Definition
An Internal Auditor is a professional who performs an internal examination and evaluation of a company’s business activities. Their role is to ensure that a company’s internal controls, processes, guidelines, and policies are adequate, effective, and in compliance with governmental regulations, industry standards, and company policies. They also identify areas of fraud, inefficiency and financial mismanagement to prevent and/or rectify issues.
Key Takeaways
- An Internal Auditor is usually an employee of the company who carries out audits to scrutinize the company’s financial operations and ensure they are compliant with statutory laws and regulations.
- The role of an Internal Auditor also involves identifying any potential wastes, losses, or frauds within the company, and suggesting corrective actions to improve efficiency, reduce risks, and assure proper governance.
- Internal Auditors are also part of measures to enhance the company’s overall performance, as they propose ways to control costs and streamline business processes, while ensuring accuracy and reliability in accounting and operating data.
Importance
The role of an Internal Auditor is crucial in finance as they carry out an unbiased examination and evaluation of an organization’s financial and operational systems.
This role is important because it ensures compliance with regulations and laws, protects assets through the detection and prevention of fraud, evaluates the level of efficiency in operations, and assures the accuracy and reliability of accounting data.
By providing these essential insights, internal auditors aid in improving the company’s operations and ensuring financial information is accurate and well-documented, hence helping in making strategic decisions and mitigating potential financial risks.
Explanation
The primary purpose of an Internal Auditor is to oversee a company’s operations and evaluate their efficiency, effectiveness and compliance with corporate policies and regulations. They work internally within the organization to identify potential weaknesses or irregularities in the company’s internal controls, and suggest improvements to management.
This could include reviewing financial documents, observing operations, interviewing staff, and analyzing data to detect and prevent fraud, waste, and mismanagement. An Internal Auditor plays a crucial role in mitigating risk and improving the company’s performance by ensuring fiscal operations align with business goals.
Their insights can greatly influence operation efficiency and the financial bottom line. Moreover, consistent internal auditing can improve a company’s controls by providing feedback and recommendations on areas where the company can improve or tighten controls.
Therefore, the Internal Auditor enhances accountability and governance frameworks whilst providing an objective appraisal of an organization’s financial management.
Examples of Internal Auditor
Internal Auditor in Banks: In large commercial banks like Bank of America or Deutsche Bank, an internal auditor might check the accounting books, inspect loan documents to ensure compliance with regulations, or identify areas of inefficiency or waste. They also play a significant role in identifying and preventing fraudulent activities.
Governmental Internal Auditor: A government internal auditor in agencies such as the IRS or the Department of Defense might look for ways to improve the efficiency of government operations, ensure that taxes and governmental expenses are accurate and justified, and prevent any misuse or misappropriation of government funds.
Corporate Internal Auditor: A corporation like Walmart or General Motors might need to have internal audits performed on a regular basis. Internal auditors would review the company’s financials, evaluate the company’s risk management processes, advise the company on potential cost savings, and monitor compliance with internal controls and regulations. They would help ensure that the company’s resources are being used efficiently and effectively.
FAQs on Internal Auditor
1. What is an Internal Auditor?
An Internal Auditor is a professional who conducts evaluations of a company’s financial and informational systems, management processes, and internal controls to ensure that records are accurate and controls are adequate.
2. What does an Internal Auditor do?
An Internal Auditor reviews a company’s processes, operations, and systems to identify potential inefficiencies, inaccuracies, or noncompliance with regulations and policies. They then recommend improvements for minimizing the risk of fraud and waste.
3. What qualifications do I need to become an Internal Auditor?
A bachelor’s degree in finance, accounting, or a related field is typically required to become an Internal Auditor. Some companies may also prefer candidates with certifications like Certified Internal Auditor (CIA) or Certified Public Accountant (CPA).
4. What skills are required for an Internal Auditor?
Internal Auditors are expected to have strong analytical, problem-solving, and communication skills. They should also have knowledge of auditing principles and standards, financial regulations, and risk management practices.
5. What are the workplace opportunities for an Internal Auditor?
Internal Auditors can work in various sectors including banking, insurance, healthcare, retail, and manufacturing companies. They can also work within governmental organizations. Further career growth can lead to roles such as audit manager, chief auditor or director of internal audit.
Related Entrepreneurship Terms
- Audit Report: The official written statement of findings from the internal auditor’s review of the company’s financial statements, procedures, and controls.
- Compliance: A vital aspect of an internal auditor’s job is to ensure that the company is compliant with laws, regulations, and internal protocols.
- Risk Assessment: The process conducted by internal auditors to identify and evaluate potential risks that could hinder the achievement of the organization’s objectives.
- Forensic Accounting: An area of accounting that uses investigative skills to determine the accuracy of financial information, often used by internal auditors during audits or fraud investigations.
- Control Environment: The foundational element of internal control systems that the internal auditor examines, which involves the integrity and ethical values of the company, its management philosophy, and the way management assigns authority and responsibility.
Sources for More Information
- American Institute of CPAs (AICPA): This is the world’s largest member association representing the accounting profession. They provide comprehensive information about different roles in accounting including Internal Auditor.
- The Institute of Internal Auditors (IIA): IIA is the internal audit profession’s global voice, recognized authority, acknowledged leader, chief advocate, and principal educator providing insights about the Internal Auditor role.
- Association of Chartered Certified Accountants (ACCA): This is a global professional body for professional accountants. It provides a wealth of information about topics in accounting, finance including Internal Auditor.
- CFA Institute: This is a global association of investment professionals that offers curricula from which certified financial analysts can expand their knowledge. They also provide detailed information about different jobs in accounting and finance field including Internal Auditor.
