The Role of Internal Audit in Business World

In the present state of ambitious business markets, many business organizations still struggle to flourish by adjusting to the current market growth and maximizing their annual earnings or income. Traditional financial theory suggests that business owners should aim to maximize their wealth. Internal audits in any business organization are essential for a company's smart strategy to achieve more success in a demanding business world.

Generally, the small, and medium business sectors are always recognized and responsible for the strong foundation of economic growth in the market and development in both developed and struggling countries. The maximum possibilities for long-term company development and sustainability in the market are critical for organizations in a dynamic universal business world. Improvement in the growth of a business always indicates the prosperity of an organization. Through dynamic business growth rate, it is very easy to identify the company's overall outcomes as well as other well-known variables such as size, operational efficiency or productivity, liquidity, strength, inflation, exchange rate, economic growth, and interest rate, among others.

The traditional role of an internal audit is completed with its involvement in improving internal controls, which provides a significant level of comfort to the audit committee. Internal auditors’ deep knowledge about risk management and internal control, combined with their interpersonal skills and behavior, their domestic position, and familiarity with the organization, business market, and staff, provide maximum comfort to the audit committee.

The internal and external both Audit Committees in any business organization play a central role in reviewing organizational strong internal control efficiency. The most professional and unbiased Financial Reporting Committee always tries to manage and analyze the company's whole financial reporting process and techniques as well, serving as a strong bridge and connector between external and internal auditors, management, and the authorities to guarantee the organization's accurate and transparent evaluation report. Growth is mostly used as a measurement of efficiency and caters to almost every type of business in the market, which is a basic issue for many active entrepreneurs and managers. As a result, SMEs seek company expansion as a measure of success and advancement.

Business growth is defined as generating positive cash flows or earnings at a faster pace than the whole economy. The growth of many companies often has excellent investing prospects for their own earnings. Businesses that expand are frequently found in the technology industry. Internal audit plays a pivotal role in ensuring that efficient controls are operating in all the activities in an organization, the liabilities or assets of an organization. Internal audit plays a constructive role by rendering service to the management with an objective appraisal of systems, procedures, practices, and compliance with policies.

Organizational glitches, limited control to detect frauds in companies, illiteracy and ignorance, inability to distinguish between working capital and personal cash, lack of growth rate, insufficient funding, frequent business closures, an unorganized accounting system or poor fund management, non-motivating welfare factors, insufficient resources and raw materials required for production, and ineffective communication, among other things, are characterized by various business organizations.

Sustainability in a business expands on a bigger perspective than the economic, environmental, and social hurdles or challenges faced by a business's daily and future performances. Business sustainability refers to all the ethical dimensions of these functions, affecting the stakeholders of the organizations. These developments provide opportunities for internal auditing to cater to its independent participation within the organization and objective assurance services of the internal processes in generating sustainable worth and performance of the organization.?

Now internal auditing is an essential management tool for controlling an entity's operations and ensuring organizational success rate. Internal auditing is an independent evaluation department formed by a company to assess organizational management and activities. It enables the business to be productive, and valuable and enhances its performance. It assists a company in achieving its objectives by using an aligned, systematic, well-disciplined approach to assessing and improving the quality of risk management, control, and governance procedures accurately in existing business.

Internal auditing is one of the most effective appliances to increase and enhance the active performance of strategies and productivity of any business organization. The internal auditing tasks include physical verification of all inventories, payroll, purchasing criteria, and post-payment audits of an organization. In this regard, we must recognize internal audit as the most effective and best possible way to improve the growth of an organization.

Why does an organization create an internal audit department?

The vision of the internal audit department (IAD) in any organization is to create advancement in business. There are multiple ways in which internal auditors can help to accomplish their objectives. An effective internal audit department can help a company reach its organizational goals by helping its management improve controls, business techniques, and business risk management. On the other hand, internal auditors play a critical role as part of the corporate sector and ensure that the company achieves its objectives in an ethical, legal, and organized manner. Internal auditors rescue and help to fight the battle against fraud in an organization.

