Internal Auditor

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21 Aug, 2024

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An internal auditor is an independent professional who assesses and evaluates a business's financial statements and records. The main responsibility of an auditor is to ensure that all books of accounts are accurate, complete, and compliant with relevant laws and regulations.

A certified internal auditor is a finance professional trained and certified to perform audits of a company's financial statements and records. They typically report to the audit committee and senior management. In addition to evaluating financial information, they must also understand the company's business operations and processes. Their audits are done with full transparency and compliance with relevant regulations.

Internal Auditor Meaning

An internal auditor is an employee responsible for assessing, evaluating, and checking for any errors or mistakes in financial records.
Their responsibility is to plan, prepare, and report on the financial and business operations of the company.
Internal auditors must work closely with the audit committee transparently, and no bias must be created while assessing the records.
Internal auditors work within the organization, unlike external auditors, who are outsiders evaluating the firm. They report to the senior executives and top management staff.

Internal Auditor Explained

An internal auditor is a professional who works on the audit team to identify and correct major problems or errors in a company's financial statements before external auditors discover them. They typically conduct various audits, including scheduled and ad hoc audits. In addition, they must adhere to established rules and procedures while being responsive to senior executives.

The use of both internal and external auditors dates back to the early 19th century. However, it was during the Great Depression of 1929 in the United States that businesses faced significant losses, leading to a need for a system to assess them. In response, some companies appointed individuals to evaluate their internal audit processes to reduce taxes and expenses. Later, in 1941, the Institute of Internal Auditors (IIA) in the U.S. redefined the term "internal auditor" as a professional responsible for maintaining control and improving a company's efficiency.

The primary role of an internal auditor is to identify and address any financial issues or discrepancies before external auditors, such as the Securities Exchange Commission (SEC), become aware of them. To accomplish this, internal auditors must follow established procedures and regulations, which typically involve planning, initiating, and conducting audits. The auditor then identifies any errors or issues that require correction and prepares an internal audit report submitted to senior management. However, the report may be reviewed again by external auditors. Due to this process, publicly listed companies need to appoint an internal auditor.

Companies may conduct internal audits at least once a year or at planned intervals, depending on their needs and requirements. For instance, companies that conduct annual audits can follow the same schedule. However, during the audit process, they must adhere to internationally recognized standards such as ISO 9001, ISO 14001, and OHSAS 18001. These standards provide guidelines for effective management systems in quality, environment, and health and safety.

Requirements

Let us examine the requirements and eligibility criteria for an internal auditor job description:

Earning a Bachelor's Degree: The first requirement for an internal auditor job description is a bachelor's degree in accounting or finance.
Obtaining Audit Certifications: In addition to a degree, internal auditors can obtain certifications such as CPA (Certified Public Accountant), CA (Chartered Accountant), or CIA (Certified Internal Auditor). Other options include CISA (Certified Information Systems Auditor), CFE (Certified Fraud Examiner), and CGAP (Certified Government Auditing Professional). In addition, senior auditors and other audit staff may need to register with the Institute of Internal Auditors (IIA).
Developing Relevant Skills: They must possess field knowledge, excellent communication skills, analytical skills, problem-solving skills, and a willingness to learn from various situations and risks arising in the firm.
Relevant Experience: Years of experience in the field serve as a significant benchmark and another requirement. Many firms prefer candidates with at least two years of involvement in this field for a higher position.

Roles & Responsibilities

Let's look at the roles and responsibilities of an internal auditor to understand the concept better:

To plan, initiate, and prepare the internal audit report of the company.
Measure the firm's efficiency related to its business operations.
Protect against any fraudulent activity occurring during the accounting process.
Ensure that the firm complies with rules and regulations.
Work closely with senior auditors, the audit committee, and senior management.
Follow guidelines issued by the Investment Company Act and Investment Advisers Act of 1940, the Dodd-Frank Wall Street Reform, the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, and the Consumer Protection Act.
Analyze and identify any errors or mistakes in the financial statements.
Provide ad hoc advice and guidance to other members of the committee.
Evaluate any current or potential risks.
Reference previous audit reports to understand the risk level.
Give an unbiased comment on the financial and business operations of the firm.

Salary

According to salary data from Glassdoor and PayScale, the average salary for an internal auditor in the United States is approximately $69,000 to $85,000 per year, depending on location, level of experience, and industry. However, salaries can range from around $51,000 to over $100,000 per year, with additional compensation and benefits such as bonuses, profit-sharing, and healthcare benefits being common in the industry.

Internal Auditor vs External Auditor vs Lead Auditor

Although internal, external, and lead auditor's terms sound similar, they have slightly different characteristics. So, let us look at these differences:

	Internal Auditor	External Auditor	Lead Auditor
Meaning	Professionals working within the organization assess and evaluate the financial statements.	Independent individuals outside the organization.	Professionals that work with the third-party ISO standard certifier.
Responsibility	To analyze the books, detect frauds, risks, and entire operations, and report them.	To overview the financial records and books of accounts and detect any mistakes the internal auditor makes during the process.	To perform audits on behalf of a third party and majorly lead the audit team.
Accountability	They must report to the senior auditors, external auditor, and Board of Directors (BOD).	Owners of the company, shareholders, government, and public.	They are accountable to the management and senior executives.
Work	Within the company	It is usually someone from outside the organization.	Independent auditor.
Appointed by	Management	Shareholders and BOD	By the organization

Frequently Asked Questions (FAQs)

How to evaluate internal auditors' performance?

To evaluate the performance, several indicators should be considered. These include the organization's effectiveness, the degree of risk control within the firm, and the duration and accuracy of audit findings. In addition, feedback from the auditors can also provide valuable insights into their performance.

How many internal auditors should a company have?

The number of internal auditors a company should have varies based on the size and complexity of the organization. Generally, a company should have at least 5 or 10% of its employees working as auditors, with the exact number depending on the company's operations and risk profile.

Is the internal auditor independent?

Yes, they are independent in terms of responsibility. Furthermore, they are expected to maintain their independence while carrying out their duties but are not entirely independent from the organization as they work for the company they are auditing. Furthermore, their level of independence is generally lower than that of external auditors.