An audit is a systematic and independent examination for processes and its documents in an organization. Audit management is responsible for ensuring that board-approved audit directives are implemented.
Audit management helps simplify and well-organize the work flow and collaboration process of compiling audits.
Audit management oversees the internal/external audit staff, establishes audit programs, and hires and trains the appropriate audit personnel. The staff should have the necessary skills and expertise to identify inherent risks of the business and assess the overall effectiveness of controls in place relating to the company’s internal controls.
Internal audit
An internal audit is the examination, monitoring and analysis of activities related to a company’s operations, including its business structure, employee behavior and information systems. Internal audit regulations, such as the Sarbanes-Oxley Act of 2002 or Public Company Accounting Reform and Investor Protection Act, have increased corporate requirements for performing internal audits. Audits are important components of a company’s risk management as they help to identify issues before they become substantial problems, such as attempts to steal intellectual property.
An internal audit begins by an auditor assessing current processes and procedures. The auditor then analyzes and compares the results to internal control objectives. He determines whether the results comply with internal policies and procedures as well as state and federal laws. Finally, the auditor compiles and presents an audit report to the business owner.
External Audit
An external audit is an independent examination of the financial statements prepared by the organization. It is usually conducted for statutory purposes (because the law requires it).
It’s a periodic or specific purpose (ad hoc) audit conducted by external (independent) qualified accountant(s). Its objective is to determine, among other things, whether the accounting records are accurate and complete, prepared in accordance with the provisions of GAAP, and the statements prepared from the accounts present fairly the organization’s financial position, and the results of its financial operations.
The objectives of an external audit or audits being conducted by someone not part of the business, is when one business audits a different business to determine if the accounting records are complete and correctly prepared according to GAAP (GAAP is the highest U.S. power on accounting standards and they must be followed by jurisprudence when preparing financial information for businesses) provisions. The organizations have a formal agreement for the supply of goods and services. External audits make good business exercise
Companies have to appoint an auditor to do an annual external audit on your accounts if your business is:
- an authorized professional firm
- a BIPRU investment firm
- an insurance intermediary
- an investment management firm
- a mortgage administrator
- a mortgage intermediary
- a mortgage lender
- a personal investment firm
- a securities and futures firm
- a service company
Third Party Audit
A third party audit gives feedback to important documents and processes including quality manuals or performance development plan, records including instructing, organizational charts, and examination of the processes within the extent of the audit. A third party audit is conducted by an audit organization that doesn’t have the traditional customer-supplier relationship and does not carry any conflict of interest. Institutions such as registrars (certification bodies) or legislature are usually the types of organizations that perform these types of audit.