Internal auditing means a self-governing, objective assurance and consulting activity designed to add value and improve an organization’s operations.
What is Internal Audit?
- As defined by Institute of Internal Auditors, Internal Audit an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations.
- The internal audit activity helps an organization achieve its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.
- An Internal Audit must provide an unbiased and objective view.
- The internal audit activity must have qualified, skilled and experienced people who can work in accord with the Code of Ethics and the International Standards.
Appointment of Internal Audit:
The companies have mandated such class of companies to appoint an internal auditor. The appointment shall be made by the provisions Companies Act[1].
Why is internal audit important to an organization?
- The internal auditor supports executive management and boards to determine that they are managing the organization effectively on behalf of their stakeholders. This is summarised in the mission statement of internal audit which says that internal audit’s role is to enhance and protect organizational value by providing risk-based and objective assurance, advice and insight.
- The internal auditors, along with executive management, non-executive management, and the external auditors are a critical part of the top-level governance of any organization.
Roles and Responsibilities of Internal Auditor:
Internal auditors work varied from the function to function. Below are some key areas of auditing:
- Assessing the management of risk:
The internal auditor shall evaluate an organization’s management of risk. All organization faces various risks; the auditor shall analyze the same. Since the success of any organization depends on how they manage those risks effectively. The auditor shall assess the risk management processes, systems of internal control and corporate governance processes, across an organization.
- Assisting management in the improvement of internal controls:
The internal auditor helps management in improving organization practice. If a manager is concerned about a particular area of responsibility, the internal auditor can help to identify improvements.
- Evaluating controls and advise all level managers:
The range of internal audit’s role in evaluating the management of risk is wide since from the mailroom to the boardroom is involved in internal control. The internal auditor role is to evaluate the risk at one level to report on the effectiveness of the implementation of management policies at another.
The Management shall identify all risks affects the organizations’ growth which in return helps an internal auditor anticipate possible future concerns and opportunities providing assurance, advice, and insight where it is most needed.
- Analyzing operations and confirm information:
Accomplishing objectives and managing valuable organizational resources requires systems, processes, and people. Internal auditors work closely with line managers to review operations then report their findings.
- Working with other assurance providers:
Providing a guarantee to executive management and the board’s audit committee that risks are being managed effectively is not the exclusive domain of internal audit. There are likely to be other assurance providers who perform a similar role.
“An independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. The internal audit activity 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.”
Consistent with its mission, the Internal Audit Department provides management with information, appraisals, recommendations, and counsel regarding the activities examined and other significant issues.
The department executes an approved audit plan and will perform the following tasks in accordance with its overall strategy:
- Verify the existence of assets and recommend proper safeguards for their protection;
- Evaluate the adequacy of the system of internal controls;
- Recommend improvements in controls;
- Assess compliance with policies and procedures and sound business practices;
- Assess compliance with state and federal laws and contractual obligations.
- Review operations/programs to ascertain whether results are consistent with established objectives and whether the operations/programs are being carried out as planned;
- Investigate reported occurrences of fraud, embezzlement, theft, waste, etc.
Independence is essential to the effectiveness of the internal audit function. In carrying out the duties and responsibilities, the Director of Internal Audit will issue reports to the Vice President and General Counsel in charge of the internal audit function, Senior Vice President, and the Vice President concerned. The Director of Internal Audit will meet with the Finance and Audit Committee of the Board of Trustees periodically to report the plans for audit activity, the results of audit activity, and to provide any other information required. The Director of Internal Audit has direct access to the President and the Board should matters of immediate significance arise which demand such attention.