INTERNAL AUDIT

INTRODUCTION TO INTERNAL AUDIT

An internal audit is an independent, objective assurance and consulting review activity established within an organization to assess and improve effectiveness of its governance, risk management, internal controls and operational processes.

Internal audits aim to methodically review, evaluate and strengthen internal systems for enhancement of financial reporting, operational efficiency, policy compliance, data security and sustainable growth.

NEED AND PURPOSE OF INTERNAL AUDIT

The primary rationale for companies to conduct rigorous internal audits includes:

1. Augment Accountability – Ensure polINTRODUCTION TO INTERNAL AUDIT

An internal audit is an independent, objective assurance and consulting review activity established within an organization to assess and improve effectiveness of its governance, risk management, internal controls and operational processes.

Internal audits aim to methodically review, evaluate and strengthen internal systems for enhancement of financial reporting, operational efficiency, policy compliance, data security and sustainable growth.

NEED AND PURPOSE OF INTERNAL AUDIT

The primary rationale for companies to conduct rigorous internal audits includes:

1. Augment Accountability – Ensure policies, procedures, documentation for key functions are adequate as per management directives and regulations.
2. Mitigate Risk – Identify areas vulnerable to errors or fraud and recommend prompt risk mitigation steps.
3. Boost Efficiency – Suggest process/technology improvements to enhance productivity, profitability and decision making.
4. Strengthen Reporting – Verify accuracy and timeliness of financial statements and management information reporting.
5. Uphold Compliance – Evaluate if organizational activities adhere to laws, regulations, quality standards, company code of conduct etc. applicable.

SCOPE OF INTERNAL AUDIT FUNCTION

While scope varies based on company size and needs, internal audits commonly span examining:

• Accuracy of financial statements, accounting hygiene
• Efficacy of internal control systems and compliance frameworks
• Safeguarding of organizational assets – financial, physical, informational
• Operational effectiveness and productivity enhancements
• Prevention and detection of frauds???
• Conformance to policies, procedures, regulatory obligations
• Adequate insurance and risk mitigation for business continuity
• Corporate governance standards and contracting processes?
• Reliability of management information systems and IT security

AUTHORITY AND INDEPENDENCE

The internal audit function has sufficient standing across management hierarchy to maintain independence along with right to access all company records, personnel and physical properties necessary for audit execution. Periodic rotation of internal auditors across operating locations further bolsters impartiality.

The head of internal audit directly reports findings to the company’s Audit Committee comprised of independent directors without interference.icies, procedures, documentation for key functions are adequate as per management directives and regulations.

1. Mitigate Risk – Identify areas vulnerable to errors or fraud and recommend prompt risk mitigation steps.
2. Boost Efficiency – Suggest process/technology improvements to enhance productivity, profitability and decision making.
3. Strengthen Reporting – Verify accuracy and timeliness of financial statements and management information reporting.
4. Uphold Compliance – Evaluate if organizational activities adhere to laws, regulations, quality standards, company code of conduct etc. applicable.

SCOPE OF INTERNAL AUDIT FUNCTION

While scope varies based on company size and needs, internal audits commonly span examining:

• Accuracy of financial statements, accounting hygiene
• Efficacy of internal control systems and compliance frameworks
• Safeguarding of organizational assets – financial, physical, informational
• Operational effectiveness and productivity enhancements
• Prevention and detection of frauds???
• Conformance to policies, procedures, regulatory obligations
• Adequate insurance and risk mitigation for business continuity
• Corporate governance standards and contracting processes?
• Reliability of management information systems and IT security

AUTHORITY AND INDEPENDENCE

The internal audit function has sufficient standing across management hierarchy to maintain independence along with right to access all company records, personnel and physical properties necessary for audit execution. Periodic rotation of internal auditors across operating locations further bolsters impartiality.

The head of internal audit directly reports findings to the company’s Audit Committee comprised of independent directors without interference.

CONDUCTING INTERNAL AUDITS

The key phases in executing effective internal audits include:

1. Audit Planning – Understanding business objectives, assessing key risks, drafting annual audit plan with priority areas, resource allocation etc.
2. Fieldwork – Develop audit tests, collect evidence by examining documents, interviewing staff, observing processes, site visits etc.
3. Reporting – Document audit findings, control gaps, recommendations to management in draft audit report.
4. Follow up Reviews – Check if management has implemented remedial action adequately through subsequent reviews.

BENEFITS OF ROBUST INTERNAL AUDITS

Regular internal audits widely benefit the company through:

– Promotes good corporate governance culture with transparency and accountability

– Boosts process efficiency to aid financial performance

– Upholds compliance with policies, laws and contractual obligations

– Catches errors or frauds early to mitigate risks

– Informs perceptive decision making with insights

– Improves employee conduct and productivity

– Builds trust and satisfaction among customers, investors and authorities?

Thus internal audit is an invaluable management tool aiding oversight on organizational health, risk management and growth priorities.

QUALITIES OF EFFECTIVE INTERNAL AUDITOR

For productive assurance and advisory, internal auditors should exhibit:

• Strong technical skills – accounting, compliance, IT systems etc
• Sharp analytical abilities for incisive inference drawing
• High ethical integrity and professional standards
• Eye for process optimization and creativity
• Methodical and diligent documentation habits
• Balanced judgement and practicality?
• Versatile communication to various stakeholders
• Business savvy multi-domain understanding

With right leadership and vision, internal audit activity plays a pivotal role nurturing good governance.