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Internal audit has traditionally focused on verifying the accuracy of financial information and the safeguarding of assets. The role has gradually expanded to include partly non-financial aspects such as cybersecurity, data protection, and accountability. An internal audit company always focuses its resources where the risk is greatest.
Internal audit is part of the corporate governance of organizations, i.e., the management and governance culture. Corporate governance is a tool of organizational management in coordinating activities and achieving goals. (Read More: Share and Enhance Your Business Ideas With Business Setup Advisory in Delhi)
From the perspective of corporate governance, the goal of internal audit companies is to help the board perform its oversight responsibilities as effectively as possible. In other words, when an internal audit evaluates an organization’s operations, it contributes to the organization’s management and governance processes.
How does the internal audit work?
In most cases, certain internal audits are carried out in the form of projects. The projects are defined based on the following phases:
- Planning the exam
- Carry out necessary preliminary surveys
- Collection and evaluation of the information relevant to the examination
- Preparation and coordination of the audit report
- Post-examination of the examination
The aim of all audits carried out by internal audit companies is to uncover the need for action in the company and to support well-founded decisions based on the information provided by the audit.
The internal audit always follows three principles:
Profitability:
The scope of the tests carried out and their frequency must be economical for the company. An internal audit that does not bring about any benefit or improvements in the company through this activity does not pay off for this. This benefit does not always have to be shown in cost savings but is primarily assessed based on the damage averted for the company.
Materiality:
The company areas to be examined must be of essential importance for the company, its economic success, and the containment of possible risks.
Care:
Compliance with the required care, completeness, independence, and freedom of judgment of the internal audit is ensured by the separation of the auditors from responsibilities and authority.
The importance of internal audits in organizations has grown over the years. Scandals and bankruptcies in recent years have led to increased global interest in good governance. The number of acquisitions and the intensification of competition have also contributed to the increased interest.
The growing expectations for internal audit have posed many challenges and changes to internal audit. In an ever-changing operating environment, internal audits must also be reformed. For an internal audit to have the most favorable starting point for building added value and meeting increased expectations, it is good to stop to consider what kind of knowledge and skills are needed both today and in the future.
By locking in only to look at things that have been “previously audited” or by limiting the review of risks to financial risks only, internal audit risks becoming an additional expense for the organization. Instead, by paying close attention to the achievement of the company’s strategic goals, internal audit becomes an increasingly significant critical value function.