Question

Many medium and large organizations have an internal audit function. This is a requirement for companies listed on some stock exchanges and for banks and other financial institutions with major fiduciary responsibilities. Other companies have an internal audit function because it is considered to be a valuable element. Should firms have an Internal Audit function? Provide the main reasons for your opinion.

Answer 1

Why Internal Audit Function is essential?

Introduction : Internal audit focuses on enterprise risk management functions, security processes and regulatory compliance among other departments. Internal auditors look for discrepancy between operational processes and planned processes and advice the senior management to make the improvement.

Due to the following benefits, internal audit function are indispensable now in days.

(A) Detection of frauds, theft  and omission : Regular or periodic internal audits always helps to eliminate the chances of fraud, theft  and omission . It creates fear in the minds of the unethical employees and workers, by which they are forcibly reluctant to do any frauds.

(B) Establishment of efficient corporate governance : Internal controls and accounting processes can be evaluated by having regular internal audit . Apart from that internal audits ensures compliance with laws and regulations and timely reporting of financial data.

(C) Evaluation of risk and protection of property: Internal audit function helps the management in taking decisions by performing risk assessment program . It use to pin point those areas where high risks are there and which are threatening to the assets of the company .

(D) Operational efficiency : By continuous monitoring and reviewing the operational processes , internal auditor's recommendation helps to update and improve the efficiency and effectiveness of the prevailing processes .

(E) Satisfaction among shareholder's : Apart from the above, internal audit performance creates physiological satisfaction among the shareholders. They are going to believe that every operational and managerial activities of the organization are under the scanner.

(F) Increase accountability : Internal audit function always increases the sense of accountability inside the organization. Nobody can blame others for any malpractice or errors and omission due to his own negligence . Everyone will be answerable for the operational inefficiency .