+91 (0) 80-4049-6666

Internal audit management is the process of planning, directing, and conducting internal audits, which are comprehensive, independent reviews of an organization's procedures, practices, policies, and accounting controls. The primary goal of internal auditing is to provide assurance that an organization is effectively managing its risks and operations and to evaluate the adequacy and effectiveness of its risk management, control, and governance processes. Internal auditing is an objective process designed to add value and improve an organization's operations, and it helps organizations accomplish their objectives by using a systematic approach.

It is also an analysis of the effectiveness of risk management and governance. The internal audit function must continuously adapt to changes in the business environment and the needs of the organization and must be aligned with the strategic objectives of the organization and the risks it faces. It was formerly known as the "Internally Generated Report", or "IGR" for short.

In this article, we will delve into the different aspects of internal audit management, including its responsibilities and the benefits of strong management practices. We will also examine some of the challenges and trends facing internal audit professionals today.

Why is Internal Audit Important?

Internal auditing is continually evolving. The function must continuously adapt to changes in the business environment and the needs of the organization. Internal audit activities must be aligned with the strategic objectives of the organization and the risks it faces.

Deloitte states that internal auditing "can help management to implement mechanisms in the business that eliminate or reduce the need for the second or third line to provide assurance on processes or controls.”

Here are some key reasons why the internal audit is important for an organization:

  • It provides an independent, objective assessment of an organization's internal controls, risk management, and governance processes
  • It provides an in-depth, objective examination of financial and operational issues and helps to maintain accurate and timely financial reporting and data collection
  • It can identify potential areas of improvement and help organizations mitigate risks
  • It plays a critical role in helping to identify and mitigate the risks that may arise from non-compliance.
  • It can help organizations comply with laws and regulations
  • It can improve organizational efficiency and effectiveness

There are many reasons why an organization might choose to conduct an internal audit. Typically, an internal audit is conducted to assess risks and compliance within the organization. By conducting an audit, organizations can identify potential areas of improvement and take steps to mitigate risks. Additionally, internal audits can help organizations ensure that they are adhering to internal policies and procedures.

An internal audit can also be conducted in response to external pressures. For example, if a company is facing increased regulatory scrutiny, it might choose to conduct an internal audit to demonstrate its commitment to compliance. Additionally, if a company is planning to go public, it might need to conduct an audit to meet Securities and Exchange Commission (SEC) requirements.

Ultimately, internal audits are conducted to improve organizational efficiency and effectiveness. By identifying risks and areas for improvement, organizations can make necessary changes to operate more smoothly and avoid potential problems down the line.

However, there are two primary reasons why an internal audit is conducted:


An internal audit is conducted in detail to ensure that the company's financial statements and other financial information are accurate and reliable. An internal audit is conducted to ensure that an organization's financial statements and disclosures are free of material misstatement and compliant with generally accepted accounting principles.

The audit also helps to identify any potential areas of risk or fraud.


An internal audit also assesses the effectiveness of an organization's internal controls. Internal controls are processes and procedures implemented by an organization to ensure the integrity of its financial statements and disclosures. They include processes for recording, storing, and processing transactions; methods for collecting and reviewing financial information; and systems for ensuring compliance with laws and regulations.

How is an Internal Audit Different from an External Audit?

Although both internal and external audits are conducted to achieve fairly similar goals, they are vastly different in their nature and origin. Here are some of the differences between internal and external audits:

Conducting Body

An external audit is conducted by an independent body, whereas an internal audit is conducted by the organization itself. Internal audits are conducted by a company's own employees, while external audits are conducted by independent third parties.


Since the objective of internal audits is to conduct an assessment on the spot, external audits are conducted as an outcome of regulatory requirements. External audits are required by law in some countries, while internal audits are voluntary.


Internal audits focus on a company's internal controls and procedures, while external audits focus on financial statements.


Since external audits are mandated by authorities, they have a prescribed and defined period within which they must be regularly conducted by an organization. However, since internal audits are not mandatory, they can be conducted at the desired frequency.

