In a bid to be part of the month long celebration of Internal auditors globally in this month of May, I recently attended a function where I was asked to give an impromptu talk clearly stating the difference between internal control and internal audit. It was then that I realized that I struggled to provide answer to this seemingly simple question considering the fact that I have been practicing internal audit for close to ten years now.
So out of curiosity, I took some of my professional colleagues by surprise and asked them to briefly comment on ‘Internal Control vs Internal Audit’. It was then that it downed on me that I was not alone in this awkward embarrassing moment.
The reason I am writing this today is to intentionally make presentation on internal control vs internal audit clearly bringing out the similarities and differences between internal audit and internal control.
Brief introduction of internal audit
The Institute of Internal Auditors (by far the go to institute when it comes to internal audit matters) defined internal auditing as “independent, objective, assurance and consulting activity designed to add value and improve an organization’s operations. “
The IIA goes further to state that internal audit function helps organizations accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve effectiveness of risk management, control, and governance processes.
The IIA governs the standards and general rules of conduct for internal audit profession.
Brief introduction of internal control
In response to a number of high-profile accounting scandals that rocked the international accounting community, COSO (Committee of Sponsoring Organizations) was formed. The COSO report defines internal control as follows:
“Internal control is a process effected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following three categories:
- Reliability of financial reporting
- Effectiveness and efficiency of operations
- Compliance with applicable laws and regulations”
From the above brief introduction of internal audit and internal control provided above, I believe that we are now in a better position to make the comparison of internal control vs internal audit
Similarities between internal control and internal audit
Reporting format: both internal audit and internal control do not have a generally agreed reporting format.
People: both internal control and internal audit need people to deliver on their objectives
Achievement of objectives: both internal audit and internal control help organizations achieve objectives.
Differences between internal audit and internal control
Standards: while internal audit is governed by a standard, internal control is not governed
Purpose: internal control is designed to achieve control objectives in three categories.
Risk management role: Internal auditors help in the evaluation of risk management with the focus being on making recommendations that would contribute in improving the overall risk atmosphere while internal controls effort is focused on making sure that controls provides reasonable assurance that objectives will be met.
Independence status: while the internal audit function is independent of the processes of an organization, internal control is usually part of an organizations systems and operations.
I hope I have been able to assist in organizing these subtle differences and similarities between internal control and internal audit.