Question

The success of any internal audit depends on the management of the entire activity in order to add value to the organization. Discuss this statement. Highlighting the key things to be considered

Answer 1

Internal Audit

Internal audit is an evaluation function available to an organization to examine and appreciate the proper functioning, consistency and effectiveness of its internal control. To this end, internal auditors should review the various activities of the organization, measure the risks and the arrangements put in place to control them, ensure performance in carrying out assigned responsibilities and make recommendations to improve its security and increase efficiency (IFACI, 1998). Internal audit is one of the essential mechanisms of the internal control system. No company can disregard it, even partially, without losing at the same time control of a key to its survival. A vital member of company management, the internal auditor is a party to an audit charter defining his independence.Internal Audit is ussed as a Risk Management Mechanism,Control Mechanism and as an Internal Governance Mechanism

Purpose of an Internal Audit

“The role of internal audit is to provide independent assurance that an organization’s risk management, governance, and internal control processes are operating effectively.”The purpose of auditing internally is to provide insight into an organization’s culture, policies, procedures, and aids board and management oversight by verifying internal controls such as operating effectiveness, risk mitigation controls, and compliance with any relevant laws or regulations.

five reasons why internal auditing is important and their purpose in keeping your organization compliant with the common frameworks and regulations.

1. Provides objective insight
2. Improves efficiency of operations
3. Evaluates risks and protects assets
4. Assesses organizational controls
5. Ensures legal compliance

Internal Auditing adds value to the organization when it provides objective and relevant assurance, and contributes to the effectiveness and efficiency of governance, risk management, and control processes.

Internal Auditing adds value by evaluating and making recommendations for:

• Operational and quality effectiveness
• Business risks
• Business and/or process controls
• Process and business efficiencies
• Cost and waste reduction opportunities
• Effective corporate governance

The Value of an internal Audit to a company

The benefits of an internal audit to a company include:

Increase in productivity: Internal auditing is an objective assurance and consulting activity designed to add value and improve an organisation’s operations. It can help an organisation accomplish its strategic objectives by bringing a systematic, disciplined approach to evaluating and improving the effectiveness of risk management, control, and governance processes.

Confidence to stakeholders: The internal auditor reports to executive management that important risks have been evaluated and necessary improvements highlighted. This executive management and boards to demonstrate that they are managing the organisation effectively on behalf of their stakeholders.

Detection of frauds: Regular internal audits assess a company’s controls and help uncover evidence of fraud, waste or abuse. The frequency of internal audits will depend on the department or process being examined. For example, in manufacturing, daily audits may be required, while for human resources, an annual review may be sufficient.

Quality control: Internal auditors play the role of combining assurance and consulting. Assurance informs the management how well systems and processes are designed to keep the company’s goals on track. Consulting advises the management on how to improve those systems and processes if and when necessary.

Good corporate governance: Internal audits evaluate a company’s internal controls, including its corporate governance and accounting processes. They ensure compliance with laws and regulations, accurate and timely financial reporting and data collection. They also help maintain operational efficiency by identifying problems and correcting lapses before they are discovered in an external audit.

Conclusion

Internal auditing is a catalyst for improving an organization’s governance, risk management and management controls by providing insight and recommendations based on analyses and assessments of data and business processes. With commitment to integrity and accountability, internal auditing provides value to governing bodies and senior management as an objective source of independent advice. Professionals called internal auditors are employed by organizations to perform the internal auditing activity.