What Is an Internal Auditor (IA)?
Let me tell you directly: an internal auditor (IA) is someone who works inside your company to check its financial controls and record-keeping processes. You're looking at accuracy, efficiency, and making sure everything complies with laws and regulations. As a company employee, the IA's job is to spot and fix any problems in financial records before an external audit uncovers them.
You don't have to hire one by law, but many companies do to catch issues early and handle them fast.
Key Takeaways
Here's what you need to know: an internal auditor works for the company but gives independent, objective reviews of its financial and operational activities, then suggests fixes if needed. In contrast, an external auditor is an outside professional hired by shareholders to inspect those same activities. If the external auditor spots problems, it's the internal auditor who steps in to make the changes.
The Role of an Internal Auditor (IA)
Your internal auditor's primary task is to find and fix problems before an external audit or regulators like the SEC get involved. Remember, the SEC oversees how companies report finances to give investors the full picture before they invest.
Typically, an internal audit covers three key areas: assessing risks and internal controls in the company, ensuring compliance with federal and state laws by the company and its employees, and recommending steps to fix a failed audit or any issues found.
Internal Auditing Process
To get this done, internal auditors handle various tasks like reviewing financial statements, expense reports, inventory, financial data, budgeting, and accounting practices. They also create risk assessments for each department. You'll see them taking detailed notes, interviewing employees, overseeing work schedules, verifying physical assets, and scrutinizing financial statements to cut out errors or falsehoods and improve productivity.
Once the examination wraps up, they deliver a formal report detailing how the audit was conducted, what was found, and any improvement suggestions. This report goes to senior executives. If changes are advised, the auditor often follows up with another audit to check implementation.
For publicly traded companies managed properly, internal audits ensure compliance with federal and state regulations, including SEC mandates. Plus, accounting must follow Generally Accepted Accounting Principles (GAAP).
Requirements for Internal Auditors
The Institute of Internal Auditors (IIA), founded in 1941 and based in Florida, is the global body setting standards, guidance, best practices, and ethics for the profession.
As the IIA defines it on their site: internal auditing is an independent, objective assurance and consulting activity that adds value and improves operations. It helps organizations meet objectives through a systematic approach to evaluate and enhance risk management, control, and governance.
Internal Auditor vs. External Auditor
Don't mix them up: internal auditors work for company management and are hired by the company, while external auditors are appointed by shareholder vote and are independent.
Internal auditors educate management and staff on better business functioning. External auditors just review financial statements for accuracy and GAAP compliance, reporting to shareholders, not management.
Per the Association of Certified Fraud Examiners, external auditors inspect records and opine if statements are fairly presented under standards like GAAP or IFRS, checking for material misstatements from error or fraud.
Legally, public companies must have third-party audits of financial statements under the Securities Acts of 1933 and 1934.
Benefits of Hiring an IA
Even without a legal requirement, many companies hire internal auditors. Strong internal audits fix issues quickly, protect reputation, and avoid wasting money. Their reports help companies thrive and run efficiently, so executives see them as a must-have cost.
Essentially, internal auditors catch and resolve problems before external ones do, making them a smart investment.
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