The financial services sector is essential to the British economy. In 2020, the sector contributed £164.8 billion to the UK economy, 8.6% of total economic output. However, like many industries, there is a shortage of talent and candidates are commanding a premium, especially in the governance, risk and audit space.
As the industry adjusts to operating in 2022, the role of internal audit is likely to come under increasing scrutiny. However, the industry cannot function without talented people in these roles. But the first barrier preventing talent from moving into these critical roles is knowledge about what internal audit actually is, their daily responsibilities, and how it differs from external audit.
What is Internal Audit?
According to the ACCA, internal auditing is the independent and objective evaluation of an organisation’s internal controls to effectively manage risk.
An Internal Auditor’s primary responsibility is to monitor and assess the governance of an institution. For the most part, this means they evaluate the effectiveness of a company’s internal controls, corporate governance, and accounting processes.
In many financial services businesses, internal audit is seen as the “third line of defence”, with compliance and risk considered the first and second line, depending on a given business. But this does not mean that audit is any less essential. Alas, the internal audit function must not only monitor compliance and transactions, but also develop an integrated view of existing and emerging risks and their impact on business. Internal audit is essential to all highly regulated businesses, as the responsibility to ensure that the first two lines are operating effectively, and suggesting improvements, falls to internal audit.
Often internal audit is tasked with utilising a risk-based approach to evaluate and report on:
- The effectiveness of governance
- Risk management
- Internal control to the organisation
Additionally, internal audit is often charged with giving assurance to sector regulators and external auditors that appropriate controls and processes are in place and functional.
In larger businesses, you may find candidates that specialise in a particular line of audit, e.g. change audit, risk audit (audit anything that the risk department does), compliance audit or IT Audit.
What do internal audit professionals do day-to-day?
An internal auditor reviews fiscal statements, expense reports, inventory, and pretty much anything requested by regulators and internal stakeholders. Everything produced by internal audit must be impeccable in case of an external audit by a governmental regulatory body. In conjunction with this, internal auditors must work closely with risk and compliance professionals to ensure the efficacy of risk management efforts. And, it goes without saying, internal audit must ensure that the organisation is complying with all relevant laws and statutes.
The function is essential for continuous improvement throughout the business. They do this by identifying shortfalls and making recommendations in line with regulations, observing macro-economic trends and adhering to industry best practice. Moreover, internal auditors often are central to business’ ESG efforts (environmental, social, governance), as they are perfectly placed to promote ethics, help identify improper conduct and investigate fraud.
What is the difference between internal and external audit:
- Internal auditors are generally internal company employees, while external auditors are always a third-party to the organisation and their clients
- Internal auditors generally do not perform a single comprehensive annual audit, but rather conduct several smaller focused internal audits throughout the year.
- Internal auditors generate reports for management, while external audit reports are prepared for use by external entities (e.g., investors, clients, lenders, and other stakeholders).
- Internal auditors can also serve as internal consultants. Conversely, external auditors are prohibited from providing attestation and consultative services to the same organisation.
Why do businesses need Internal Auditors?
Having an internal auditor or team can help the company grow, become more efficient, maintain compliance, and identify cases of fraud. Furthermore, when your external audit comes around (if you have one), having an internal auditor that has already verified the controls before the third-party steps foot in the door relieves a lot of pressure and saves a lot of time and money.
Salaries for Internal Auditors in the London financial services market
