Relevance of 5 C’s in Internal Audit

Make your internal audit reports clear, concise, and actionable to ensure hassle-free operations and achieve business goals effectively. The 5C principle in internal audit can be your game changer as they effectively communicate the findings, their root causes, potential impacts, and most importantly, recommended solutions for improvement.

5 C’s of Internal Audit

1. Criteria
2. Condition
3. Cause
4. Consequence
5. Corrective action

Criteria – This sets the standard or benchmark against which the subject of the audit is evaluated. Criteria could be policies, procedures, regulations, or any established standards that serve as a reference point. It answers to the following questions :

1. What particular issue was identified, and why was the internal audit necessary?
2. Is the internal audit in preparation for a future external audit?
3. Who requested the audit, and
4. Why did this party request the audit?

Condition – This represents the current state or situation observed during the audit. It is a factual description of what is happening or has occurred, based on the established criteria. It answers to the following questions :

1. How as the issue in relation to a company target or expectation?
2. Does the company have a policy that was broken, a benchmark that was not met, or other condition that was not satisfied?
3. Is the company confident no issue exists, or do they believe an issue is at hand?

Cause – It identifies the underlying reasons or factors that contribute to the observed condition. Understanding the causes helps in addressing root issues rather than just symptoms. It answers to the following questions :

1. Why did the issue arise?
2. Who was involved, what processes were broken, and how could the issue have been avoided?

Consequence – Describes the impact or potential repercussions of the observed condition. This helps in assessing the significance and potential risks associated with the findings. It answers to the following questions :

1. What is the outcome of the problem?
2. Are issues limited to internal matters, or are there risks of external consequences?
3. What is the financial implications of the issue?

Corrective action – Outlines the recommended steps or measures to address and rectify the identified issues or weaknesses. It focuses on preventing the recurrence of similar problems in the future. It answers to the following questions :

1. What can the company do fix the problem?
2. What specific steps will management take to resolve the issue, and
3. hat type of monitoring or review will occur after solutions have been put in place to ensure a fix has been implemented?