Risk Based Internal Audit Planning

Introduction

With the variability existing in the business environment, organizations must navigate a complex landscape of risks, regulations, and operational challenges. One of the most effective ways to ensure resilience and efficiency is through internal audit planning. This process helps businesses align their audit activities with their strategic objectives of the organization, ensuring that all the relevant risk are adequately identified, assessed and addressed.

Among the various approaches to internal audit planning, the Risk-Based Internal Audit Plan (RBIAP) stands out as a proactive and strategic method that enhances governance and risk management. This blog post explores the fundamentals of internal audit planning, the significance of a risk-based approach, and the key steps Chief Audit Executives (CAEs) should follow to develop a robust internal audit plan, with detailed examples and practical applications.

What is Internal Audit Planning?

Internal audit planning is the process of determining the scope, objectives, and methodology for auditing an organization’s internal controls, risk management processes, and governance mechanisms. It involves evaluating financial, operational, compliance, and strategic risks to ensure that the audit function “ADDS VALUE” to the organization.

As per the reports, IIA publications and practical references to real use cases, a well-structured internal audit plan provides:

• A comprehensive roadmap for audit activities, ensuring systematic review and evaluation.
• Identification of high-risk areas requiring immediate attention to avoid potential threats.
• Resource allocation for maximum efficiency and effectiveness.
• Improved stakeholder communication to align organizational goals and audit priorities for a specific period.
• Proactive risk management strategies that support sustainable business operations and growth.

Let’s understand from an example: In a financial institution, the internal audit planning process includes assessing risks related to regulatory compliance, fraud detection, and cybersecurity threats, ensuring that the most critical areas receive prioritized ATTENTION.

Internal Audit Plan Template

There is no specific format as such. Entities and departments may adopt any format that is feasible as per the scope and objective of organization or Internal audit function. However, a well-structured audit plan ensures clarity and alignment with business goals. The following template provides a structured approach:

Why is Internal Audit Planning Important?

It will sound stupid and unprofessional if anyone says, “Planning is not good”. Any objective can be achieved if there is a good plan in place. Rest of the magic comes from the execution and commitment towards the plan. Thus, Audit and Assurance also behaves in similar manner. For departmental success and achieve the ultimate objective to “ADD VALUE”, Audit function should have “PLAN”. Effective internal audit planning is crucial for the following reasons:

1. Enhances Risk Management: Organizations can proactively address potential threats and vulnerabilities before they escalate into significant issues.
2. Ensures Compliance: Helps businesses adhere to laws, regulations, and industry standards, reducing the risk of legal penalties. This is important because regulation will change/ alter with new geography, business area and technological enhancements.
3. Optimizes Resource Utilization: Focuses audit efforts on the most critical areas, ensuring optimal use of time, personnel, and financial resources.
4. Supports Organizational Goals: Aligns audit activities with business objectives, ensuring that risks affecting strategic initiatives are effectively managed.
5. Improves Governance: Strengthens internal control processes, accountability, and transparency, making the organization more resilient.

Let’s understand from an example: In a healthcare organization, a well-planned audit ensures compliance with patient data protection laws while improving operational efficiency by streamlining administrative processes.

Key Steps in Developing an RBIAP

Again, these steps are not mandatory ones, however, we have taken references to streamline the understanding we want to deliver to our readers. Our core reference is from Standards and publications from Institute of Internal Auditors (IIA). Thus, to develop an effective risk-based internal audit plan (RBIAP), Chief Audit Executives (CAEs) or Internal Audit team should follow these essential steps:

Understanding the Organization

Before developing an audit plan, one must gain a deep understanding of the organization’s:

• Objectives and strategies.
• Business structure and operational model.
• Regulatory and compliance landscape.
• Key internal and external stakeholders.

This helps ensure that the audit plan is aligned with the company’s goals and challenges. It is very important to have clarity from the start. All the efforts towards audit planning will go to waste, if there is no clarity of the audit universe and organization’s internal and external environment.

It is better to formulate an understanding document which will clearly reflect the assessment of internal auditors on the business environment. This document may not require frequent review or changes, unless there is major change in the control environment or business scenarios.

Conducting a Comprehensive Risk Assessment

Knowledge is Power. Once you have the knowledge of organization, its structure, operations, regulations applicable and relevant stakeholders, you can easily focus on the next steps for formulating plan for audit activities, i.e, Risk assessment. Risk identification and assessment are critical components in RBIAP. This step involves:

• Conducting risk surveys across departments.
• Analyzing past audit findings and industry reports – might not be applicable if the set-up is new or there are no historical records.
• Assessing regulatory changes that impact operations, geography and technology.
• Mapping risks to strategic objectives (based on understanding from above step).

