Step-by-Step Internal Audit Checklist

July 11, 2025

If you’re a business owner, startup founder, or even a seasoned CFO, the words internal audit might sound intimidating. But let’s simplify it. Think of it as a business health check. It provides clarity, reveals hidden risks, and helps you tighten your internal systems. When done correctly, it can enhance operations, minimize losses, and foster stakeholder trust.

At BC Shetty & Co., we’ve worked with clients across IT, education, real estate, and e-commerce to strengthen internal controls through structured audits. Whether you’re a large enterprise or a growing startup, this guide breaks down a step-by-step internal audit checklist in simple terms, so you know what to expect and how to prepare.

Your Internal Audit Checklist

1. Initial Audit Planning

Every audit starts with a purpose. Why is this audit necessary? What areas are being reviewed? Have these been audited before?

The planning stage includes:

• Understanding the key risks to be addressed
• Confirming the audit’s goals
• Reviewing past audit findings and corrective actions
• Validating any process changes or new regulations

It’s also important to engage with key stakeholders early. This helps ensure the audit is relevant and aligned with the business’s objectives.

2. Involve Risk and Process Subject Matter Experts

No audit should rely on assumptions. Involving internal and external experts helps bring in real-time industry insights and risk perspectives.

For example, if you're auditing payroll outsourcing, bringing in an HR process expert can help benchmark compliance and uncover operational gaps. Subject matter experts also support the audit team with technical knowledge, helping ensure the findings are both accurate and actionable.

Resources from ICAI, IIA, and regulatory bodies offer valuable updates on audit frameworks, risk areas, and best practices.

3. Frameworks for Internal Audit

Using established frameworks ensures your audit is credible, structured, and compliant. At BC Shetty & Co., we follow:

• International Professional Practices Framework (IPPF) by the Institute of Internal Auditors
• COSO Internal Control – Integrated Framework (ICIF)

These frameworks guide how we assess internal controls, risk management, and communication systems. IPPF defines ethics and standards, while COSO helps test all five components of internal control. Choosing the right framework depends on the nature and scale of the audit.

4. Preparing for a Planning Meeting

Before diving into execution, internal auditors must be well-prepared. This means:

• Reviewing process documents and reports
• Identifying potential risks
• Speaking with process owners

Next, the audit team creates a targeted questionnaire based on COSO or ICAI guidelines. During the planning meeting, senior managers and subject experts provide a high-level overview of process goals and risks. This discussion lays the groundwork for an informed, collaborative audit approach.

5. Preparing the Audit Program

This step involves drafting the game plan. A typical audit program includes:

• Executive summary of the audit scope
• Process objectives and ownership mapping
• Key risks and control measures
• Control attributes such as frequency and effectiveness
• Testing methods and required documentation

Testing methods may include interviews, real-time observation, inspection of records, and re-performance of tasks. For best results, a pilot run can help validate the audit program before full rollout.

6. Audit Program Review

Before fieldwork begins, the draft audit program should be reviewed by:

• The Chief Audit Executive
• Involved subject matter experts
• Process leaders

This review stage ensures everyone is aligned, that all risks are being addressed, and that the program matches the audit’s purpose. It also encourages collaboration and helps streamline fieldwork later.

Benefits of an Effective Internal Audit

A strong internal audit process isn’t just a compliance activity. It delivers lasting value to your business. Here’s how:

• Risk Identification and Mitigation: Internal audits reveal areas of financial, regulatory, or operational risk before they become serious problems. Early detection helps businesses act quickly and avoid penalties.
• Improved Governance and Accountability: Clear documentation of processes and controls enhances transparency. Employees become more accountable, and decision-makers are better equipped to lead ethically and responsibly.
• Cost Savings and Operational Efficiency: Audits often reveal inefficiencies or redundancies in workflow, technology, or procurement. Fixing these can reduce costs and streamline operations.
• Better Decision Making: With data-driven insights from audit findings, leadership can make well-informed decisions. These insights also improve budgeting, forecasting, and compliance strategies.

And remember, internal audits are mandatory under the Companies Act, 2013, for several categories of companies. Not following through could lead to penalties. A strong internal control checklist helps ensure compliance and builds confidence among stakeholders.

Why It Matters for Your Business

By now, you’ve got a clear idea of what an audit checklist for an internal audit looks like. But here’s something even more important to note: an internal audit is your opportunity to grow smarter. It is not about pointing fingers. It’s about building systems that work better. With structured audits, your organisation becomes more resilient, cost-efficient, and ready for future challenges.

At BC Shetty & Co., we blend technical precision with practical insights. As one of the trusted CA firms in Bangalore, our goal is to help you build strong foundations through reliable audits and advisory support.

If you’ve been asking yourself what is internal audit checklist, this blog just gave you the answer, step by step.

Need Internal Audit Services? Let our team guide you!