Strategic Insights: Developing Your Internal Audit Plan

Introduction

Developing an internal audit plan is a critical function within the internal audit department of any organization. This plan outlines the scope, objectives, and approach of the audits that will be conducted to assess the effectiveness of internal controls, risk management processes, and compliance with regulations. The internal audit plan is typically based on a thorough risk assessment and input from key stakeholders. It ensures that resources are allocated efficiently and that audit activities are aligned with the organization's strategic goals and objectives.

Primary Objectives:

• Develop the audit universe and create a draft, risk-based Internal Audit Plan
• Consider timing, budgets and resources to create a one, two or three year Internal Audit Plan, depending upon the organization’s needs
• Propose draft Internal Audit Plan to the Project Sponsor and discuss any business risks not being addressed by the plan
• Present draft Internal Audit Plan to the Audit Committee for approval
• Based on the evolving risks, update the draft Internal Audit Plan for any changes required and periodically revisit the plan to help ensure changes in strategic direction, product lines and markets have been considered

Steps For Developing An Internal Audit Plan

1. Create Risk-Based Internal Audit Plan: It involves identifying and assessing the potential risks faced by the organization and prioritizing them based on their potential impact on the company's objectives. To create a risk-based internal audit plan, the internal audit team must first understand the organization's strategic goals, regulatory requirements, and operational challenges. They then use this information to develop a tailored audit plan that focuses on the key risk areas. By aligning the audit plan with the organization's goals and risks, the internal audit function can provide valuable insights and recommendations to help senior management make informed decisions and mitigate potential risks. This approach ensures that resources are allocated efficiently and that the internal audit function adds value to the organization.

2. Determine Timing and Resource Requirements: Determining the timing involves scheduling audits at appropriate intervals to ensure all critical areas are covered without overburdening the team or disrupting day-to-day operations. This requires a strategic approach to prioritize audits based on risk assessment and organizational objectives. On the other hand, resource requirements involve allocating the right skills and expertise to each audit project, ensuring the team has the necessary tools and support to perform their tasks effectively. Adequate resources also include budget allocation for training, technology, and professional development to enhance audit quality and overall performance.

3. Develop and Recommend Draft Internal Audit Plan: The process of developing and recommending a draft internal audit plan involves conducting a thorough assessment of the organization's risks, controls, and processes. This includes identifying key areas of focus, setting objectives, determining the scope of the audit, and outlining the methodology to be used. The plan should be tailored to the specific needs and objectives of the organization, taking into account industry regulations, best practices, and internal policies. Recommendations for the draft internal audit plan should be based on a comprehensive analysis of the organization's risk profile and strategic goals, with a focus on adding value and improving overall compliance and performance. The plan should also be regularly reviewed and updated to ensure its relevance and alignment with changing circumstances.

4. Obtain Audit Committee Approval: As part of the internal audit function, obtaining audit committee approval is a critical step in ensuring the credibility and independence of the audit process. The audit committee, typically comprised of independent directors with financial expertise, is responsible for overseeing the internal audit function and providing oversight of the organization's internal controls and risk management processes. To obtain audit committee approval, internal auditors must present their audit plan, findings, and recommendations in a clear and concise manner, demonstrating their adherence to professional auditing standards and providing assurance that their work aligns with the organization's strategic objectives. 

5. Maintain/Update Internal Audit Plan: To begin with, maintaining the internal audit plan involves reviewing and assessing the current plan to ensure it aligns with the organization's objectives, risks, and priorities. This includes conducting regular consultations with key stakeholders to gather input on potential changes or updates needed to the plan. On the other hand, updating the internal audit plan requires incorporating any new risks, regulations, or changes in the business environment that may impact the audit process. This involves staying up-to-date on industry trends and best practices, as well as conducting periodic risk assessments to identify emerging risks that need to be addressed in the audit plan.

Conclusion

The development of an internal audit plan is crucial for the success of the internal audit function within an organization. By carefully planning and prioritizing audit activities, companies can ensure that risks are properly identified and mitigated. The internal audit plan should be tailored to the specific needs and objectives of the organization, taking into account industry best practices and regulatory requirements. To improve the effectiveness of the internal audit function, organizations should invest time and resources into developing a comprehensive audit plan that aligns with their strategic goals.