front and center of the audit. So, if you’re not tech-savvy, it’s time to brush up on your computer skills.
Figure 1 Summary of a Road Map
So, there you have it. Audits can be beneficial and even fun if you look at them in the right light. Think of it as a spa day or a yearly check-up for your company’s wellbeing. And who knows, maybe one day, you’ll be the one conducting the audit and using all that jargon like a pro.
“Understand Internal Control”
Internal control encompasses a set of policies, procedures, practices, and organizational structures formulated to ensure a reasonable level of confidence in accomplishing business objectives and effectively preventing or identifying and rectifying undesirable events. Internal control is like a superhero team that join forces to give you that feeling of confidence in achieving your business goals. They swoop in to save the day by preventing, identifying, and fixing any problem events that might try to ruin your plans.
Control objectives specifically target the risks that controls aim to mitigate, providing management with reasonable assurance regarding the prevention, detection, and rectification of significant misstatements or omissions in accounts or disclosures. Picture control objectives as the brave knights riding in on their trusty steeds to protect your kingdom from the mischievous misstatements or omissions lurking in your accounts or disclosures. With their mission to mitigate risks, they provide management with the peace of mind they need, ensuring that nothing sneaky slips through the cracks.
Figure 2 – Common Control Elements of Organisations.
“Keep Risk Management Simple”
Risk management is a critical aspect of business operations. It involves analyzing potential negative and positive outcomes and taking measures to mitigate them. There are many frameworks and tools for managing risk, but sometimes the best approach is to keep it simple.
For instance, one key lesson learned is the importance of controlling endpoints and preventing BYOD (Bring Your Own Device) at work. Storing sensitive data on laptops and other end point devices without encryption is a security risk. Similarly, responding to risk is critical, but some textbook responses are flawed. It’s impossible to avoid risk, and transferring it through insurance or outsourcing doesn’t reduce accountability for risk.
To improve your reputation, you need to embed good controls and risk management into your organization. But it’s important to focus on people and processes, not just technology. And don’t treat risk management as a one-time project. Instead, embed it into your organization as a repeatable life cycle.
Ultimately, it’s important to remember that risk management doesn’t have to be complicated. Instead, focus on a few key processes and control objectives, and automate as many controls as possible. Prevention is better than detection, and an effective audit, risk, and control process can improve business performance while reducing compliance issues. So, don’t develop a Rolls Royce when a good compact Toyota will work just as well.
“The Future of Audit is Already Here”
The future of audit is already here, and there are ten trends to be aware of. Privacy compliance will be a key focus, and new cybersecurity regulations will require more internal audit involvement. Boards will become more involved in cybersecurity, and more departments will use cybersecurity frameworks. Third-party audit and risk management will become a major concern as organizations move to cloud platforms and outsourced third parties. Internal audit will also play a key role in business transformation and integrating risk.
Have you heard about the latest trends in the future of audit? Here are the top 10 trends that will make you laugh and learn:
- Privacy compliance will be a key focus for internal audit. Because let’s face it, nobody wants their personal information leaked like a broken faucet.
- New cybersecurity regulations from the SEC and PCAOB will require more internal audit involvement. Looks like auditors will have to get better at hacking than the hackers themselves!
- Boards will become more involved in cybersecurity. So much for the board games, huh?
- More internal audit departments will use cybersecurity frameworks. Who knew that “frameworks” would become the new buzzword in the audit world?
- Third-party audit and risk management will become a major concern as organizations move to cloud platforms and outsourced third parties. It’s like playing a game of “who’s watching the watchers?”
- Internal Audit will play a key role in Business transformation. So if you thought auditors were just number crunchers, think again. They’re the transformers in disguise.
- Integrating risk will become a major initiative. Because life is all about taking risks, and auditors are just here to make sure we don’t fall flat on our faces.
- Internal audit will leverage data analytics to manage the vast availability of data. It will become more automated and virtual and the annual ritual of looking at the past will no longer be sustainable. Looks like robots will take over the world, and auditors will be the ones pulling the strings.
- Internal audit skills and expertise will expand. Because there’s always room for improvement, even for auditors. They’ll be like a fine wine, getting better with age.
- Greater investments in Internal Audit will be needed. Looks like the future of audit is so bright, we’ll need to wear shades (and invest some serious cash).
So there you have it, the future of audit is looking brighter than ever.
