The public would never be aware of a business' internal processes if not for the famous financial scandals involving WorldCom and Enron. This scandal made way for a demand for better financial reporting. That was the time when the Sarbanes-Oxley Act of 2002 was enacted. With this Act, the internal auditing of companies has become strict in requiring comanies to comply with certain standards.
But the internal audit process mostly follows manual and traditional processes, only that these are all strictly implemented. This involves four general stages: planning, fieldwork, audit reports, and follow-up. Each of these stages is divided by their respective stages.
- Sending a letter. The auditor will inform the client or involved association about the auditing and its objectives through a letter.
- The initial meeting in preparation for an internal audit. The clients, auditor, and other concerned people will have an opening conference meeting. Here, the client will describe the areas in need of review. They will also state the available resources, the organization's processes, and other important information.
- Preliminary survey. In this stage, the auditor will gather all the needed data so he can have a good overview of the auditing.
- Review of the internal control's structure. This stage can be time-consuming but can be well done with the help of tools and special techniques. During this process, the auditor will determine the priority areas.
- Audit program preparation. This will serve as the process manual. The audit programs will outline the needed fieldwork like tax auditing.
- Testing for the major internal controls. This process and the tax audit may be included in the auditor's program. This process tests if the randomly selected transactions are accurate.
- Regular updates on the auditing process for the client. From time to time, the auditor will carry out financial reporting, mostly in oral communication, with the client. The client, on other hand, may help in resolving some of the raised issues.
- Working on the audit summary. When all the fieldwork is done, the auditor will have to summarize his findings. Along with that, he will state his conclusions and some recommendations to resolve issues.
- Crafting of the working papers. This is among the important auditing tools that will support the auditor's opinion and tell about the client's financials and accounting records.
- Audit report drafting. The report will be thoroughly reviewed by the auditing team before presenting it to the client. Sometimes, the draft is presented to the client for review.
- Creating the formal auditing draft. Comments and suggestions from the first draft are applied to the formal draft.
- Distribution of the auditing final reports to involved people.
- Review of the audit follow-up. Response from the client will be reviewed. The findings may be tested and resolved.
- Reporting about the audit follow-up. The effects of resolved findings will be concluded. Meanwhile, the unresolved findings will also be included in the reporting follow-up.
It is important for an internal audit to follow these procedures. But what's more important is that an internal audit follows the Sarbanes-Oxley Act standards so that no dispute will arise between the auditing party and the investors.