Understanding the Differences between Internal Audit and Internal Control

Before delving into the distinctions between an internal audit and internal control, it is crucial to grasp the foundational definitions of each. This article seeks to clarify the relationship between these two concepts and explain why both are essential for maintaining a robust and compliant corporate environment.

What are Internal Control and Internal Audit?

Internal Control: This is a system of processes, policies, and measures that an organization implements to ensure it achieves its objectives, prevents and detects errors and irregularities, and mitigates risks that could impede the company’s goals. Internal control is designed to provide reasonable assurance regarding the achievement of objectives related to the reliability of financial reporting, operational efficiency, and compliance with applicable laws and regulations.

Internal Audit: This is a function that evaluates the effectiveness of internal controls, corporate governance, and accounting processes. The role of internal auditing is to assess whether the company has a good understanding of the risks it faces and whether the controls in place to mitigate those risks are working as intended. Internal auditing also ensures compliance with relevant laws and regulations, ensuring accurate and timely financial reporting and data collection. It is a management service that provides objective assurance and consulting services designed to add value and improve an organization’s operations.

The Differences: Roles and Responsibilities

The primary difference between internal control and internal audit lies in their roles and responsibilities. While internal control is about the design and implementation of systems and processes to achieve company objectives, internal audit is about evaluating whether those controls are functioning as intended and whether they are adequate to meet the company’s needs.

Risk Identification and Management: Internal control involves identifying and assessing risks, and developing controls to manage those risks. Internal auditors, on the other hand, evaluate the effectiveness of these controls and whether they are being effectively implemented and managed. Specific vs. Ongoing: Internal audits are conducted periodically to provide a snapshot of the current state of internal controls. In contrast, the implementation and monitoring of internal controls are ongoing activities, requiring continuous attention and evaluation. Seperation of Roles: Internal control is the responsibility of operational management, while internal auditing is a separate function performed by internal auditors. This separation helps to maintain objectivity in the audit process, as internal auditors must not be involved in the design or implementation of controls they are evaluating. Frequency: Internal audits are typically conducted at specific intervals, whereas the implementation of internal controls is an ongoing process that needs continuous attention to ensure effectiveness.

The Relationship Between Internal Audit and Control

The relationship between internal audit and control is symbiotic. While internal control provides the framework and processes, internal audit evaluates and ensures their effectiveness, thereby enhancing the overall robustness and compliance of the organization.

Self-Assessment: Internal audits serve as a tool for self-assessment, providing insights into the effectiveness of internal controls and identifying areas for improvement. Ongoing Assurance: The continuous nature of internal control ensures that risks are managed proactively, while internal audits provide a periodic check to confirm that controls are functioning as intended. Strategic Development: Internal auditing should be strategically developed to provide reasonable assurance about the effectiveness and functionality of the company's internal controls, ensuring they align with the organization's goals and objectives.

In summary, while internal control sets the foundation for risk management and process efficiency, internal audit ensures that this foundation is solid and that the organization is operating effectively and in compliance with relevant laws and regulations. This partnership ensures that the organization is well-prepared to face challenges and opportunities in an ever-evolving business environment.

By: Mr. Dahir Abdulahi Ok