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Most audit processes take a top-to-bottom approach. However, some companies may also conduct a horizontal audit, which differs in approach. On top of that, it also seeks to achieve a different objective than vertical audits. Companies use both types to identify potential improvements across departments and processes.
Horizontal audits can be critical in internal reviews and quality checks. Before discussing how horizontal audits differ from vertical ones, it is crucial to understand what these are.
What is a Horizontal Audit?
A horizontal audit involves a peer review audit for the same process across various departments. It requires auditors to focus on a specific area and examine it across the company. As stated above, it differs from when auditors look at various processes in the company as a whole. Usually, horizontal audits are a part of internal audits conducted to check internal controls.
A horizontal audit does not get limited by constraints within a company. It involves the auditor selecting a whole process and going beyond organizational structure to examine it. Usually, it seeks to detect any discrepancies that exist within the same activity within different departments. Once auditors identify any differences, the management can take the necessary steps to rectify them.
How does a Horizontal Audit work?
Every company shares similar processes across various departments. Usually, these use a centralized approach that a company sets as a standard. Sometimes, this approach may differ from one department to another due to various reasons. It is crucial to identify the differences and eradicate them within time. If companies fail to do so, these differences can amplify over time.
Therefore, companies use a horizontal audit to identify diversions from the standard process. This audit involves selecting one activity and examining how it is performed within various departments. If this process identifies issues within that activity, companies can take steps to reconcile the differences. Usually, it involves conducting training to standardize different departments.
In some cases, companies may also use horizontal audits to stress test a process across several departments. However, the objective is to test the activity and make changes to the base. The overall process remains the same in both cases. It involves auditors examining details, asking questions, and assessing the risks associated with the activity.
What is the difference between Horizontal and Vertical Audits?
The primary difference between horizontal and vertical audits is the approach taken by auditors. As stated above, horizontal audits focus on a specific process and examine it in all departments within the same company. However, vertical audits do not cover the whole company and process. Instead, it emphasizes a specific aspect.
Vertical audits may focus on one specific department and look at all processes there. These audits can be external or internal. Usually, vertical audits seek to examine how efficiently a department operates within a company. On the other hand, horizontal audits aim to identify inefficiencies and weaknesses across various departments.
Conclusion
A horizontal audit involves examining a selected process across various departments in a company. The primary objective of this audit is to identify differences within the same activity across those departments. On the other hand, vertical audits take a more specific approach. It focuses on a particular department and checks different activities within it.
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