How to draft an internal audit report


Report writing is a not a big deal, but when the issue comes to the audit report its not an easy task to do at. There are so many elements that needs to be kept in mind while drafting an internal audit report. While going through my experience days i am going to enroll my experience on how to do an internal audit report and how to draft the report after/ during audit report.



  1. Definition
  2. Basic Elements of the Internal Audit Report
  3. Essential features of a good internal audit report
  4. How to draft an internal audit report
  5. 10 Tips while writing audit report
  6. Sample of Audit Report




As per Standard on Internal Audit (SIA), Basic Principles Governing Internal Audit, issued by the council of the Institute of Chartered Accountants of India, the internal auditor should carefully review and assesss the conclusions drawn from the audit evidence obtained, as the basis for his findings contained in his report and suggest remedial action. However, in case the internal auditor comes across any actual or suspected fraud or any other misappropriation of assets, it would be more appropriate for him to bring the same immediately to the attention of the management.

Basis Elements of the Internal Audit Report:

Basic elements of the internal audit report as per Standard on Internal Audit (SIA), on Reporting issued by the Council of the Institute of Chartered Accountants of India, The internal auditor’s report includes the following basic elements, ordinarily, in the following layout:

  1. Title;
  2. Addressee;
  3. Report Distribution List;
  4. Period of Coverage of the Report;
  5. Opening or introductory paragraph;
    • Identification of the processes/ functions and items of financial statements audited; and
    • A statement of the responsibility of the entity’s management and the responsibility of the internal auditor;
  1. Objectives paragraph – statement of the objectives and scope of the internal audit engagement;
  2. Scope paragraph (describing the nature of an internal audit):
    • a reference to the generally accepted audit procedures in India, as applicable;
    • a description of the engagement background and the methodology of the internal audit together with procedures performed by the internal auditor; and
    • a description of the population and the sampling technique used.

8. Executive Summary, highlighting the key material issues, observations, control weaknesses and exceptions;

9. Observations, findings and recommendations made by the internal auditor

10. Comments from the local management

11. Action Taken Report – Action  taken / not taken pursuant to the observations made in the previous internal audit reports;

12. Date of the Report;

13. Place of Signature; and

14. Internal auditor’s signature with Membership Number.

A measure of uniformity and content of the internal auditor’s report is desirable because it helps to promote the reader’s understanding of the internal auditor’s report and to identify unusual circumstances when they occur.


Essential features of a good internal audit report:

The contents of an internal audit report are influenced by various factors such as the nature of internal auditing function in the organisation, level of reporting, degree of management support and capabilities of internal audit staff. However, for preparing a good internal audit report, the following general rules may be observed:

       > Objectivity                                    > Clarity
> Accuracy                                        > Conciseness
> Constructiveness                         > Readability
> Timeliness                                     > Findings and conclusions
> Recommendations                      > Auditee’s views
> Summary                                        > Supporting information
> Draft Report                                  > Writing and issuing the Final Report

How to draft an Internal Audit Report

Internal auditors have to create reports that are clear, logical and convincing. Writing compelling content requires correct presentation and sequencing of observations and findings.

10 Tips while writing a Internal Audit report

It’s not an ideal to opt any one points or the technique for writing the audit report as follows:

1. Start EarlyMaintain an Issue Sheet

We auditor usually have a habit to report the issues or the queries at the last of the day or at the moment when the audit is likely to complete or any of the pick time when we like to do that, but what i suggest is that we should have to start early, so that no issues/queries shall be left when the audit is completed and at a early stage the report will be prepared and then when we complete our work then we can able to review the report in the complete sense and can find out the discrepencies and the presentation outfit to the management. Do the needful as mentioned below:

  • Always maintain an issues sheet (Starting 1st Day of the field work)
  • Use recommendatory language in the issue sheet, our understanding of observation is limited at this stage.
  • Grammar and spelling must be correct in the issue sheet or any document that we share with auditees.
  • We also must avoid surprising the Auditee’s at exit meetings/fieldwork close meetings.

2. Deal with writer’s block – Sort out your approach

  • Do not have unreasonable goals such as immediately producing the perfect draft ( It takes a while)
  • Break the writing process into manageable chunks- write on a piece of paper 7 things that you need to do for completing the draft report and start with the first (procrastination is an enemy ! A big enemy!)
  • Schedule time for writing and let others know to minimize interruptions.
  • Make notes of missing information, but move ahead using available information. Some information will be missing till every end – cannot wait forever.

3.  Context Setting: Background should provide good context

  • Various report readers do not have the first hand knowledge necessary to correctly interpret the audit report.
  • Background seeks to inform the readers regarding:

–  The nature of the function / activity audited

–  Number of transactions processed

–  Financial value of the activity

–  No. of employees or relevant size of the cycle

–  Other relevant information (case to case)

  • Should you write for someone who has zero knowledge on progress?