In the above table, risk factor’s likelihood and impact may be qualitative and quantitative. It purely depends on whether the Risk Awareness is in the DNA of the organization or not. If the risks are known and monitored already, it becomes easier, else, parameters and criterion must be formulated for evaluation. For example, there might be new regulations coming or in action like digital operational resilience act (DORA), which internal auditors and stakeholders should assess to understand its impact on the business.

Risk Prioritization and Audit Focus

After assessing risks, audit team or CAEs must prioritize them based on severity and potential impact. The focus should be on:

• High-risk areas requiring immediate attention.
• Medium-risk areas that require monitoring.
• Low-risk areas that may need periodic review.

Based on the nature of the business or organization, impact and priority will change. A risk which is of high category for one organization may be of low category for another set or nature of business. Thus, thorough assessment and discussions amongst the CAE and Stakeholders is essential here to have a clear understanding and assessment on the business (impact).

Audit team cannot assess in SILO, discussion must be done with the Business Leaders or Key Stakeholders for a common / mutual outlook.

Resource Allocation and Planning

Once, we have the risk and audit priorities in place, next step is to ensure successful audits and reviews. For which, CAEs must:

• Assign qualified auditors with expertise in high-risk areas.
• Determine financial resources (budget) for the audit program.
• Leverage technology for real-time monitoring and automation.

Here, CAE or audit team need to assess resources required for each audit priority for the upcoming period. The resources can include – manpower, budget or technology. For assignments like contract review, more qualified auditors or subject matter experts (SMEs) might be required. For assignments like physical visit or physical count, more budget may be required if it is being outsourced. 

Creating and Communicating the Audit Plan

Once risks are prioritized, CAEs should:

• Develop a structured audit engagement plan that outlines scope, methodology, and key focus areas.
• Communicate the plan to senior management and the audit committee for approval.

Implementing the Audit Plan

Once the approval is taken from audit committee, now is the time to implement the audit plan and keep track of performance and results periodically. In this phase, audit team and CAE, need to implement and monitor the audit plan.

• Conduct risk-based audits using appropriate tools and techniques.
• Perform follow-up audits to ensure corrective actions are implemented.
• Utilize audit management software for tracking and monitoring progress.

Continuous Risk Assessment and Plan Updates

As risks evolve, the audit plan must be updated periodically to reflect:

• New regulatory requirements.
• Emerging risks identified through industry benchmarking.
• Changes in business strategies.

This is very crucial because business operations, regulations and risk is a variable in the whole equation. Learning curve must be applied in the audit planning methodology to engrave new findings and new risk/ compliances.

Key Challenges in developing Risk based internal audit plan

Developing a Risk-Based Internal Audit Plan (RBIAP) is an essential process, but it comes with multiple challenges that Chief Audit Executives (CAEs) and audit team must navigate. Below are some key challenges, real-world examples, and best practices for overcoming them. This will help a lot in your risk based internal audit planning journey.

Dynamic and Evolving Risk Landscape

Organizations operate in a fast-changing business environment where risks evolve due to factors such as technological advancements, economic fluctuations, regulatory updates, and emerging threats (e.g., cybercrime, supply chain disruptions). This is like a co-related concept in the equation. Whenever, there is any new change in one part of the equation, the risk trend and likelihood and impact also change.

For example, A multinational financial services company developed a risk-based audit plan in early 2023, focusing on compliance and fraud risks. However, by mid-year, a new cybersecurity threat emerged due to a large-scale ransomware attack, requiring immediate prioritization.

Best practices to overcome such challenges.

• Implement continuous risk monitoring with real-time analytics tools.
• Conduct quarterly risk assessments rather than annual ones.
• Engage external risk consultants and stay updated on industry trends.
• Use predictive risk modeling to anticipate and address potential threats before they escalate.

Lack of Clear Risk Metrics and Data Quality Issues

Defining, measuring, and quantifying risks can be difficult, particularly when reliable historical data is unavailable or when risk metrics are subjective.

For example, an e-commerce company identified “customer experience risk” as a significant factor in its audit plan but struggled to define measurable indicators for it. The company lacked structured data to assess how poor website functionality or delayed deliveries impacted business performance.

Best practices to overcome such challenges.

• Develop Key Risk Indicators (KRIs) and Risk Heat Maps to quantify risk exposure.
• Utilize risk rating scales (e.g., low, medium, high) combined with statistical models.
• Standardize risk assessment criteria across the organization.
• Invest in data governance frameworks to improve the quality of internal audit data.

Resistance from Management and Departments

Some departments may perceive audits as intrusive, leading to reluctance in sharing data, lack of cooperation, or defensive behavior.

