Before we start a step-by-step on how to write an audit program, we would like to start with the overview of internal audit along with some definitions and, more importantly, what you will get after reading this article.
An internal audit is the independence department working and reporting directly to the audit committee.
The purpose of setting this department is mainly because of the entity’s risk management. And to ensure that this department could add benefit to the company, it has to manage and control appropriately.
Good audit planning and audit program are part of the excellent quality of the internal audit department. In this article, we will guide you on how to develop internal audit procedures that add value to works and audit quality.
Okay, before we start the internal audit program, let me explain the internal audit objective first.
However, if we compare internal audit to external audit, the main objective is almost the same.
It is established to ensure that the main business operating system, internal control, financial reporting, internal policy, and regulation are running effectively, efficiently, accurately, and fully comply.
The other main importance is that the internal audit department seeks to ensure that all financial information that runs to the Board of Directors is accurate and fair. Yet, an Internal audit does not issue the opinion as an external audit.
Well, that is all for the internal audit objective, now. Let’s see that there is an internal audit program first before preparing.
Now let start with writing,
To ensure that all of these objectives are met, proper internal audit planning needs to be done with correct procedures and follow the best practice standard.
After proper annual or semi-annual internal audit planning, the Internal Audit Department should prepare an internal audit program that could detect the risk that internal audit identified during their internal audit planning.
In some companies, to avoid such difficulty, the companies decided to purchase the self package software which already has good internal audit procedures which are adequately linked to internal audit planning.
As the planning requires the internal audit to access and evaluate the risk, internal audit procedures are already done for them.
They might need to perform some specific tailor to make sure all the procedures are compatible with the companies or the internal control procedure that the company is operating.
However, some company has only a tiny budget for the internal audit department; therefore, purchasing internal audit software that already has an internal audit program might be costly. In this case, the internal audit department needs to prepare internal audit procedures.
Preparing the internal audit procedures might be challenging if it is your first time, even you have experience in internal audit or external auditing since those procedures might be all ready for you.
The following are some basic concepts that you need to do when preparing internal audit procedures for your internal audit department.
Writing Audit Program:
From internal audit planning, you will know what areas will perform your internal audit work for the planning period. Some internal audit planning has particular areas; however, sometimes, the cycles are very subjective based on the nature of business.
It is not hard for you to tailor audit procedures for the specific cycles. The first step is taking those cycles like cash and bank, inventories, or purchasing.
As an internal audit is a bit specific and mainly focuses on internal control and economic review, you have to try to understand those areas in detail and document them properly.
Sometimes, the internal audit department has another procedure and template used to document each cycle’s internal control and nature.
After well understanding the internal control and nature of the cycle you want to write the internal audit procedures for, then it the time to do it.
You might need Ms. Word or Excel to prepare your internal audit procedures. Many factors and assertions might want to confirm the cycles you are going to test; however, please always look to the risks you identified during the internal audit planning.
Sometimes, the internal audit program asks to do something too much on low risk and asks to do something less on the high-risk areas.
The best way to write internal audit procedures is to bench-marking from Understanding Internal control and procedure as well as the nature of those cycles. Sometimes, internal audit procedures could be written based on the risks you identified as linked with assertions.