An internal audit is the examination, monitoring and analysis of activities related to a company's operations, including its business structure, employee behavior and information systems.  Audits are important components of a company's risk management as they help to identify issues before they become substantial problems.

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Internal Audit Procedure

An internal audit begins by an auditor assessing current processes and procedures. The auditor then analyzes and compares the results to internal control objectives. He determines whether the results comply with internal policies and procedures as well as state and federal laws. Finally, the auditor compiles and presents an audit report to the business owner.

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Assessment Techniques

Assessment techniques ensure an internal auditor completely understands internal control procedures and determines whether employees comply with internal control directives. For example, he may review flowcharts, manuals, departmental control policies or other existing documentation, or he may trace specific audit trails from start to finish. 

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Analysis Techniques

Substantive procedures such as transaction matching, physical inventory count, audit trail calculations and calculating already-reconciled financial statements help determine whether work products contain data entry errors or whether financial statements contain misstatements.

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Reporting Procedures

Internal audit reporting always includes a formal report and may include a preliminary or memo-style interim report.  The final report includes a summary of the procedures and techniques used for completing the audit, a description of audit findings and suggestions for improvements of internal controls and control procedures.