Running economically viable operations is always a top priority for a company's management. In modern economies, corporate executives engineer operating strategies to outmatch the competition while abiding by the law. Audit procedures provide a company's leadership the tools necessary to run profitable businesses while meeting operating targets in the short and long terms.
Internal audits consist of reviews, tests and procedures that a company's audit personnel perform on a regular basis. Unlike external or financial reviews, internal auditing ensures that corporate procedures are adequate and in line with industry practices and top leadership's recommendations. In the corporate context, the audit department is a separate unit that works under the tutelage of a company's board of directors.
An audit policy provides the road map that reviewers must follow when assuming their responsibilities. Generally clear and well-rounded, the policy gives junior auditors and support personnel the tools necessary to perform control tests satisfactorily. A control is a set of procedures that a firm's leadership establishes to rein in waste and run thriving businesses. An audit policy includes a charter (or departmental procedures handbook), systematic operating reviews, risk identification and escalation procedures, personnel evaluation methods and risk mitigation plans.
Audit procedures require investigative abilities, effective communication skills, detail orientation and a knack for identifying major control weaknesses. The procedures include tests of operating controls, reviews of account balances and analytical methodologies. These methodologies, also known as analytical procedures, help auditors compare past and current financial information, focusing on large differences from one period to the other.
Internal auditors generally possess a bachelor's degree in accounting, fiscal studies, finance or investment analysis. Most senior auditors hold a professional license, such as certified public accountant or financial risk manager. The Institute of Internal Auditors administers a certified internal auditor designation that carries professional prestige in the occupation. Auditors who hold professional designations must comply with continuing education requirements on a annual basis.
A company draws up an internal policy strategy to set itself apart from the competition. Establishing a sound internal control framework indicates to investors and regulators that corporate management is serious about running thriving businesses. Investors keep a close eye on how top leadership corrects control problems and how corrective measures impact corporate profitability.
Audit procedures ensure that corporate personnel abide by laws and regulations when executing top management's stipulations. Granted, the procedures do not eliminate financial and operating risks from a company's businesses. But they foster an operating environment in which employees have the tools to prevent losses that may result from adverse regulatory initiatives, such as U.S. Securities and Exchange Commission fines and temporary suspensions.