Notably, internal audits are usually conducted annually, while external audits are conducted every two to three years.


Internal audits are less expensive than external audits. This is one of the reasons why internal audits are conducted more frequently than external audits, even when not mandated.


External audits provide an objective opinion on a company's financial statements, while internal audits provide an objective opinion on a company's internal controls and procedures.

Who Conducts an Internal Audit?

An internal audit is usually conducted by a team of internal auditors who are qualified professionals.

In order to be considered qualified, internal auditors should possess the following attributes:

  • A strong understanding of the internal audit process and its principles
  • Knowledge of the organization's industry and its operations
  • Familiarity with relevant laws, regulations, and standards
  • Strong analytical and problem-solving skills
  • Excellent communication and interpersonal skills
  • Ethical conduct and objectivity

Internal auditors may also be certified by professional organizations to demonstrate their competence and commitment to the profession.

The internal audit team reports to the internal audit committee, which typically includes senior management members such as executives from the board of directors or the board of trustees, the accounting officer, or other highly qualified personnel. The internal audit committee is responsible for overseeing the internal audit function and ensuring that it is effective and aligned with the organization's goals and objectives. The internal auditors conduct the internal audits and submit their findings and recommendations to the internal audit committee and senior management for review and action.

Internal auditors typically have a broad range of skills and experience. They use their skills and experience to help organizations achieve their goals by providing objective, unbiased assessments of risks and controls. Internal auditors are often involved in providing assurance on the adequacy and efficacy of an organization's operational and financial activities. They may also be involved in providing assurance on the effectiveness of internal controls over financial reporting. In addition, internal auditors may provide consulting services on a variety of topics, such as enterprise risk management, business continuity planning, and fraud prevention.

Who is the Reporting Authority for an Internal Audit?

The reporting authority for an internal audit is the board of directors.

The board of directors is responsible for the overall governance of the organization. This includes setting the strategic direction, approving the annual budget, and ensuring that the organization is compliant with all relevant laws and regulations. Further, the board of directors also appoints the internal audit committee, which is responsible for overseeing the internal audit function.

What are the Types of Internal Audits?

Financial audit

A financial audit is an objective examination and evaluation of an organization's financial statements and accompanying disclosures. The purpose of a financial audit is to express an opinion on the fairness and accuracy of an organization's financial statements and disclosures. Financial audits are conducted by independent public accounting firms.

Operational audit

An operational audit is an examination of an organization's internal controls and procedures related to its operations. The purpose of an operational audit is to assess the efficiency and effectiveness of an organization's operations. Operational audits are conducted by internal auditors.

Compliance audit

A compliance audit is an examination of an organization's compliance with external regulations or internal policies. The purpose of a compliance audit is to ensure that an organization is adhering to all relevant laws and regulations and is following its internal policies. Compliance audits can be conducted by external agencies, such as government agencies, or by internal auditors.

Information system audit

An information system audit is an examination of an organization's information systems, including hardware, software, databases, and networks. The purpose of an information system audit is to ensure that the information systems are functioning properly and securely. Information system audits are conducted by internal and external auditors.

Performance audit

A performance audit is an independent, objective evaluation of an organization's or program's effectiveness, efficiency, and compliance with laws, regulations, and established policies. It is essentially used to assess whether an organization is achieving its objectives and goals.

Fraud audits

A fraud audit is an examination of an organization's financial statements and records to identify potential instances of fraud. Fraud audits are designed to detect fraudulent activities such as embezzlement, kickbacks, and money laundering. It is typically used to investigate potential instances of fraud within an organization.

Risk management audits

A risk management audit is the process of assessing an organization's ability to identify, manage and respond to risks. It can be used to evaluate the effectiveness of an organization's risk management practices and procedures, as well as its overall risk management strategy. Its primary goal is to examine an organization's risk management practices to ensure they are adequate and effective.

What is the Process of Conducting an Internal Audit?

