What Is the Difference between First, Second, and Third-Party Auditing?

An image of a meeting in a conference room with a man standing in front of a screen giving a presentation. The team sits around an oval desk with laptops in front of them.
Audits aren’t scary! You should use them as a path to growth and development.
Source: Unsplash

For many people, the word “audit” sounds scary. This is because of the negative connotations it brings to mind. In reality, having an audit certification is a sign of pride. It shows that your company is on the right track in following proper industry processes and procedures. You can conduct first, second, or third-party auditing for your business (more on those later). 

Specifically, audits on cybersecurity practices are especially important as these demonstrate to your customers that they can trust you with their data.

In this article, I’ll discuss why auditing is important and look at the different types of audits. Then, I’ll go over the different ways of conducting an audit. Finally, I’ll explain how having an audit can help your business become ISO-compliant. Let’s dive in.

Why Is First, Second, and Third-Party Auditing Important?

When you conduct an audit for your business, accounting, or cybersecurity practices, you’re proving your company’s credibility to your customers and shareholders. Audits can also help improve your company’s internal processes and systems. In essence, you have no reason to avoid conducting an audit.

And you can conduct several types of audits. I think it’s time to touch upon those now.

What Are the Different Types of Audits?

As previously mentioned, you have several types of audits to consider depending on what your company produces or supplies. Let’s review each type and see what they’re all about, starting with the process audit.

Process Audit

A process audit focuses on how you do things in your business. For example, how you handle a cybersecurity threat. This type of audit uses a benchmark to measure how your company’s processes hold up to it.

Product Audit

A product audit examines a particular product or service to see if it conforms to requirements set by specs, performance, and customers.

System Audit

A system audit assesses your management system. It looks at the system’s documented activity for verification purposes and will use objective evidence overall. This type of audit ensures that applicable elements of your system are well-developed and documented in line with audit requirements.

Quality Management Audit

A quality management audit evaluates an existing quality management program. It checks whether this program conforms to company policies, contract commitments, and regulatory requirements.

Those are the different types of audits, but how do you conduct an audit exactly? I touched upon this answer in the introduction of this article, but now, it’s time to delve deeper!

How to Conduct an Audit for Your Business

As I mentioned, you can conduct an audit using 3 methods: first, second, and third-party auditing. The following sections will educate you on what they are in more detail. Let’s begin with first-party auditing.

1. First-Party Auditing

First-party auditing is also known as internal auditing. You typically conduct first-party auditing to measure your company’s strengths and weaknesses against its own processes and procedures. The auditors you employ will have no vested interest in your chosen department’s audit results. In other words, the auditors aren’t from that specific department.

Ideally, you should conduct first-party auditing before aiming for a third-party audit certification. This is because first-party auditing will help you determine the effectiveness of your current management system. It’ll also help you discover weaknesses and areas for improvement. Additionally, this auditing method allows you to maintain compliance with regulatory and standard requirements. Satisfying these points will make your road to achieving a third-party auditing certification much easier.

2. Second-Party Auditing

You have to conduct second-party auditing through an outside company. This external company should know the auditee well and is usually a customer or a contracted company. A second-party audit is generally more formal than a first-party audit. This is because the results here could influence the customer’s purchasing decisions.

Since a customer or contracted company performs the second-party audit, these audits can help establish a robust supply chain and enable the customers to manage potential risks and increase quality assurance. You don’t have to conduct second-party auditing to get an audit certification.

An image of stacks and stacks of annotated paperwork.
Audits don’t really look like this; they’re way more manageable!
Source: Unsplash

3. Third-Party Auditing

Third-party auditing is probably the most important one out of the three—because it’ll give you your audit certification. A professional auditor that has no relationship with your company will conduct a third-party audit. In other words, you shouldn’t have a conflict of interest. Third-party auditing is costly, but the price is worth it for the certification. Conversely, you might face corrective actions and fines if your company fails the audit.

In short, you should consider conducting third-party auditing for your business. The certification you’ll receive promotes your credibility and compliance with industry standards and requirements.

Speaking of compliance, let’s quickly highlight how first, second, or third-party auditing can help your business receive and maintain ISO certifications.

How Audits Can Help You Become ISO-Compliant

Receiving an audit certification is a big deal. It shows that your business is serious about being the best it can be. You can have the best business in the world, but not having an ISO certification might hinder you in the long run. 167 countries recognize ISO certifications, so getting one is a major achievement. Simply put, it shows that your business is world-class.

I think that’s about it! You’re now much more knowledgeable on first, second, and third-party auditing and the benefits they offer. Time for a quick recap, as always.

Final Words

Audits aren’t as terrible as many people think they are. Getting an audit is a good thing! Audits can help propel your business to higher standards. Depending on what your business produces, you have a few types of audits to consider. Additionally, you have 3 methods of conducting an audit for each type. Whether you conduct first, second, or third-party auditing, the reward is worthwhile. I highly recommend you consider performing an audit for your company. Just remember to get a first-party audit done before moving to third-party auditing!

Do you have more questions about first, second, or third-party auditing? Check out the FAQ and Resources sections below!

FAQ

How much do certification audits cost?

Generally, the price of an audit certification depends on how large your company is. Let’s take ISO 27001 for cybersecurity as an example. Depending on how much time it takes and how many auditors need to come and conduct the audit, it could cost anywhere between USD5,000 and USD25,000. The larger your company, the more data you have to cover, which equates to more time and auditors required.

Are certifications and audits required?

No, they’re not required. However, getting a certification will help the reputation of your company. A certification will go a long way in showing that your company is dependable, reliable, and takes its business seriously. That’s why so many companies seek out certification audits

How can I prepare for an audit?

First, you’ll want to read the documentation for the certification that your company wants to get. You’ll need to meet the required standards if you haven’t already done so. Consider conducting internal audits beforehand. If that’s not enough, you might need to hire a consulting company to come in and help you get started. Learn more on how to prepare here.

How long are certifications valid?

That’s a good question. It should last quite a while if you’re about to spend a large sum of money earning a certification. This all depends on the kind of certification you’re aiming for. In general, most last anywhere between 1 and 3 years. ISO certifications are generally valid for 3 years. 

What is the ISO?

Founded in 1947, the International Organization for Standardization (ISO) is a non-governmental organization that promotes international standardization across all industries in 167 countries. The ISO has been important in setting standards and getting the world to follow. Doing so has made it easier for companies to produce products for worldwide consumption.

Resources

TechGenix: Guide on Cybersecurity Assessments and Audits

Learn more about what you need to know regarding cybersecurity assessments and audits.

TechGenix: Article on ISO 27001

Find out what ISO 27001 is and how to get certified.

TechGenix: Article on Top Cloud Security Standards

Discover the top cloud security standards you can leverage for your business.

TechGenix: Article on the Most Widely Used IT Frameworks and Standards

Educate yourself on the most commonly used IT frameworks and standards in businesses globally.

ISO: Information on ISO 27001

Check out how to start your journey to achieving the ISO 27001 certification.

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