Why Internal Audit is important for your company

Internal auditors refers to the department that monitors the effectiveness of its processes and controls. Their task is to objectively examine the company’s financial documents and review the operating procedures independently from management. So an internal audit focusses on organization risk management functions, security processes and regulatory compliance among other departments.

Internal auditors look for inconsistency between operational processes and what those processes were designed to do. And if such inconsistencies are found, they advise senior management the implementation of certain processes for the sake of improvement.

So an internal audit is essentially a preventative exercise to maintain operational efficiency and financial reliability, and to safeguard assets. It provides assurance that an organisation’s risk management, governance and internal control processes are operating effectively.

What is the Process of Internal Audit ?

The auditors, the audit committee, and the department being audited are the parties involved in an internal audit generally.

• Step 1

The internal auditors starts with randomly sampling documents, review manuals and notice how work flows through a department, or the entire organization. They will also examine the signs of asset mismanagement, fraud and also test risk management controls.

They commonly analyse documents outlining an organization's mission, objectives and related performance, then determine how significantly these goals are being met. Using several assessment techniques, the internal auditor will examine the effectiveness of internal control mechanisms and determine whether employees comply with them.

After reviewing documents such as responsibility flowcharts, control policies and results from previous audits, the assessment can be concluded. When collecting information for their final report, internal auditors will observe operations first and, take notes, review official documents and interview employees.

• Step 2

In next step, the internal auditors would prepare a report listing which includes a summary of the procedures, techniques used for completing the audit, a detailed description of findings, suggestions for improvements to internal controls and procedures, then send it to the audit committee.

• Step 3

Finally, the committee reviews the report, and suggests suitable improvements to the concerned departments.

The Value of an Internal Audit for a Company

The advantages of an internal audit to a company may include:

• Increase in productivity

Internal auditing is an objective assurance and consulting task designed to add on value and improve a company's operations. It can help a company attain its strategic objectives by bringing a systematic, disciplined approach to evaluating and boosting the effectiveness of risk management, control, and governance processes.

• Confidence to stakeholders

The internal auditor give report to executive management about evaluation of important risks and highlights of necessary improvements. This executive management and boards to demonstrate that they are managing the company effectively on behalf of their stakeholders.

• Detection of frauds

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

• Quality control 
  • Assurance notifies the management how effectively systems and processes are designed to keep the company’s goals on track.
  • Consulting guides the management that how they can improve those systems and processes when required.

Where internal auditors play the role of both assurance and consulting.

• Good corporate governance

Internal audits evaluates the company’s internal controls, including its corporate governance and accounting processes. They ensure compliance with laws and regulations, precise and well timed financial reporting and data collection. They also help to sustain operational efficiency by identifying problems and correcting errors before they are discovered in an external audit.

What Activities are Included in the Internal Audit?

Take internal auditor as the organisation’s critical friend, the one who supports best practices and is a catalyst for improvement. Below are the key things which an internal auditor does.

• Evaluating risks

It is the job of management to identify the risks which organisation can face and understand how they will effect the delivery of objectives if not managed effectively. An internal audit is designed to look at the key risks which business can face and how to manage them effectively. An internal auditor should be able to predict possible future concerns and opportunities providing assurance, advice and insights.

• Managing risks

The internal auditor’s work covers multiple levels which includes assessing the tone and risk management culture of an organisation to evaluating and reporting on the effectiveness of the implementation of management policies. So basically it involves evaluating controls and advising managers at all levels.

• Analysis of operating procedures

Internal auditors work closely with line managers to evaluate operations and report their findings. They have an outline of the operating procedures of each department in the company and can advise on how to optimise them.

• Providing assurance

Internal auditors off and on work with other assurance providers in the organization to ensure that all available assurance resources are optimised by avoiding duplication and gaps in the provision of assurance. This also helps put in ensuring that the organization's audit committee has all the assurance it requires on the proper working of the company.

What is an Audit Assessment and What Does it Entail?

Audit assessment is the qualitative analysis of an organization's internal audit processes. The aim is to see how these processes are functioning, whether they’re in line with the organization's strategy and if they are supporting the business as effectively as possible or not. The assessment focuses on following eight core attributes of an internal audit process:

1. business alignment
2. quality and innovation
3. risk focus
4. talent model
5. stakeholder management
6. cost optimisation
7. technology and
8. service culture

An audit assessment will:

1. provide value-added services and proactive strategic advice to the business apart from the effective and efficient execution of the audit plan
2. advise on considering a more proactive role by proposing meaningful improvements and risk assurance
3. bring analysis and perspective on root causes of issues discovered in audit findings to help out business units take corrective action
4. deliver objective assurance on the effectiveness of an company's internal controls

What is Audit Consulting?

As organizations become more complex, so do the internal auditing process. Effective internal audit capabilities needs significant investment in skilled resources, methods, training and technical infrastructure. That’s why many companies today need internal audit consulting to ensure that their departments are developed strategically, in line with the organization's processes.

With companies being driven to do more with less, the internal audit function has become a prime candidate for strategic sourcing. This can may include co-sourcing or outsourcing the entire internal audit function or just certain critical elements of it.

Both kinds of audit consulting help out reducing cost, frees up capital, and enhances the management’s ability to focus more on the core business. They help an organization tap into specific skill sets, industry knowledge and global resources on an “as needed” basis.

Outsourcing of internal audit by utilizing the experience and insights from the wider market can assist with growing stakeholder demand and calls for more increased risk management and transparency.

However, a co-sourced approach to internal audit is recommended when a company is struggling to retain specialist resources, fill particular skills gaps or requires to respond to digital or transformational disruption. Co-sourcing can provide the essential skills and experience that an in-house function would have difficulty maintaining single-handedly.

Thus, audit consulting – whether outsourced or co-sourced – has the following advantages:

• State-of-the-art advice on critical business risks, implementation of effective controls and compliance processes, identifies better practices, reduces the cost of operations, and realises profit improvement opportunities.
• Potentially significant savings on internal audit costs, particularly for companies with significant global travel, high turnover of internal audit resources or varying internal audit activity levels.
• Access to the right skills in the right place and at the right time; thus being flexible to adjust and adapt to changing business requirements.
• Shift of the costs of developing and maintaining an internal audit capabilities to the consulting firm and freeing up of capital and resources for core business aims.
• Overcoming human resource challenges – attract and maintain talent, keep knowledge on evolving risks and develop the skills to drive value.
• With key business processes, alignment of internal audit function’s strategic objectives.
• Review of overall risk management, compliance monitoring, and business performance.