Some may think internal audits are not as valuable as external audits. After all, a company may hand-pick its own internal audits who do not have full independence from the company. However, there are many ways internal audits provide value to the company and external parties:
Management can be more efficient about what to explore. For example, while external financial audits must test an entire financial system, a company may be concerned about whether the cash management process is being fraudulently managed; therefore, management can elect to have all audit procedures analyze cash processes.
Internal audits may save companies money. If a company's processes are very strong, the external audit process may not be as long as intensive, thereby reducing the external audit fee and time spent supporting external auditors.
The company enhances its control environment. Even if the internal audit yields no findings, employees may be aware that their work gets analyzed and reported on, thereby motivating adherence to company policy.
Internal audits may make companies more efficient. External audits often are not intended to make processes better; they are meant to review whether processes are accurate. This distinction is important because a company may be "just getting by" with inefficient processes that meet very minimum requirements.
Internal audit reports give management a head start to make corrections. Instead of having to scramble when an external audit finds a deficiency, management can take longer to think through solutions, implement the solution with care, and review whether the solution worked.
Certain departments may need enhanced oversight. Whether it is lack of expertise, staffing shortages, or problem with current personnel, a company may benefit from targeting a specific area and formally reviewing its workflow and processes.
