Interne revision

What Is Interne revision?

Interne revision, or internal audit, is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. This critical function falls under the broader category of corporate governance and plays a vital role in an organization's risk management and internal control processes. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of these processes⁷².

Internal audit goes beyond merely checking financial records. It assesses the effectiveness of operational processes, compliance with various regulations, and the overall efficiency and economy of an entity's functions⁷¹. The insights provided by internal audit help senior management and the board of directors make informed decisions, ultimately strengthening and protecting the organization's value⁷⁰.

History and Origin

The roots of auditing can be traced back centuries, with early forms existing as merchants verified receipts for goods. However, modern internal auditing, as a distinct profession, began to emerge in the early 20th century with the expansion of corporate businesses and the growing demand for robust systems of control in large organizations⁶⁸, ⁶⁹.

A significant turning point for the profession was the establishment of The Institute of Internal Auditors (IIA) in November 1941 in the United States⁶⁶, ⁶⁷. John B. Thurston, an internal auditor for the North American Company, was instrumental in founding the organization, and Victor Z. Brink authored the first major book on internal auditing around the same time⁶⁵. The IIA has since become the global voice and leading authority for the internal audit profession, issuing professional certifications and setting global standards⁶³, ⁶⁴. The IIA formally adopted its Code of Ethics in 1968 and first issued professional standards, the "Standards for the Professional Practice of Internal Auditing," in 1978⁶². These standards were updated in 2024 to become the Global Internal Audit Standards, providing new and improved requirements to enhance the quality and effectiveness of internal audits⁵⁹, ⁶⁰, ⁶¹.

The role of internal audit gained even greater prominence following major corporate scandals in the early 2000s, such as Enron and WorldCom. This led to the enactment of the Sarbanes-Oxley Act (SOX) in 2002 in the United States, which significantly strengthened requirements for internal controls over financial reporting and highlighted the importance of an effective internal audit function⁵⁶, ⁵⁷, ⁵⁸. SOX Section 404, in particular, mandates that management assess and report on the effectiveness of their internal controls over financial reporting, and that an independent auditor attest to this assessment⁵⁴, ⁵⁵.

Key Takeaways

• Interne revision, or internal audit, is an independent function providing assurance and consulting to improve an organization's operations.
• It assesses risk management, corporate governance, and internal control processes.
• The Institute of Internal Auditors (IIA), founded in 1941, sets global standards for internal audit.
• The Sarbanes-Oxley Act (SOX) significantly elevated the importance of internal audit and internal controls.
• Maintaining independence and objectivity is crucial for the effectiveness and credibility of internal audit.

Formula and Calculation

Internal audit does not typically involve a specific financial formula or calculation in the way that, for example, a discounted cash flow analysis or a return on investment calculation would. Instead, internal audit relies on a systematic and disciplined approach to evaluating processes and controls. Its "calculation" of value is qualitative, focusing on identifying efficiencies, mitigating risks, and ensuring compliance.

While there is no single "internal audit formula," the value it adds can be conceptualized through its impact on reducing potential losses, improving operational efficiency, and enhancing decision-making. These benefits are often realized through the identification of control deficiencies and the implementation of audit recommendations.

Interpreting the Interne revision

Interpreting the effectiveness of interne revision involves evaluating several qualitative factors rather than a numerical output. A strong internal audit function is characterized by its independence and objectivity, its ability to provide valuable insights, and its alignment with the organization's strategic objectives.

A key indicator of an effective internal audit is its reporting structure. To ensure independence, the Chief Audit Executive (CAE), who heads the internal audit function, typically reports functionally to the board's audit committee and administratively to the Chief Executive Officer (CEO)⁵³. This dual reporting line helps to minimize undue influence from management and enables the internal audit team to express unbiased judgments⁵¹, ⁵².

The scope of internal audit work is also a critical interpretative element. A comprehensive internal audit goes beyond financial audits to encompass operational, strategic, and even reputational risks, providing a holistic view of the organization's control environment⁴⁹, ⁵⁰. The quality and timeliness of internal audit reports, and the degree to which management acts upon the recommendations, further indicate its effectiveness and value proposition to the organization.

