Frequent or ongoing audit conducted by a firm’s own (as opposed to independent) accountants to
(1) monitor operating results,
(2) verify financial records,
(3) evaluate internal controls,
(4) assist with increasing efficiency and effectiveness of operations and,
(5) to detect fraud. Internal audit can identify control problems, and aims at correcting lapses before they are discovered during an external audit.
Although the internal auditors are the firm’s employees, they normally do not audit themselves or their own departments, but entrust it usually to independent auditors.
Maintaining a full-fledged and strategically directed internal audit department has emerged as a critical prerequisite for the forging of informed decisions by management. Evolving from a function for maintaining vigilance in financial transactions, internal audit has undeniably become the backbone of a sound corporate governance system.
As the conduct of business become increasingly international in scope, successfully navigating compliance with both local and foreign laws has become gradually more complex.
Internal auditors assist management with this task by providing a focus on risk management and the implementation of more stringent internal controls to manage prospective risks and vulnerabilities. Internal auditing teams enable management to direct efforts towards more risk-laden areas, thereby enhancing overall process efficiency, and adding value with an entity’s existing set of resources.
Information technology (IT) is invariable a key component of almost every activity carried out by an enterprise including the issuance of invoices and data management. With IT’s increasingly critical role, however, the threat of data theft or loss due to system failure or hacking/espionage has become ever more acute. Accompanying these new vulnerabilities comes a heightened need for internal auditors able to identify and mitigate IT-associated risks.
With these factors in mind, there are a number of key advantages associated with internal audit.
- The internal audit function, as an independent operation, is carried out objectively. This independence enables internal auditors to render an impartial and unbiased judgment essential to the proper conduct of business.
- As a management function, internal audits are designed to serve management’s needs via constructive recommendations in areas such as resource utilization and regulatory compliance.
- Risk management through internal audit enables management to effectively mitigate risk and other associated uncertainties, thereby enhancing an organization’s capacity to build value.