Business Expansion

Every business goes through numerous stages of growth and development during their lifespan. The company first enters gradually into the market, then finds different and innovative ways to survive, then tries to expand (among obstacles and crises) to maturity level, and ultimately declines. In general, organizational growth relates to increasing revenue, workforce expansion, productivity gains, and asset utilization. In the same way, organizations’ growth is measured in terms of their revenue generation, value creation, and business volume increase. Business growth is often described and assessed in terms of absolute or relative changes in sales, assets, employment, productivity, earnings, and profit margins. Business growth is the process of enhancing some measure of an organization’s success, primarily by minimizing costs and increasing profits. It may be described in terms of revenue creation, value addition, and overall business volume increase.

Determinants of business growth We have discovered several elements that influence business growth; nevertheless, there is no agreement on which factor affects business growth. Some of the major elements that drive business growth include the company's history, the qualities of the entrepreneur, various agencies, and current location. Previous growth rates of an organization, size, and intensity of capital, financial restrictions, managerial efficiency, and the amount of vertical integration are all important factors in determining the growth of a healthy business.

Determinants of organizations include some elements that drive organizational growth at its highest level. They include significant characteristics (company’s age and size), organizational strategies, highlighting specific resources (financial resources and human capital), organizational structure, and dynamic capabilities. Business growth is described as the expansion of business activities in terms of growth in revenue, increased profitability bar, increased asset utilization, and increased staff productivity and innovative behavior.

Internal Auditing

A systematically established internal audit function may play an important role in an organization by deeply reviewing the internal control system of a company, the accuracy of critical controls, governance, and organizational risk management processes. It would help the organization to achieve its major objectives by utilizing a systematically designed, disciplined method to analyze and enhance the maximum efficacy of governance, control, and risk management systems. Internal auditing is an independent catalyst for enhancing an organization’s skills and its best version.

The internal auditing functions put stress on the core concepts in an organization to assure organizational efficiency, growth, and development, resulting in long-term healthy financial gains. The consequences show that most of the business community feels that an organization's failure is due to inadequate adoption and execution of internal audit techniques. Thus, it has been carried out in a variety of corporate, legal, social, and cultural contexts. Its complexity, purpose, size, and structure change depending on the surroundings.

The following are some determinants to measure the internal auditing function.

Independence of Internal Auditing:

The effectiveness of an internal audit function is unpredictable upon independence. It describes the freedom of the Internal Audit function from specific conditions that would present a threat to the performance of its function in an unbiased way. That is, freedom from interference in the determination of the organizational scope, performance, and reporting of the internal audit function.

Internal Control System:

The internal control system is described as the combination of many factors: the actions, planning, attitude, policies, system, available resources, and effort of the organization’s workers working together to offer reasonable confidence that the company will fulfill its goals, objectives, and mission. The role of the internal audit function is to guarantee that the system of an organization runs on a systematic plan.

Risk Management:

The role of internal audit in risk management is important as well; in fact, internal auditors must understand the concept of risk management. It is accountable for appraising or evaluating the productivity of risk management in every business organization.

The internal audit committees always try to help the business organization manage various business risks, and tasks including social, ethical, and environmental risks, the other hand financial and operational risks as well. The internal audit in business organizations must actively contribute an extremely transparent, fair, and unbiased evaluation of an organization's internal control process. This entails examining and assessing the sufficiency and efficacy of the organization’s internal control system. Internal audit services in an organization would work effectively to boost a company's employees’ productivity, innovation, trust, creativity, profitability, perfect inventory management, and risk management.

Conclusion

It is admitted that an internal audit is one of the most important elements of an organization's business governance. Commonly in the business market, we looked at the influence of the internal audit function on corporate growth. We found that the internal audit has a statistically significant effect on business growth. Thus, it can be stated that the internal audit function has a considerable influence on the growth of SMEs' businesses. SMEs establish an independent audit role to drive value creation and business growth via effective risk management and internal control systems. Individual components of the internal audit, such as independence, internal control, and risk management, should be reinforced. It is important because it gives information about the role internal audit plays in highlighting every sector’s performance in a company.