Why Become an Internal Auditor?
Becoming a certified internal auditor (CIA) will make it easier for you to work in the governance of your employer’s financial operations or even to work as a consultant for various businesses. A large part of your job will be mitigating risk stemming from financial decisions and actions made either by the company’s officers or others who have control over the organization’s money.
Looking back at Lehman Brothers and Bear Stearns in 2007, it’s easy to apply hindsight to their actions regarding customers’ money and the eventual collapse of both companies. If a team of certified internal auditors looked at their books, they should have issued a warning to the stockholders, board, and company officers about changing their accounting practices.
To become an internal auditor, you need to meet educational requirements and take certification exams. Before you take the exams, you’ll need to dedicate time to studying the materials you find or buy. The CIA exam is considered a relatively difficult one to pass.
What is an Internal Auditor?
To understand what an internal auditor is, you need to know what their role in a company is. In a few words: an internal auditor “provides an independent, objective reporting that gives value to the company’s operations.” The internal auditor ensures that the company meets its goals with a disciplined evaluation plan to reduce risk and improve the control and governance processes. They make sure everything is running smoothly and verify all information that is tracked by the controller and other accounting specialists.
What Does an Internal Auditor Do?
An internal auditor is responsible for studying about and learning the business operations of an organization; increasing protections against internal fraud which puts the company’s assets at risk; going through all of the organization’s accounting to verify that it is in compliance with current federal statutes and laws; and, after developing a picture of the organization’s assets and debts, they offer recommendations intended to strengthen the internal goals of the company, as well as the processes it uses to govern itself.
Two statutes dating from 1934 and 2002 define the role of internal auditors using a legal basis. These statutes are the Securities Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002.
After the Great Recession of 2007-2008, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law in 2010 by President Obama. This law works to strengthen the US economy by increasing transparency inside the financial service sector. Accountability is a vital part of this law as well.
Requirements to Become a Certified Internal Auditor
Most employers in the finance industry require a minimum of an undergraduate degree or equivalent in accounting, finance, or some other related field. Education and work experience requirements may increase as you apply to larger businesses. Some employers prefer to hire someone who holds a master’s degree; the key word here is prefer, which means that this may be negotiable.
Your university courses should include business communications, financial accounting, business law, auditing, and taxation. Some universities offer a degree program focusing specifically on auditing, but others will not have this and instead will offer general accounting degrees. However, you may be able to find a minor or take electives to focus your academic career. Be aware of this when looking to complete a college program or fill skill gaps after working in financial management.
Some states do require those in internal or external auditing to go beyond a bachelor’s degree in accounting, even if you have work experience. If you earn a graduate degree in a related field, you’ll be in a more competitive position.
The focus of a CIA program and the Certified Internal Auditor (CIA) exam content is actually divided among several concepts. As long as you meet educational requirements with an educational foundation from the associate level of education and up, along with five years of verified experience in auditing, you will be allowed to register for testing (there is a registration fee). If you don’t have the college education, but you do have at least seven years of work experience in the internal audit profession that can be verified, you will still be able to register to sit for the CIA exam.
Even if you already hold a bachelor’s degree, this won’t be sufficient on its own to register for the exam; you must also have at least two years of experience working in auditing or in another, similar position. And, if you have a master’s degree or equivalent, you still must have one year of professional work experience as an internal or external auditor or in another related area, such as working under a certified public accountant (CPA) license.
Before you take the exam and become a CIA, you really should study and take practice tests so you know that you are likely to succeed.
You’ll want to focus completely on your studies - log off all social media while you’re studying and shut down all other windows on your computer. You should also take regular breaks. Give yourself time to relax so your mind can refresh itself. Go for a bike ride or hiking with your family. Even one day per week can help. Many study for at least 15 hours per week for the first exam part; if you don’t want to study so intensely, you can plan to study for 10 hours per week. With this schedule, you’ll be working on studying and passing your exam for three to seven months.
The CIA exam is divided into three parts. The first takes 2.5 hours with 125 multiple choice questions; the second takes two hours with 100, and the third exam part takes two hours with 100 questions.
How is the CIA Exam Scored?
For each part of the exam, a raw score, or the number of questions you answered correctly, is converted to a scaled score. This change was introduced in 2013. This ranges from 250 points up to 750 points. A minimum of 600 points is required to pass the exam. That is, you have to answer 75% correctly to pass. Why scaled scoring? Scaled scoring takes into account the difficulty of each question already answered correctly. This can actually reward you. If you answer the more difficult ones correctly while other people have problems with them, then your score will reflect that, even if you got the same number correct as the other test taker, you answered more of the difficult ones correctly.
Pretest questions are sprinkled throughout the CIA exam. These don’t count toward your final score, but they provide a way to figure out if your skills or knowledge of some terms or topics is sufficient for you to become a CIA. If you read back through your exam, you likely won’t be able to pick out which ones are, so you should answer every question as if they are all scored the same way.
Your score, or passing the test, relies on the difficulty of each question you answer; this means the number of correct answers you must have may differ in Parts 1, 2, and 3.
Study Resources and Preparation for the Exam
You should consider reviewing study plans that can be found online so that you know you have created a realistic study plan for yourself. Look for and make note of any sections that give you trouble so you can slow down. Keep careful track of your progress all the way up to the day of your exam.
