The scope of internal audit includes the evaluation of the company's policies, procedures, and controls to ensure compliance, operational effectiveness, and sustainable achievement of business objectives.
Understanding The Scope Of Internal Audit
The scope of internal audit is the limits or areas of examination carried out internal auditors to assess the effectiveness of policies, procedures, and control systems within the organization. The focus is not just on finding fault, but on making sure every policy goes according to plan, regulations are complied with, and business goals are achieved. In practice, it becomes management's “eyes and ears” to ensure operations and policies align with the company's vision.
A. Scope of Internal Audit according to IIA
According to The Institute of Internal Auditors (IIA), the scope of internal audit includes the evaluation and improvement of effectiveness risk management, internal control, and governance processes. Internal auditors ensure company policies are aligned with external regulations and industry best practices.
B. Scope Of Internal Audit According To Sawyer
Sawyer, one of the key figures in internal audit, explained that the scope of internal audit includes the examination of all organizational activities, ranging from financial, operational, to Information Systems. The goal is to provide added value through the identification of policy and compliance improvement opportunities.
C. Scope Of Internal Audit According To Other Experts
Some experts provide views that broaden the understanding of the scope of internal audit:
- Arens & Loebbecke: Internal Audit is a systematic process to collect and evaluate evidence to determine the conformity of information with established criteria. It includes both internal policies and external regulations.
- Moeller: It is of the opinion that this scope plays an important role in providing assurance to management and the board of Directors regarding the effectiveness of control, risk management, and governance.
- Pickett: The focus of internal audit is to provide added value by helping the organization achieve its goals through a systematic and structured approach.
Main components within the scope of Internal Audit
1. Financial Audit
Financial Audit assess the accuracy and reliability of the company's financial statements. The scope at this stage also ensures compliance with applicable accounting standards and the company's financial policies.
2. Operational Audit
Operational Audit evaluate the efficiency and effectiveness of the procedures used by the company. This process helps ensure auditors can identify wastage and opportunities for operational improvement.
3. Compliance Audit
Compliance Audit focuses on verifying that all company activities comply with internal policies and applicable laws. This stage is important in order not only to detect violations but also to prevent them.
4. Risk Management Audit
Risk management Audit identify potential threats that may hinder the achievement of organizational goals. This step can help companies prepare effective mitigation strategies.
Purpose and scope of Internal Audit
Internal Audit aims to:
- Ensure policy compliance
- Improve operational efficiency and effectiveness
- Ensuring the accuracy of information used Management
- Identifying and managing risk
Scope Of Internal Audit
In modern companies, the scope of internal audit includes:
- Examination of annual financial statements
- Evaluation of SOP implementation in each division
- Audit compliance with industry regulations
- Assessment of the effectiveness of resource management
Examples Of Internal Audit Scope
In energy manufacturing companies, the scope includes:
- Compliance with raw material procurement procedures
- Efficient use of energy and resources
- Implementation of K3 policy (Occupational Safety and health)
- Accuracy of recording production and sales
Internal Audit Policy standards in Indonesia
In Indonesia, the use of this policy is guided by:
- PP No. 60 of 2008 on government Internal Control System (SPIP)
- OJK regulations related to corporate governance (GCG)
- Standar audit internasional (IIA Standards)
Policy-Based Internal Audit Process
- Planning
The Auditor determines the scope of the internal audit according to the company's risk priorities and policies. This stage involves the identification of critical areas and the preparation of an efficient audit plan. - Implementation
Auditors collect evidence through observation, interviews, and examination of documents. At this stage he ensures that the entire procedure is adhered to consistently. - Reporting
Audit report contains findings relevant to policy and improvement recommendations. These results help management understand areas that require special attention. - Follow-Up
Auditors ensure recommendations are well implemented to improve compliance. This process keeps internal audits relevant and effective over time.
The Challenge Of Determining The Scope Of Internal Audit
- Rapid regulatory changes can affect applicable policies and require auditors to adjust the scope of internal audits in a timely manner.
- The complexity of business processes increases the burden of supervision so that the scope needs to be expanded or prioritized.
- Potential conflicts of interest between management and auditors may reduce the objectivity of internal audits.
Strengthening Internal Audit strategies for compliance
- Training auditors to understand the latest policy
- Using technology such as Computer-Assisted Audit Techniques (CAATs)
- Evaluate the scope periodically
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The scope of an internal audit is an important foundation in ensuring policies are properly executed, risks are controlled, and organizational goals are achieved. With the right understanding, a company can strengthen its business governance and sustainability.
For more effective internal audit strategies and solutions, visit Audithink's Comprehensive Features or contact us via Audithink for direct consultation with our team of experts.
