How an Internal Audit contribute in risk management and value addition to a company?

Internal audits involves a continuous and critical appraisal of the functioning of an entity with a view to suggest improvements  thereto and add value to and strengthen the overall governance mechanism of the entity including entity strategic risk, management and internal control system.

Thus through internal audit benefits in safeguarding the assets of the enterprise - monetary and non monetary. compliance by the various segments with policies plans and procedures, efficient use of available resources and last but not the least organisational structure of the enterprise and its congruence with its objectives.

Internal Audit provides an Independent assurance to the risk management process

Internal audit department is an integral part of risk management and keeps the team involved in the front line, middle office and back office honest.

Thus through internal audit benefits in safeguarding the assets of the enterprise - monetary and non monetary. compliance by the various segments with policies plans and procedures.

Internal Audit Helps Company to Understant current financial Position and help management to take better decision on every expects.

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The value of the Internal Audit function is becoming increasingly critical to the strong corporate governance, risk management, effective internal control, and efficient operations of any organisation.

The Institute of Internal Auditors (IIA) framework defines internal auditing as: ‘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’ (IIA 2004:8).

It is a common fallacy that the Internal Audit function exists to pick holes in management’s operations. This is not at all the case! Fundamentally, the internal audit activity is now much more part of the organisation and less introspective. It involves the organisation more in the audit process and produces recommendations that contribute to its objectives. At the same time, the internal audit activity has to be careful not to lose its independence and objectivity because of moving closer to the operations.

Here are six ways that the risk-based auditing supports combined assurance and adds value to your organisation:

1. Business focussed approach assisting the organisation to achieve its objectives

Risk-based auditing ties all aspects of internal auditing together: objectives, processes, risks, controls, tests and reports. The relevance of any test can be seen in relation to the entire risk management framework because of the relationships set up in the risk and audit universe. This is not always possible where standard audit programmes are used, as it is not always clear why the test is being carried out; what the significance is of a control that is found to be defective; what risk the control is treating; and what objective is being threatened by that risk.

2. Inclusive audit approach facilitating buy in and ownership from management

As a result of the organisation being closely involved in the risk and audit process through risk workshops, risk and control self-assessments, combined assurance activities etc., management can relate to the benefits of the audit output clearly. Management is far more likely to support the audit work when they are involved in the process and can see how the audit’s recommendations relate to the achievement of their business objectives.

3. Optimal level of assurance supporting the achievement of business objectives

Risk-based auditing is more efficient because it directs audits at the high-risk areas, as opposed to simple rotation of predominantly financial areas, which may not represent the greatest risk. Risk-based auditing ensures that the risks, that matter most to the organisation (linked to key objectives), are audited and that management takes ownership and accountability for the mitigation and monitoring of these high-risk areas on an ongoing basis.

4. Enhanced priority ratings of findings and recommendations

Findings and recommendations can be ranked to provide the greatest value added in terms of the risks mitigated relating to the achievement of business objectives.

5. Improved risk mitigation

Risk-based auditing should highlight key risks that are inadequately controlled or over-controlled, thus improving risk mitigation and overall business efficiency.

6. More effective use of audit resources

With risk-based auditing, the audit plan is determined by the nature and number of risks on which the audit committee requires assurance. It differs from the alternative approach, whereby the resources available determine the audits that can be conducted. It also ensures that resources are directed towards auditing the most significant risks.

 

Internal Audit Helps Company to Understant current financial Position and help management to take better decision on every expects.

Internal audit is an integral part of risk management and keeps the team involved in the front line, middle office and back office honest. It generally compares the laid down procedures and policies with that of actual practice of a department.

Internal audit helping protect assets and reduce the possibility of fraud,Increasing financial reliability and Establishing monitoring procedures and by that you can identify, analyze and evaluate which risk does management have.