Internal auditing is an activity that is independently performed by professionals called Internal Auditors in order to assess an organization and its activities with an objective of giving it more value and improvement in terms of its operation.
A systematic method is commonly used in the auditing process to analyze the entity’s procedures and activities and determine organizational problems and their possible solutions.
Auditing usually covers wide scope of topics that may include the efficiency of the organization’s operation, financial reporting, how to deter and investigate fraud, safeguarding of assets and its compliance with the laws and regulations. Internal auditing is vital in evaluating the efficacy of the governance processes of the organization along with its risk management and control strategies.
Typically, large corporations have their own auditing team, led by a Chief Audit Executive (sometimes also referred to as internal audit head, chief auditor, general auditor, audit director or inspector general). The Chief Audit Executive is responsible to report to the Board of Directors’ Audit Committee and to the Chief Executive Officer of the company after the auditing process.
Five Elements of Audit Reporting
At the end of the auditing process, internal auditors summarize their findings through a project status reports for internal audit projects. Aside from the findings, the report also includes recommendations and management action plans to be undertaken in order for the problems to be resolved. It should also contain the five elements of audit reporting which is also called the "5 Cs". Included in the five elements are following:
Condition — Refers to the problems and deficiencies identified within the organization.
Criteria — Pertains to the organization’s standard that was violated or not properly observed.
Cause — Contains the reasons and the contributing factors to the identified problems.
Consequence — This includes the impact of the negative findings in the auditing process.
Corrective Actions — This is the corrective measures that the organization should undertake and have to be agreed upon by the management.
It is important for the project status reports for internal audit projects to have proper recommendations since this will help the organization in achieving their goals to improve the areas with identified deficiencies. While internal auditors don’t have control of the organization’s problems and solutions, their report provides assurance to the audit committee, the management, stakeholders, regulators, employees and organization’s financiers that the internal control are in place and working the way it should be. Recommendations will help the entity to function better and eliminates operational flaws as possible.
Frequency of Audit Reports
The Chief Audit Executive, who heads the internal audit activity, needs to make reports to the audit committee especially on the most critical issues, and it should be done at least quarterly. Along with each report is the progress of the management’s action in resolving the crisis identified in the internal auditing process. This is needed to monitor the activities and ensure that the solution for the problem has been achieved since complex issues might cause substantial damage to the organization’s finances and reputation.