While working in an organization and being involved in business risk management or lean methodologies, you often come across similar terms that hold completely different meanings. Similarly, there is confusion between internal audit and internal control. Internal audit and internal control differ from each other to a very great extent. This article explains the difference and compare internal audit and internal control.
Difference Between Internal Audit and Internal Control
What Exactly is an Internal Audit?
Internal audit includes a set of logical, rational, and unbiased functions and consulting activities to improve an organisation’s activities. These activities include improvement of risk control measures and assessment of internal control performance. Internal audit activities are executed by a group of internal audit professionals or an outsourced consultant, which perform audit activities and report to internal stakeholders such as senior management.
What is Internal Control?
On the other hand, internal control includes the processes, procedures, policies, and rules developed by a company’s stakeholders to improve and assure the compliance of an organisation. Above all, internal control is a system of an organisation based on many rules, policies, and methodologies. These procedures include strategic planning, job structure, job descriptions, employee evaluation, motivation and appraisal system, an organization hierarchy system, other reporting control measures, and the system itself.
Aims’ Difference Between Internal Audit and Internal Control
The aim of an internal audit is:
- Validate the organization follow its internal policies and procedures.
- Review the organisations compliance with statutory and regulatory requirements.
- Identification of gaps in the operational system and provide the best solutions to mitigate any risks.
- Providing strong action plans for organizations to succeed.
The aim of an internal control is:
- Efficiency and effectiveness of operations.
- Detection and protection of an organisation’s
- Accuracy of performance.
- Assure the compliance of an organisation.
Frequency and Time Extension Differences
Internal audits are conducted at regular intervals by internal auditors or internal audit consultants. For example, internal audit of a particular department takes place annually.
In contrast to this, internal control is an ongoing process which is performed simultaneously with work activities. For example, when a process is carried out within an organization, internal control is done at the same time and work is verified as per the available records at every step.
Process Difference Between Internal Audit and Internal Control
The process of internal audit involves:
- Internal audit planning
- Conducting internal audit
- Providing improvement action plans
Hence after planning, the internal audit unit conducts audit activities and takes improvement actions to manage and reduce the risk effecting the organization.
The process of internal control involves:
Checklists, questionnaires, flowcharts, and written records help in the internal control review process.
Similarity and Contrast Between Internal Audit and Internal Control
By definition, internal audit refers to unbiased, rational, independent, and strategically executed consulting activities done by an internal auditor. On the other hand, stakeholders manage and design internal control to ensure the compliance of an organization.
Aims and Objective Differences
The internal audit aims at identifying gap areas in the operational system and providing the best solutions to mitigate any risks identified. Internal audit objectives are also to drive continual improvement. In contrast to that, internal control aims at efficiency and effectiveness of operations, protection of the organization’s resources and quality of products/services.
Difference in Nature
Internal audit is a preventive measure or activity, whereas internal control ensures nothing goes wrong. Internal controls are implemented as an outcome of issues identified during internal audit.
Difference in Category
As an internal audit is an activity, internal control is a system.
Summary and conclusion:
To sum up, it is important to understand the differences between internal audit and internal control, as they both have unique and effective ways to improve operations and mitigate risks. Internal audit involves both operational, risk and compliance management functions. For this purpose, the internal auditors execute the audits independently and provide the assessment report to senior management.
On the other hand, internal control is known as the first line of defence as it is managed by operational management itself, which directly reports to senior management.
Although both have many differences in performance, execution, and actions, the main purpose behind both is to control and reduce risks by effective risk management.