Inviting in an impartial third party to gain a better understanding of the organization is an invaluable asset that companies of all shapes and sizes utilize. External audits achieve a variety of objectives: identifying and preventing material misstatement, evaluating business operations and finding improvements, assessing your procedures and procedures to determine compliance with industry regulations and standards, detecting issues relating to information systems and security, analyzing issues related to payroll and wages. The list goes on. No matter the objective, in order to develop a strong audit plan and strategy moving forward, external auditors need to take the time to evaluate risk from the get-go.
An external audit risk assessment, when conducted properly, helps you do your job better. It gives auditors insights into what the most effective use of your time will be. From the results, you can determine in a general sense what you need to do and what you can skip, helping your audit to be more efficient and effective. Risk assessments bring several other far-reaching benefits to your audit process, as well.
Leverage Experts Within the Organization
Through an external audit risk assessment, an auditor can engage people with valuable knowledge at a company. Those in management, those that handle internal auditing procedures and anyone else that you feel have knowledge of the inner workings of a company are at your fingertips. These individuals work every day in the environment your auditing and can help you identify risk in a number of ways, whether that risk is in the form of fraud, errors or operational weaknesses.
Before the audit even begins, you can gain a sense of where personnel feel risk exists, how the company functions and what the situation is regarding revenue and expenses. You can also uncover more specific information from assessing the right people such as who the key vendors, suppliers and partners for the company are, what resources the company needs and how they obtain them and how overall industry performance is affecting the organization specifically.
Leveraging internal risk experts, department managers, directors and those who have a vested interest in ensuring compliance helps you see the risk landscape as they see it. This insider’s point of view will make your eventual audit report more effective in addressing the highest priority concerns.
Understand Internal Procedures and Controls
To effectively initiate an audit and uncover areas of breakdown of processes, an external audit risk assessment can be used to help you determine the procedures, policies and controls that govern operations on a daily, weekly and monthly basis. Before you ever step foot on the premises or perform any onsite walkthroughs, you’ll understand the segregation of duties and the basic work processes employees follow to complete these duties.
During financial audits, for instance, an external audit risk assessment is a necessary step to illuminate where fraud or errors could be occurring. Unknowns such as who approves the payments, who signs the checks, who has the authorization to open and close bank accounts and what the spending limits are for credit cards can be determined. You can figure out very quickly through a risk assessment if an organization has strong financial controls in place and if employees know and follow procedures in place.
You can also use this tool to evaluate the systems a company has in place. In this era, it’s a rarity to come across a business that doesn’t rely on software at least to some degree, and these online tools can be an area of significant risk. While forming your audit strategy, it’s important to know what software systems are being used, how data is recorded and stored with them, how secure they are and who has access to them. With this information, you can determine if it’s even possible to find an audit trail, if this information could have been potentially compromised and which employees you need to talk to.
There are also more general processes you can learn about through an external audit risk assessment. These can include daily operations many have overlooked such as who has access to company mail and if any outside parties work within the company frequently. Understanding these internal controls – or the lack of controls – will lead you to the places where risk is most likely to exist.
Observe and Analyze the Environment
If a risk is defined as anything that affects the goals and objectives of the company – fraud, mistakes, organizational shortfalls – then it’s important to understand what those objectives are. Through a risk assessment, auditors can determine those objectives and goals that motivate every process throughout an organization.With this information, the observation and analysis they conduct will be informed.
Analyzing the environment in which a company exists reveals information that can lead to the identification of threats to objectives. An external audit risk assessment can uncover information such as the presence of any outside pressures from competitors, changes in important relationships with company partners, issues related to pricing or cash flow and other economic pressures that could make the environment more risky.
On a more micro level, close observation and analysis of assessments over time will also help auditors document recurring accidents, errors or mistakes more accurately. People tend to make the same mistakes over and over again, especially when they may be unaware their actions even need to be corrected. Keeping a summary of your risk assessments over a given period will help you identify these patterns and make the company aware of where they need to give their attention.
Determine the Highest Priority Risks
Most important to your audit plan, performing a risk assessment helps you identify the risks that are going to be the highest priority. Through thorough inquiries with key organizational members, gaining an understanding of policies and procedures and inspection of the environment, you are able to zero in on the areas you believe will present the greatest degree of risk throughout your audit.
An external audit risk assessment can give you many of the pieces to the puzzle that is any audit. Yet, many auditors will overlook this initial step altogether or perform an abbreviated version of it. Usually, that’s because risk assessments can easily become a time-consuming, tedious aspect of the process that seems to hold you back from conducting the actual audit. Taking the time to do it correctly saves you a lot of time and energy down the road, though.
Automate the Risk Assessment Process
Moving away from spreadsheets to a more advanced, streamlined risk management platform will save you time and improve your risk analysis for every audit. For each client, the external audit risk assessment process can be maintained in one location along with other auditing materials, making you both more organized and provide more consistent auditing services.
By using TotalCompliance Risk from ComplianceBridge, you can build risk assessments quickly in a matter of minutes and use a variety of question types to make your assessments as powerful as possible. Multiple choice, risk rating, yes/no and fill-in questions help you gain a clear picture into the risk of the entity your assessing. Weighting certain answers and providing conditional questions gives you a more precise analysis.
Easily create, approve and distribute assessments through automated workflows. Reminders and notifications will keep you and those you’re assessing up to date throughout the process. As answers start coming in, you can view them in real-time. Analytical and reporting features give you insights into your data down to a granular level. All data you collect with TotalCompliance Risk can be exported for use in audit reports and presentations.
An external audit is a reliable way for companies and organizations to learn more about their own internal processes and potential improvements. Increase the efficacy and efficiency of your audits by employing a software built to handle the complexity of audit and risk management. Request a demo with ComplianceBridge today and learn more about the benefits of managing risk in your external audits.