Why Internal Audit Is Important
In the current perspective of today’s challenging and quickly changing climate of corporate management, it is a must have for organisations to observe continuous improvement practices. It is an indispensable component in order to accomplish competence, and give assurance to your investors and other stakeholders for the dedicated corporate governance of your company. It is quite useful for the Organisational leadership for recognising cost efficiencies, giving strategic advice that can develop organisation performance, and offering valuable insights that highlights the important risk factors.
Strategic Role of Internal Audit
For an organisation’s higher management and board of directors, the strategic role of internal audit can be very powerful along with value-adding services. There are numerous risk elements that can affect whether the targets come to effective realization once an organisation establishes its strategy. Customer untrustworthiness, sector disturbance, supply chain problems, a brand repute event, violation of cyber-security, or internal scam, can turn the finest plans into unsuccessful ones. But, internal auditing is a good tool to facilitate organisations in minimizing the risk of these complications.
Auditing of Risks
In addition, with the increasing responsiveness of issues related to corporate governance, organisations are discovering the prospective benefits by means of launching an efficient and competent internal auditing strategy. The boards of companies must discover the threats, opportunities, risks, and revelations that can discover success or disappointment. Developing an internal audit function can turn out to be a fundamental part of the overall company strategy, and facilitate in accomplishing business objectives. Internal Auditing must assist management in realizing what are the major risks associated with the success of their strategy and must offer assurance that the essential measures in order to control those risks are adequate.
The purpose of internal auditing is not confined to the narrow focus of financial statements and risks. It could also cover other elements such as auditing the operational, reputational, environmental, and strategic risk factors. When it comes to reputational risks it can include labour practices in host states; operational risks take account of ineffective practices for health and safety; and environmental risks comprise of pollution created by an industrial unit. Strategic risk could include the board extending organisation resources by making more products than the required level. The strategic role of internal audit can be helpful for improving overall governance when it works within a strategic structure developed by the executive management and audit committee.
Implementation of Strategy in an Organisation
Furthermore, all organisations have a different way for defining and implementing their strategy. This difference can be observed at different aspects like in the level of detail, the regularity of evaluation and reinforcement of the strategy, its association with budgets, or the participation of internal and external groups. An internal audit can benefit an organisation keep on the right track to see the success of its strategy succeed irrespective of the approach followed by it. It is important to realize the fact that the strategic role of internal audit to support in the development of a strategy is very rare, because normally this is the responsibility of company board and management. Realistically, the role of internal audit must be to review processes for establishing and implementing the strategy.
Strategy Related Auditing
Basically, strategy-related auditing divides the approach to auditing strategy into two different types. The first type is of strategic risk audits and the second type is of strategy process audits. The focus of strategy risk audits is on the risks that may possibly originate from following specific organisational goals that are of strategic significance. On the other hand, the focus of strategy process audits is to evaluate the creation, implementation, appraisal and control of the strategic management procedure or the established strategy itself.
A strategic risk audit may be planned to authenticate the concerns and expectations on the basis on which the strategy was developed. It can provide assurance that if they are correct, imprecise, misplaced, or even poorly demonstrated. It will figure out if there is stability in the reasoning of the strategy, and verify the accurateness of the calculations that authenticate the strategy. The function of internal auditing for an organisation is not just to explore where our consideration must be focused, but it can also point out over-controlled areas, displaying where extra time and cost is incurred into a specific part of operations without adding any value.