Internal audits are one of the most critical factors that can contribute to a company’s success. In essence, it involves assessing a company’s risks and evaluating its internal control systems. These processes require professionals known as internal auditors. They are employees of a company and usually work with the audit committee. There are several tasks that internal auditors may perform during their work.
One of these includes planning. Like any other process, planning is crucial for internal audits as well. Like external audits, internal audit planning can define the path for internal auditors to take during their work. There are several benefits of audit planning, which is why it is vital. However, before understanding the importance of internal audit planning, it is crucial to know what it entails.
What is Internal Audit Planning?
As mentioned, an internal audit involves risk assessment and evaluating a company’s internal controls. It seeks to provide the management with information that they need to make specific decisions. Usually, these decisions relate to risk management and internal control systems. Since these decisions can have severe consequences, it is crucial for internal auditors to have a plan.
Internal audit planning is the process of planning out a company’s internal audit function. This process may include various individuals. Therefore, it may pose several challenges. However, it is still critical to a company’s internal audit function. It involves mapping out the internal audits that auditors will carry out throughout a specific period, usually a year.
There are several steps involved in developing an audit plan. In essence, it seeks to lay out a plan for auditors to use when carrying out internal audits. If performed correctly, it can have several benefits. However, it can also lead to various challenges if auditors don’t put the proper time and effort into it.
What is the Importance of Internal Audit Planning?
Internal audit planning relates to one of the most critical functions in any company, the internal audit function. Therefore, a proper plan can be significantly beneficial in helping internal auditors define a path for their work. There are several factors that signify the importance of internal audit planning. Some of these are as below.
Identify risk areas
It involves preparing a plan for internal audits. As mentioned, this includes risk management and investigating internal control systems. With the audit planning, auditors can identify the risk areas that need focus. During this process, they may also determine operations with high risks that they have not addressed already. Similarly, this process can help them prioritize several areas based on the risks.
Establish proper channels
It can also help auditors establish the proper channels for communication. Usually, this includes the audit committee and the board of directors. With this audit planning, these channels become more transparent. Auditors can understand how the reporting structure works and where they should take their concerns. By doing so, they can also reduce the time it takes to identify deficiencies and correct them.
Save time
In the absence of a proper plan, auditors may find it challenging to complete their investigations in a timely manner. It can help auditors streamline the internal audit process. By doing so, it can result in time-saving, which auditors can put into other critical areas. However, that does not imply that auditors will not provide the necessary attention to high-risk areas.
Resource allocation
In some companies, internal audit functions may have limited resources. It can help with that. By planning in advance, auditors can allocate resources to all risk areas without cutting corners. It not only allows to ensure the efficiency of the process but also helps with effectiveness. Even with companies that don’t have resource limitations, proper resource allocation can be significantly beneficial.
Define scope and nature
Internal audit planning also helps auditors define the scope and nature of their activities. This process is highly critical as it also dictates how they will work during their operations. In essence, it can help them define their purpose. In the absence of an internal audit plan, auditors may find it challenging to understand their duties and responsibilities.
Save costs
Through a combination of all the above points, it can help companies save costs. In addition, with this audit planning, auditors can ensure the efficiency and effectiveness of the overall internal audit process. Both of these allow auditors to streamline the internal audit function. By doing so, they can reduce costs that they would bear in the absence of a plan.
Conclusion
Internal audit is a critical area in many companies. Like any other process, it is crucial to have a plan for the internal audit function. This planning process can have many benefits that signify its importance. Some of the importance of internal audit planning includes identifying risk areas, establishing proper channels, saving time, resource allocation, defining scope and nature, and saving costs.