An internal audit includes several sections that help organizations achieve the desired results. One of the first components required to conduct an internal audit is an audit plan. The plan should include the scope of the audit, the objectives, the timeline, and the resources required. Next, the auditor should develop audit procedures. These procedures should be designed to assess the risk of material misstatement and to test the effectiveness of internal controls. The auditor should then perform the audit procedures and document the results. Finally, the auditor should issue a report detailing the findings of the audit.

Audits can be either top-down or bottom-up. A top-down audit selects a control area to examine based on predetermined criteria, while a bottom-up approach looks at a broad range of issues before choosing a test group. There is no one-size-fits-all answer to this question, as the process for conducting an internal audit will vary depending on the organization being audited and the specific goals of the audit.

However, here is a typical sequence of steps that organizations typically follow to conduct an internal audit:

Determine the scope of the audit

The first step in conducting an internal audit is to determine the scope of the audit. This means deciding which areas of the organization will be audited and what aspects of those areas will be included in the audit. This includes defining objectives, scope, and methodology for the audit.

While defining scope, auditors must find answers to questions such as – what areas of the organization will be covered by the audit or what specific goals does the audit hope to achieve?

Develop an audit plan

Once the scope of the audit has been determined, an audit plan must be developed. This plan will detail the specific steps that will be taken during the audit, who will be responsible for each step, and the resources and time that will be used.

Conduct the audit

The next step is to conduct the audit. This involves carrying out the steps detailed in the audit plan, collecting data and evidence, observing processes, reviewing documents, interviewing employees, and documenting the results. Once the audit activities are completed, audit report is created with key findings, observation, and issues and suggesting the next steps or recommendations for improvements.

Communicate the results

Once the audit is complete, the results must be communicated to the appropriate parties in the form of an audit report. This usually includes the organization’s management team as well as any external stakeholders.

Follow up

The final step is to follow up on the audit results. This may involve taking corrective action to address any problems that were uncovered or implementing new procedures to prevent similar problems from occurring in the future. Once the report has been issued, it is important to follow up with the relevant employees and managers to ensure that the recommendations are implemented.

Using Technology for Internal Auditing

Technology can be a powerful tool for improving the efficiency and accuracy of the internal audit function. By leveraging technology, internal auditors can automate many of the manual, time-consuming tasks associated with the audit process, such as data collection, analysis, and reporting. This allows them to focus on higher-value activities, such as evaluating the effectiveness of controls and identifying opportunities for improvement.

There are several ways in which technology can be used to enhance the internal audit function:

- Data analytics

Internal auditors can use specialized software to analyze large volumes of data quickly and accurately, identifying trends, anomalies, and patterns that may indicate potential risks or areas for improvement. This can help them to identify issues and trends that may not be immediately obvious through traditional manual processes.

- Automation

Technology can be used to automate many routine tasks associated with the internal audit process, such as data collection and analysis, document management, and report generation. This can help to reduce the time and resources required to complete audits, and improve the accuracy and consistency of audit findings.

- Collaboration

Technology can facilitate collaboration among internal auditors and other stakeholders, such as management and external auditors. For example, auditors can use collaboration tools, such as cloud-based platforms, to share documents and communicate in real-time, which can help to streamline the audit process and improve the exchange of information.

- Risk assessment

Technology can also be used to support risk assessment activities, such as by providing real-time data on operational and financial performance, or by helping to identify and prioritize areas of risk. This can help internal auditors to focus their efforts on the areas that are most critical to the organization's risk profile.

Overall, the use of technology can help to make the internal audit function more efficient, accurate, and effective, by enabling auditors to access and analyze data more quickly and comprehensively, and to collaborate more effectively with other stakeholders.

Why MetricStream?

Internal audit management software is important for organizations to manage their internal audit processes. MetricStream offers state-of-the-art Internal Audit Management capabilities that allow organizations to significantly decrease their audit review time and issue resolution time, as well as save up on the cost of audits.

At MetricStream, we help organizations streamline their internal audit processes, improve communication between internal audit and management, and track and report on internal audit activities. Additionally, it helps organizations improve their overall internal audit effectiveness and efficiency.

Ready to get started?

Speak to our experts