You might want to consider buying all the study materials you want at one time, rather than buying as you go, so that you will be able to make regular progress throughout your study sessions. Before you order them, make sure your internal audit experience and education satisfy any prerequisites listed. For instance, the “CIA Exam Preparation - Part 1: Essentials of Internal Auditing” is a good choice if you are looking for professional development or if you are a student. There are plenty of CIA review course programs such as this that provide additional guidance so you can earn your CIA designation and pass the CIA exam the first time you take it.
The Institute of Internal Auditors
The second part is the Practice of Internal Auditing. Because it is a live, instructor-led prep course, you'll have to to keep up with your studies so you can keep abreast of the instruction given. This course strengthens your knowledge as an auditor and makes exam material and concepts clearer. It is appropriate for any CIA candidate, student of business, finance and accounting, and auditors who want professional development and training.
The Institute of Internal Auditors
The third of this series exposes you to subject matter experts and your professional peers. As with Parts 1 and 2, this CIA program is appropriate for a CIA candidate, students, and auditors who want more professional development. This part of the CIA exam focuses on business knowledge you’ll use every day. This course provides helpful study tips to prepare you to become CIA certified.
The Institute of Internal Auditors
Before you take the first part of the CIA exam, you need to know that it isn’t adaptive. That is, the questions’ difficulty level won’t change because of your earlier answers. Every question receives the same weight and is scored as such in the raw score, though it will be scaled for the final score. The second part is more difficult than Part 1, and Part 3 is more difficult than Part 2.
This exam is difficult. However, those questions on Parts 2 and 3 that are found to be more difficult require you to only answer 70% correctly to achieve a passing score. You’ll receive a scaled score (600 is equal to a 75% score).
Of course, it isn’t free for you to take the CIA exam. First, you pay an application fee, which ranges from a little more than $200 up to around $350. Having an Institute of Internal Auditors, or IIA, membership could be a big help here since member, non-member, and student rates apply.
Part 1 fees run from a little more than $200 up to almost $400 (again, member, non-member, and student). Part 2 fees are a little less than $200 up to almost $350. Part 3 fees are the same as the fees for 2. Fees for the CIA certification exam vary from country to country and students receive discounted exam rates.
Career & Salary
Where Might You Work?
CIAs can expect to be able to find work globally within a for-profit organization, a non-profit organization, or even a government agency based on your CIA certification, which will be recognized to demonstrate your quality in working with an external or internal audit because of the high certification requirements. Each of these types of organizations have accounting and internal audit departments to examine their finances and ensure that they are working within the existing state and federal laws and regulations and you should be able to find plenty of work and leadership opportunities similarly to the opportunities available to a certified public accountant(CPA).
You are obligated to work within a specified Code of Ethics, which hold accountants to a high standard. However, an internal auditor’s average salary is around $59,000 in the US. Their average early-career salary for a CIA is $57,700 and their average late-career salary $66,900. However, this depends on your location, the company you work for, and your work experience. There are senior auditors who earn as much as $113,000, which is more than a regular accountant, so keeping your hands out of the cookie jar and sticking to that code of ethics shouldn't be too hard.
The employment of auditors (including internal and external audit) is expected to grow about 6%, which is about average for every occupation. This growth is projected to take place between 2018 and 2028, though you should be aware that, after the Lehman Brothers implosion, auditors working within a company are held to a much higher standard as they monitor the financial transactions of large and small businesses alike.
The growth of employment for auditors tracks closely to the strength of the economy; in a growing economy, this profession is necessary to keep an eye on all financial transactions. And, as companies go public, they are needed to review the financial documentation required by the federal government.
As businesses continue expanding throughout the globe, they will need expert auditors who will be able to view all documents that relate to all international transactions, mergers, trade, and acquisitions.
Technology has also had a large impact on the roles of auditors. As companies move more and more of their documentation into the cloud, they must become familiar with technology. However, tasks such as analyzing financial transactions and the advice they give will not be affected by increasing technology. Those who have go through the certification process to earn credentials, such as CIA certification, and a master’s degree, such as an MBA, will be an even better candidate for these positions as the complexity of global business increases.
As you begin your job search, you may want to focus on corporations. From your early-career and into your mid-career, you’ll be able to find open positions by scanning online websites and job boards. If you are actively seeking an internal auditor’s position, keep these key phrases in mind:
Each one of the above descriptors is vital to auditing. You may work for a publicly traded company, government agency, or even a non-profit organization that has a board of directors. Every publicly traded company is required to conduct periodic internal audits. The Securities and Exchange Commission (SEC) oversees compliance with this requirement. Even the New York Stock Exchange has weighed in on this, posting in their Listed Company Manual that companies selling shares to the public are required to carry out regular audits. These include an assessment of their internal controls.
Also, keep in mind that you'll need to maintain your CIA certification. You'll do this by taking continuing professional education courses. You may already be a member of the Institute of Internal Auditors, but if you aren't it may be time to pay that membership fee. The IIA's website not only has CIA certification courses that will help you take the CIA exam and pass, but they also have plenty of continuing education courses to help you meet that education requirement.