4.  Writing Audit Observations

Focus on the macro issues

Audit reports must get results. To achieve this, the focus must be on the reader, not the writer. It’s the macro issues that often cause the micro issues. Macro issues relate to lack of focus and clarity related to audience and purpose. Micro issues relate to grammar. I always say, “Fix the macro, and you will fix 90 percent of the micro.”

  • Ask yourself- Would I take this action if I was the auditee? If answer is no, do not report. Don’t just raise issues that you do not honestly feel about.
  • What is the exception percentage? (count and value) As much as possible, quantify the impact. Extrapolate
  • Make it as succinct/ concise as possible but not at the cost of lack of clarity
  • Use table/ chart to explain complex info/data
  • Extract- SAP/Tally data- put as issue…. Come on!, put more thought into it

5. “Deductive reasoning” for audit observation heading

  • Think of the newspaper headline that accurately summarize the article’s message. Bottom line first, then the supporting details: deductive reasoning
  • Similarly- Write an observation headline that summarize the key message. Refrain from linear explanations / inductive reasoning
  • Make the heading “Positive” as much as possible. Also write sub heading for sub points
  • Well written heading / sub headings hugely improves the ease of reading and “discussion”

6. The mystery called “root cause”

A. Statement of Condition: What is!

PO’s were not approved in line with SOA. 60% of PO reviewed (Sample -40 PO’s) were approved by Manager Procurement.

B. Criteria: What should be!

SOA suggest that all POs to be approved by Head Procurement.

C. Effect / Impact : So what?

This results in unauthorized transactions or commitment of company funds by unauthorized individuals. (obvious in the case)

D. Cause: Why has it happened?

Revised procurement policies and SOA were not properly communicated & New hires in procurement were not inducted on these

policies resulting in this situation.

Action plan must be aligned to root cause: Ask 4 whys’

7. Writing Executive Summary:

  • Start with the positive aspects noted (give credit, where deserved !)
  • Max =1 to 2 pages

Do not write in bullets – Write in paragraphs.

  • Write recommendatory language
  • Disagreements should come out – with clear IA opinion
  • Litmus Test: Will top mgt. be interested in this issue? No… skip it!
  • Limitations: Information not supplied that limits our ability to cover the scope: “be judicious”
  • E-mail confirmation to be invited from auditee on limitations – Most Significant Limitations, should be a part of ES


Our review of XYZ process did not reveal any significant internal any significant internal control deficiencies or material weakness for in the scope processes. Progress on closing the past audit actions has also been good.

8. Readability Factors

  • Write in past tense / present continuous – maintain consistency in tense
  • Language should be grammatically correct:
  • Say no to abbreviations such as ‘Nov.’ or ‘&’ or ‘Dir. Etc.
  • Do not use strong words such as ‘must’ unless you must
  • Punctuation can be a big issue- issue of life and death.
  • No need to provide figures till last rupee- round off
  • Use ” white space” (e.g. bullets)
  • No complex words & long sentences: If something is not clear to you, it shall be worse for the readers
  • Avoid, else explain jargons. Examples?

Word report vs. powerpoint- Death by Power point !

9. Self review of the report is critical

Any report needs to be self reviewed at least 3 times

  1. Detailed findings / recommendations
    1. Content and logic
    2. Sequencing
    3. Headings clear
    4. Should I reduce the lengths – too much information
    5. Can I avoid some sentences
    6. Can I have more tables/ graphics
  2. Grammar, Appearance, Language, Abbreviation, Jargons, Final Format, Spelling
  3. Executive Summary and do Final Reading for overall impression

10. Balance tone of the reports / recommendations

  • IIA Practice Advisory 2420-1 states, “Objective communications are fair, impartial and unbiased and are the result of a fair- minded and balanced assessment of all relevant facts and circumstances”.
  • Never abuse your authority as an auditor. Imagine you are the process owner and ask yourself- is this a fair representation ? No sensationalization!
  • Must be courteous/ respectful
  • Your assessment must be dispassionate

                                            A sample of Internal Audit is accompanied for the purview.



a. Study Material (CA-Final)

b. Seminar Notes: Manoj Chigal

Happy Reading!!


Published by

Shushant mallik ( Chartered Accountant & Cost Accountant )

Shushant is a Chartered Accountant and a Cost Accountant. He has secured All India Rank-34 in CMA Final Exams. He is a Financial Controller at Mount Meru Soyco Limited, Rwanda. He is a administrator of this site . In his spare time he hang out with his friends and discuss about the current issues in market. You can find his latest blog posts at and at his facebook profile.

2 thoughts on “How to draft an internal audit report”

  1. Very well written. Want to add one thing i.e. regarding every audit observation, Name of responsible person for resolving the issue should be written and timeline (i.e. date by which it will be resolved) should be mentioned and thereafter followup should be done

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