What is a Horizontal Audit? (Explained)

The horizontal audit is the performance of audit procedures or activities, processes, and evaluations to examine the different functions or departments. The purpose of performing a horizontal audit is to examine and observe whether the different departments have the same control standard.

It is also called “Peer Audit.” It is very important for the auditor to understand the horizontal audit that its audit processes could show the flow of information, figures, or essential documents from one area to another.

Understanding the horizontal audits or the processes of organizations is vital for the auditor to conduct their operational audit. It also assists operational staff in doing smoothly for their work.

As a short illustration, a horizontal audit is defined as examining the audit activities, processes, and evaluation in the same activities across functions/departments or organizations.

Typically, two types of audit methodologies are commonly used in examination or auditing functions or departments: horizontal and Vertical audits.

Vertical audit differs from horizontal audit, which profoundly examines the specified audit area in function or department.

Moreover, horizontal audits could be illustrated as the audit approach to detect and check whether the audit activities, processes, and evaluations are correct and ensure the existing workflow is effectively implemented.

From the practical perspective, here is an example of a horizontal audit examining the process workflow of purchasing IT/office equipment.

Here is an example of purchasing IT or office equipment to simplify horizontal audits. The Purchase Request (PR) document is made by the Sale or requester team with the appropriate approval.

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It is identified The status of approval then documents are required to submit to the budgeting and finance team to verify before other further steps are relevant to the procurement team to create Purchase Oder (PO) documents.

After that, all documentation is submitted for authorization. All documents are completed and sufficient filing for the accounting team and designated location after the flow of documents is completed and satisfied to pay out by the accounting team.

Horizontal audits are a suitable assessment tool for the auditor to conduct the work through and examine the documents flow in cross-functional departments and identify the risks or weaknesses of control.

What is the Different Between Horizontal and Vertical Audits?

Horizontal and vertical audits are two types of audit approaches used by organizations to review their internal controls and financial statements.

While both types of audits are intended to identify potential issues and weaknesses in the organization’s operations, there are significant differences between them.

Horizontal audit:

A horizontal audit is an audit approach that examines a specific process or operation within an organization across multiple departments or units. This type of audit looks for consistency and conformity across different areas of the organization.

For example, a horizontal audit of the organization’s payroll system would involve reviewing the system’s processes and controls across all departments to ensure that they are consistent and conform to the organization’s policies and procedures.

This type of audit helps to identify any areas where the organization is not following its own policies and procedures or where there is the inconsistent implementation of those policies.

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Vertical audit:

A vertical audit is an audit approach that focuses on a specific department or unit within an organization. This type of audit looks at the department or unit’s processes and controls in detail, with a specific focus on identifying potential risks and weaknesses.

For example, a vertical audit of the organization’s accounting department would involve reviewing the department’s processes and controls to identify potential areas of fraud or error.

This type of audit helps to identify potential issues within a specific department or unit and can help the organization to implement specific controls to mitigate those risks.

Key differences:

The main differences between horizontal and vertical audits are the scope of the audit and the focus of the review. Horizontal audits look at processes and controls across multiple departments or units, while vertical audits focus on a specific department or unit within the organization.

Additionally, horizontal audits focus on consistency and conformity, while vertical audits focus on identifying potential risks and weaknesses within a specific area.

Horizontal and vertical audits are two different approaches to audit that organizations can use to assess their internal controls and financial statements.

A horizontal audit looks at consistency and conformity across multiple departments or units, while a vertical audit focuses on identifying potential risks and weaknesses within a specific department or unit.