Internal audit checklist guide

In the corporate world, an internal audit checklist is an important road map that enables companies to identify potential problems in their operating activities. More importantly, the checklist helps internal auditors conduct corporate reviews in accordance with generally accepted auditing standards. It also enables auditors to review internal processes in conformity with Institute of Internal Auditors guidelines.

Operating Controls

An internal audit checklist has an inward orientation, meaning it provides auditors the tools that are necessary to evaluate corporate controls and human resources policies. A control is a set of guidelines on which management relies to run operating activities effectively, preventing waste and fraud in corporate activities. To be effective, a control must be adequate and functional. The checklist instructs auditors --- in a step-by-step format --- on areas to emphasise during the audit, and tests to perform.

Ongoing Operating Evaluation

A corporate audit supervisor specifies, in tandem with department heads, the timeline for an audit. Unlike external audits, internal reviews span several months and require an ongoing collaboration from business segments. External auditors perform tests at the end of the year, typically when companies close their books. For example, an internal audit checklist may indicate how many times a corporate reviewer must test the accounts receivable process or cash disbursement activities over a three-month period.

Operating Environment

A company's operating environment includes internal and external factors that affect how it conducts its businesses. From an internal auditor's standpoint, the operating environment constitutes a treasure trove of operating data that can help perform auditing tests effectively. In fact, understanding the business environment enables the auditor to focus on high-risk areas, according to Muhota wa Kimotho, a banking and microfinance expert at the United Nations Development Program. Internal factors include human resources procedures, management's leadership style and the corporate culture. External factors include economic trends and industry rivalry.

Financial Processes

Financial accounting and reporting mechanisms are the operating fuel that enables companies to run thriving businesses in the short and long term. As a consequence, evaluating the effectiveness of financial processes is generally atop an internal audit checklist. Internal auditors review processes associated with bookkeeping and report preparation, according to Entrepreneur, a publication focusing on small-business financial topics. Auditors ensure that financial controls are adequate and in line with generally accepted accounting principles.

Risk and Control Self-Assessment

Risk and control self-assessment (RCSM) is an internal, specific practice that allows a department head or segment chief to evaluate risks implicit in operating activities. In an RCSM report, business lines review their internal procedures and rate operating processes as "high," "medium" and "low," depending on expected losses. Internal auditors generally review RCSM findings and focus on high-risk and medium-risk areas or processes.

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About the Author

Marquis Codjia is a New York-based freelance writer, investor and banker. He has authored articles since 2000, covering topics such as politics, technology and business. A certified public accountant and certified financial manager, Codjia received a Master of Business Administration from Rutgers University, majoring in investment analysis and financial management.

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