Hypothetical Example

Consider a hypothetical manufacturing company, "Global Gadgets Inc.," that produces consumer electronics. Global Gadgets has an internal audit department tasked with improving its operations and mitigating risks.

Scenario: The internal audit team at Global Gadgets decides to conduct an audit of the company's supply chain process, an area identified as having potential operational risk due to recent global disruptions.

Step-by-step walkthrough:

1. Planning the Audit: The internal audit team, led by the CAE, reviews the existing supply chain documentation, including vendor contracts, inventory management procedures, and logistics agreements. They also analyze historical data on supplier performance and delivery times.
2. Fieldwork and Data Collection: Auditors observe the receiving, warehousing, and distribution processes. They interview employees involved in procurement, logistics, and quality control. They also perform data analytics on procurement invoices and delivery schedules to identify anomalies or inefficiencies.
3. Identifying Issues: During their review, the internal audit team discovers several issues:
   • A significant number of urgent orders are placed with a single supplier, leading to higher costs. This highlights a concentration risk.
   • There's a lack of formal backup suppliers for critical components.
   • The inventory management system sometimes shows discrepancies between physical stock and recorded amounts, pointing to potential weaknesses in inventory control.
   • There's no clear process for evaluating new suppliers beyond initial price checks.
4. Reporting and Recommendations: The internal audit team prepares a report outlining their findings, the potential impact of these issues (e.g., increased costs, production delays, reputational damage), and recommendations. Recommendations include diversifying the supplier base, establishing a formal supplier qualification process, and implementing a more robust inventory reconciliation procedure.
5. Follow-up: The internal audit department schedules follow-up reviews to ensure that management implements the agreed-upon recommendations and that the identified risks are effectively mitigated.

This example illustrates how internal audit provides assurance by identifying weaknesses and offers consulting by recommending improvements, ultimately enhancing the company's resilience and efficiency.

Practical Applications

Interne revision finds practical applications across various facets of an organization, serving as a cornerstone for robust organizational oversight and continuous improvement.

• Risk Management: Internal audit plays a crucial role in evaluating the effectiveness of an organization's risk management framework. This includes assessing how well risks across the business—from financial and operational to strategic and cybersecurity risks—are identified, assessed, and mitigated. Fo⁴⁷, ⁴⁸r example, in the financial services sector, internal auditors are increasingly responsible for company-wide corporate governance and reporting to the board due to evolving regulatory landscapes.
• ⁴⁶ Compliance and Regulation: Internal auditors ensure adherence to internal policies, procedures, and external laws and regulations. This is particularly vital in highly regulated industries, where non-compliance can lead to significant penalties and reputational damage. The Sarbanes-Oxley Act (SOX) of 2002, for instance, significantly increased the focus on internal controls over financial reporting, requiring companies to assess and report on their effectiveness. Th⁴⁵is regulation underscored the critical role of internal audit in ensuring public companies meet their disclosure obligations.
• Operational Efficiency: Beyond compliance and risk, internal audit identifies opportunities to enhance operational efficiency and effectiveness across various departments. This can involve reviewing processes in areas such as procurement, human resources, information technology, and production to identify bottlenecks, redundancies, and areas for cost savings.
• ⁴³, ⁴⁴ Fraud Detection and Prevention: Internal audit teams are instrumental in recommending and assessing fraud detection procedures and helping to ensure compliance with anti-fraud policies. They identify vulnerabilities within systems and processes that could lead to fraudulent activities and recommend improvements to reduce the likelihood and impact of fraud.
• ⁴² Corporate Governance: By providing independent and objective assurance on the adequacy and effectiveness of governance processes, internal audit strengthens the oversight provided by the board of directors and its audit committee. This contributes to transparency and accountability within the organization.

A³⁹, ⁴⁰, ⁴¹ survey by Thomson Reuters highlighted that regulatory changes are a significant concern for internal audit practitioners globally, with an increased focus on corporate governance and reporting to the board. Th³⁷, ³⁸is demonstrates the evolving and expanding practical applications of internal audit in today's complex business environment.

