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 an Internal Auditor
Most employers require a minimum of a bachelor’s degree in accounting, finance, or some other related field. 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 coursework should include business communications, financial accounting, business law, auditing, and taxation. Some universities offer a degree program focusing specifically on internal 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 for a college program.
Some states do require internal auditors to go beyond a bachelor’s degree in accounting. If you earn a graduate degree in a related field, you’ll be in a more competitive position.
The focus of the Certified Internal Auditor (CIA) exam is actually divided among several components. As long as you have an educational foundation from the associate degree level and up, along with five years of work experience in internal auditing that can be verified, you will be allowed to register to take the exam. If you don’t have the college education, but you do have at least seven years of internal auditing experience that can be verified, you will still be able to register for the 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 as an internal auditor or in another, similar position. And, if you have a master’s degree, you still need to have one year of professional experience as an internal auditor or in another related area.
Before you take your Certified Internal Auditor (CIA) exam, 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. Study for at least 15 hours per week for Part 1; 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. Part 1 takes 2.5 hours with 125 questions; Part 2 takes two hours with 100 questions and Part 3 takes two hours with 100 questions.
How is the Certified Internal Auditor 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 percent of the exam questions correctly to pass. Why scaled scoring? Scaled scoring takes into account the difficulty of the questions that have been answered correctly. This can actually reward you. If you answer the more difficult problems 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 questions correctly.
Pretest questions are sprinkled throughout the CIA exam. These don’t count toward your final score, but they are used to figure out if your knowledge of some topics is sufficient. When you read your exam questions, you likely won’t be able to pick out which questions are pretest or not, 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 the questions you answer; this means the number of correct answers you need to have may differ in Parts 1, 2, or 3.
Study Resources and Preparation for the Internal Auditor 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 need 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 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.
The Institute of Internal Auditors
Part 2 is the Practice of Internal Auditing. Because it is a live, instructor-led prep course, you need to keep up with your studies so you can keep abreast of the instruction given. This course strengthens your knowledge as an internal auditor and makes topics clearer. It is appropriate for CIA candidates, students of business, finance and accounting, and internal auditors who want professional development.
The Institute of Internal Auditors
Part 3 of this series exposes you to subject matter experts and your professional peers. As with Parts 1 and 2, it’s appropriate for CIA candidates, students, and internal auditors who want more professional development. This part of the CIA exam focuses on business knowledge you’ll need. This course provides helpful study tips to prepare you for the CIA exam.
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. Part 2 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 (member, non-member, and student rates apply, here).
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 Part 2. Fees for the CIA exam vary from country to country and students receive discounted exam rates.
Career & Salary
Where Might You Work?
You can expect to be able to find work within a for-profit organization, a non-profit organization, or even a government agency. 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.
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 and the company you work for. There are senior internal auditors who earn as much as $113,000.
The employment of auditors (including internal) 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, internal auditors are held to a much higher standard as they monitor the financial transactions of large and small businesses.
The growth of employment for auditors tracks closely to the strength of the economy; in a growing economy, internal auditors are needed to keep an eye on all financial transactions. And, as companies go public, internal auditors are necessary so they can review the financial documentation required by the federal government.
As businesses continue expanding throughout the globe, they will need expert internal 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 internal auditors. As companies move more and more of their documentation into the cloud, internal auditors will need to become familiar with technology. However, tasks such as analyzing financial transactions and the advice they give will not be affected by increasing technology. Internal auditors who have earned their certifications and a master’s degree, such as an MBA, will be even more in demand 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 internal 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.