Internal Audit

Internal audit is an independent, objective assurance and advisory activity designed to add value and improve the organization's operations. It helps organizations achieve their goals by adopting a systematic, disciplined approach to assessing and improving the effectiveness of risk management, control and governance processes.

Executed by professionals with a deep understanding of the business culture, systems and processes, internal audit activities ensure that internal controls are sufficient to reduce risk, governance processes are effective and efficient, and organizational goals and objectives are met.

Evaluate emerging technologies. Analysis opportunities. Review global issues. Assess risk, control, ethics, quality, economy and efficiency. Ensuring proper control measures is sufficient to reduce risk. Communicate information and opinions clearly and accurately. This diversity has given internal auditors a broad understanding of the organization. This in turn makes internal auditors a valuable resource for executive management and the board of directors to achieve overall goals and objectives and strengthen internal controls and organizational governance.

Looks like a lot from a resource? Maybe for some people, but for internal auditors - it's all in one day's work.

Definition of Internal Auditing

According to the Definition of Internal Auditing in The IIA's International Professional Practices Framework (IPPF), internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.

Functions of an Internal Auditor

During the many functions that an internal auditor performs are evaluated the accuracy of controls at business unit levels and recommending improvement; And investigating internal fraud or behavior in violation of company policy.

Also, properly-managed publicly-traded companies have internal auditing teams to carry out compliance with outside regulatory agencies such as the SEC and with auditing guidelines as laid out by the Generally Accepted Accounting Principles (GAAP).

Assess risk management

The internal audit profession is fundamentally concerned with assessing the organization's risk management. All organizations are at risk. For example, if an organization's reputation treats customers incorrectly, health and safety risks, the risk of supplier failure, risks associated with market failures, cybersecurity, and the designation of financial risks in certain key areas, it poses a risk to the organization's reputation.The key to an organization's success is to manage these risks effectively - more effective than the competition and as effective as the needs of the stakeholders.

To assess the quality of risk management, internal auditors will assess the quality of risk management processes, internal control systems and corporate governance processes across all parts of the organization, and report directly and independently to the highest level of executive management to the audit committee of the board of directors. 

Assist management in improving internal controls

An internal auditor's knowledge of risk management also enables him or her to serve as a consultant, provide advice and act as a catalyst for improving organizational practices.

So, for example, if a line manager is concerned with a specific area of responsibility, working with an internal auditor can help identify improvements. Perhaps a major new project is underway - internal auditors can help ensure that project risks are clearly identified and assessed, and actions are taken to manage project risks.

Why is internal audit important to your organization?

By reporting to executive management that important risks have been assessed and highlighting areas for improvement, internal auditors help executive management and the board to demonstrate that they effectively manage the organization on behalf of stakeholders. This is summarized in the mission statement of the internal audit, which states that the role of internal audit is to “enhance and protect organizational value by providing risk- and objective assurance, advice and insights”.

Therefore, internal auditors and executive management, non-executive management and external auditors are key components of any organization's top governance.

Activities of internal audit

Below are the key things an internal auditor does. Within these areas, it is important to think of the internal auditor as the organisations critical friend – someone who can challenge current practice, champion best practice and be a catalyst for improvement, so that the organisation as a whole achieves its strategic objectives.

Evaluate control and advise managers at all levels

The role of internal audit in assessing risk management is broad because everyone from the mailroom to the board room is involved in internal control. The job of the internal auditor involves assessing the tone and risk management culture of the organization at one level until the effectiveness of management policy implementation is assessed and reported at another.

Evaluating risks

The manager's job is to identify the risks facing the organization and understand how they will affect the achievement of goals if they are not effectively managed. Management needs to understand the risks that the organization is willing to take, and to implement controls and other safeguards to ensure that they don't exceed those limits. Some institutions have a higher appetite for the risks posed by changing trends and business/economic conditions. As a result, the technology of internal audit has shifted from a passive and controlled form to a more proactive and risk-based approach. This allows the internal auditor to anticipate potential problems and opportunities in the future, providing assurance, advice and insight where it is most needed.

Analyze the operation and confirm the information

Achieving goals and managing valuable organizational resources requires systems, processes, and people. Internal auditors work closely with the line manager, review the business, and report their findings. Internal auditors must be proficient in the organization's strategic objectives and the business department, so that they clearly understand how any particular sector in the organization's business and the big picture.

Publish By: Yong Sai Ling

Reference Link :-

Internal Aduit by IG Group
https://www.investopedia.com/terms/i/internalauditor.asp

Internal Audit by Wkipedia
https://en.wikipedia.org/wiki/Internal_audit