For example, A pharmaceutical company’s sales team resisted an internal audit, fearing that findings related to sales compliance issues might lead to stricter regulations affecting their commission structures.

Best practices to overcome such challenges.

• Establish a collaborative approach by positioning internal audits as a value-added service rather than a compliance check.
• Communicate audit objectives clearly to reduce fear and resistance.
• Create an Audit Engagement Model to involve department heads in audit planning.
• Provide audit training workshops for employees to understand the benefits of risk-based auditing.

Budget and Resource Constraints

Internal audit teams often operate with limited budgets and personnel, making it difficult to cover all high-risk areas effectively.

For example, A logistics company with limited audit resources had to choose between focusing on supplier risk management or warehouse security compliance due to financial constraints.

Best practices to overcome such challenges.

• Use risk-prioritization frameworks to allocate resources effectively.
• Leverage technology (AI, automation, data analytics) to enhance efficiency.
• Consider outsourcing specialized audits (e.g., IT security audits) to external experts.
• Develop a multi-year audit strategy to address all risk areas over time.

Integration with Enterprise Risk Management (ERM)

Internal audit functions sometimes operate in silos, leading to poor alignment with the organization’s broader risk management framework.

For example, an insurance company’s risk management team and internal audit team worked separately, leading to duplication of efforts and inconsistent risk reporting.

Best practices to overcome such challenges.

• Align the audit plan with the Enterprise Risk Management (ERM) framework.
• Conduct joint risk assessments involving multiple risk functions.
• Establish regular communication channels between the internal audit team and the risk management function.

Regulatory Compliance and Frequent Policy Changes

Keeping up with frequent regulatory changes can be overwhelming, and failure to update the audit plan accordingly may result in non-compliance penalties.

A healthcare provider in the European Union (EU) faced challenges in adapting to GDPR updates, leading to gaps in data protection audits.

Best Practices to Overcome This Challenge:

• Implement regulatory intelligence tools to track compliance changes.
• Establish a compliance task force within the internal audit team.
• Conduct training programs on evolving regulatory risks.

Lack of Risk Awareness Across the Organization

Many employees and business units lack awareness of how their roles contribute to organizational risk.

An IT support team at a bank failed to follow cybersecurity best practices, leading to a phishing attack that could have been prevented with proper awareness.

Best Practices to Overcome This Challenge:

• Implement risk awareness training programs.
• Conduct interactive risk workshops for employees.
• Encourage risk ownership by integrating risk management KPIs into performance reviews.

Difficulty in Measuring the Effectiveness of the Internal Audit Plan

Organizations struggle to evaluate the success of the audit plan and demonstrate its value to stakeholders.

A manufacturing firm implemented a risk-based audit plan but faced difficulties in measuring whether it led to a reduction in operational losses or an improvement in compliance rates.

Best Practices to Overcome This Challenge:

• Use Key Performance Indicators (KPIs) to track audit outcomes, such as:
  • Percentage reduction in compliance violations.
  • Number of risks mitigated through audit recommendations.
  • Cost savings achieved from process improvements.
• Conduct post-audit impact assessments to analyze effectiveness.

Conclusion

A well-structured risk based internal audit planning empowers organizations to proactively manage risks, improve governance, and achieve strategic objectives. By aligning audit activities with business priorities, CAEs can enhance audit efficiency, optimize resource allocation, and strengthen stakeholder confidence.

Developing a Risk-Based Internal Audit Plan comes with several challenges, but by leveraging technology, collaboration, and structured methodologies, organizations can mitigate these difficulties. Internal audit teams must remain agile, proactive, and data-driven to ensure their audit plans effectively align with organizational goals and evolving risk landscapes.

Implementing risk based internal audit planning requires continuous engagement with leadership, effective use of risk assessment methodologies, and the integration of emerging technologies. Organizations that embrace this approach will not only mitigate risks effectively but also gain a competitive edge in today’s complex business environment.

References

• The Institute of Internal Auditors (IIA). (2025). Developing a Risk Based Internal Audit Planning Strategy.
• COSO (Committee of Sponsoring Organizations of the Treadway Commission). (2017). Enterprise Risk Management – Integrating Strategy with Performance.
• Wright, R. A. (2018). The Internal Auditor’s Guide to Risk Assessment.
• Anderson, U. L. (2017). Internal Auditing: Assurance and Advisory Services (4th ed.).
• PwC. (2021). Internal Audit in the Age of Disruption: How to Build an Agile Audit Plan.
• Deloitte. (2022). Risk-Based Internal Auditing: Leading Practices for Risk Identification and Prioritization.
• ISO 31000. (2018). Risk Management Guidelines.
• KPMG. (2020). Optimizing Internal Audit Functions for the Digital Age.