An audit is a process that involves the independent examination of an entity’s financial information. Similarly, audits require an independent party known as the auditor. Auditors are professionals who examine an entity’s financial information with an objective. This objective may differ according to the specific audit engagement which an auditor undertakes.
In this article, we cover the two key roles of the internal audit functions in an organization. Before we jump to those key roles, let’s get some basic understanding about internal audit as well as its process.
What is Internal Audit?
Internal audit is the process of independent and objective examination of a company’s operations. Unlike an external audit, an internal audit comes from within a company. Internal auditors are a company’s employees and serve to add value and improve its operations. The need for internal audits has increased as a part of corporate governance. In most jurisdictions, public companies must have an internal audit function.
What is the Internal Audit process?
Internal auditing firstly starts with planning. This process is similar to an external audit but with different needs. During the planning phase, internal auditors will define the objectives for the investigation and how they will perform it.
Once they complete the planning step, they will start the actual auditing process. During this step, auditors will investigate the objectives which they defined in the planning stage. During this process, internal auditors will also collect evidence which will be crucial for the next step.
Once auditors collect the necessary information, they will need to report it. As mentioned, this will be a written statement presenting both the auditor’s findings and their recommendations. The content of the internal audit report will differ according to the objectives defined in the planning stage.
Lastly, the auditors will follow up on the recommendations provided in the report. It means their duties don’t end when they present the report. They also need to ensure the management takes proper actions to address the issues addressed in the internal audit report.
What are the two Key Roles of the Internal Audit function?
Internal auditors perform various roles in any organization. However, there are two key roles of the internal audit function that are more critical than others. These roles come from the definition of the internal audit function, which is as below.
“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.”
From the above definition, the two key roles of an internal audit function are as below.
The first role of an internal audit function is to provide independent assurance to a company’s management, board, and audit committee. This assurance focuses on reviewing the effectiveness of the company’s governance, control, and risk management processes. Once they perform their investigation, internal auditors provide assurance through their written reports.
Overall, the internal audit function plays a crucial assurance role in a company’s governance processes. More specifically, this function has a key role in providing assurance for a company’s internal control and risk management. As the need for an internal audit function has grown, the scope of this assurance role has also widened.
The audit committee’s reliance on an independent assurance about a company’s risk management and internal controls has also increased. The committee needs this assurance as a part of its roles as an oversight authority. Internal auditors can use professional standards to help them in providing independent assurance to a company’s management and audit committee.
Internal auditors are also responsible for providing advice to the management on governance risks and controls. This advice usually comes in the form of the recommendations provided in the internal audit report. As the internal audit function does not have the authority to make these changes, they can only fulfill an advisory role.
As mentioned above, the internal audit process requires internal auditors to investigate any deficiencies. Once they do so, their job is to provide recommendations to the management on the course of action they should take. This process entails the primary role the internal audit function plays as an advisory body. The advisory role also links to the assurance role that internal auditors fulfill.
The internal audit function within a company does not have executive rights. Therefore, they cannot control the company’s risk management and internal control processes. That is why they play a passive role and only act as advisors to the company’s management and audit committee. As mentioned above, internal auditors also follow up on the recommendations, which is a part of this advisory role.
Internal audit is the process in which internal auditors examine a company’s operations. This process aims to identify any weaknesses in a company’s governance, operations, or processes. There are two key roles that internal auditors perform in a company. These include providing assurance and advisory to the company’s board, management, and audit committee.