What Is the Scope of an Internal Audit Report?

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An internal audit is a systematic review of a firm's processes. In this exercise, internal reviewers canvass the offices of department heads, discussing with them major risks that could throw corporate strategies off kilter. Operating risks that might derail corporate plans include technological malfunctions and manufacturing inefficiencies. Other items falling within the scope of an internal audit report include fraud management and budgeting activities.

Human Resources Policies

  • An internal audit report may focus on inadequate processes in a firm's human resources work stream. HR activities play a central in the way companies hire, promote and retain talent -- important considerations to spur long-term growth.

Governance

  • Internal auditors often pay attention to corporate governance -- the discipline that defines expectations, grants power and verifies performance. Governance generally goes hand-in-hand with HR management. Internal reviewers may provide governance-improvement tactics in their report.

Regulatory Compliance

  • This is perhaps one of the most important items falling within the scope of an internal audit report. Corporate reviewers keep a close eye on internal controls to make sure personnel do not run afoul of the law. Regulatory non-compliance often results in hefty government fines, an unwelcome scenario for top leadership.

Personnel Productivity

  • Internal auditors review a firm's significant work processes to gauge efficiency and effectiveness. Efficiency refers to how a company uses its resources to maximize the production of goods and services. Effectiveness is the degree to which the firm achieves its goals.

Financial Accounts

  • Internal audit reports often cover financial accounts, especially when it comes to forming an opinion on a company's chart of accounts. Financial accounts include assets, liabilities, equity, revenues and expenses.

Accounting Mechanisms

  • These represent important methodologies that bookkeepers use to record transactions. They do so by debiting and crediting financial accounts. Internal auditors may indicate in a report whether bookkeepers post journal entries in accordance with specific norms. These include generally accepted accounting principles, or GAAP, and international financial reporting standards (IFRS).

Financial Reporting

Manufacturing Processes

  • Internal auditors focusing on production mechanisms point to specific items when issuing a report. These include ways that a company tracks and reduces costs, how to achieve efficiency in manufacturing activities, and improvement procedures for factory workers. Corporate reviewers also may pass judgment on whether production foremen abide by government rules -- such as Occupational Safety and Health Administration, or OSHA, rules.

Budgeting

  • Budgeting activities often fall within the scope of an internal review report, especially when management needs guidance on how to slash costs. Internal auditors may review topics such as expense management, budgeting and manufacturing overhead containment. This refers to ways manufacturers maintain fixed costs, or factory overhead, at efficient levels during the production process.

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