Limitations and Criticisms

While internal audit is a vital function for organizational health, it also faces inherent limitations and criticisms, primarily concerning its independence and objectivity.

One significant challenge is the inherent conflict that can arise because internal auditors are employees of the organization they are auditing. Al³⁵, ³⁶though they functionally report to the audit committee and are expected to be independent, their administrative reporting lines, often to the CEO or CFO, can create a perception or actual risk of undue influence. Th³², ³³, ³⁴is employee status can potentially affect their judgment and lead to conflicts of interest, especially when audits uncover issues that senior leadership might prefer to keep unexamined.

A³⁰, ³¹cademic research and professional discussions frequently address the "independence gap" in internal audit. For instance, some argue that internal audit is not truly independent, and continuing to believe otherwise can be detrimental. Th²⁹e ambiguity between internal audit's roles in providing assurance and consulting services can also impair its independence.

F²⁷, ²⁸urthermore, internal audit functions can face resource constraints, including insufficient budget for technology, lack of time, and personnel shortages. Th²⁶is can hinder their ability to keep pace with rapid technological advancements and effectively address emerging risks like cybersecurity threats. So²³, ²⁴, ²⁵me critics also suggest that internal audit is not adopting technology fast enough, and a persistent view of internal audit as an "offshoot of accounting" rather than a strategic partner can limit its influence and perceived value.

D²²espite guidelines and standards from organizations like the IIA emphasizing independence and objectivity, challenges persist in practice. Th²⁰, ²¹e effectiveness of the audit committee in overseeing the internal audit function is crucial in mitigating these limitations, but even audit committees can face challenges in ensuring full independence.

#¹⁹# Interne revision vs. Eksterne revision

While both interne revision (internal audit) and eksterne revision (external audit) involve examining an organization's records and processes, their purposes, scope, and reporting structures differ significantly. Understanding these distinctions is crucial for comprehending their respective roles in financial oversight and corporate governance.

The fundamental distinction lies in their primary audience and purpose. Internal audit serves internal stakeholders, aiming to enhance the organization's effectiveness and achieve its goals. External audit serves external stakeholders, such as investors and creditors, by providing an independent assurance on the reliability of the financial statements. Wh¹⁰ile the work of internal audit can be relied upon by external auditors to some extent, external auditors cannot provide internal audit services to the same firm they audit, as it would impair their independence.

#⁹# FAQs

What is the primary role of an internal audit function?

The primary role of an internal audit function is to provide independent and objective assurance and consulting services. It evaluates and helps improve an organization's risk management, governance, and internal control processes to help the organization achieve its objectives.

#⁸## How does internal audit contribute to corporate governance?

Internal audit strengthens corporate governance by providing the board of directors and senior management with objective insights into the effectiveness of the organization's control environment, ethical conduct, and compliance with laws and regulations. It ensures accountability and transparency.

#⁶, ⁷## Is internal audit mandatory for all companies?

The mandate for internal audit varies by jurisdiction and company type. Publicly traded companies, especially those in the U.S. subject to the Sarbanes-Oxley Act, are effectively required to have robust internal control systems, which typically necessitate an internal audit function. Ma⁵ny private companies also establish internal audit functions as a best practice for strong financial oversight and risk management.

What is the Institute of Internal Auditors (IIA)?

The Institute of Internal Auditors (IIA) is a global professional association established in 1941 that serves as the recognized authority for the internal audit profession. It provides professional certifications, sets global standards for internal auditing (such as the Global Internal Audit Standards), and offers guidance and education to practitioners worldwide.

#⁴## How does technology impact internal audit?

Technology significantly impacts internal audit by enabling more efficient data analysis, continuous monitoring, and the assessment of technology-related risks like cybersecurity. However, internal audit functions must continuously adapt and invest in technology to remain effective and overcome challenges such as talent shortages in tech-savvy auditors.¹, ², ³