It is important to note that there are no universal criteria for assessing the effectiveness and efficiency offered by an internal audit firm in India.
The composition and target values of specific indicators are established by the best internal audit firms in India in agreement with the company’s management. They can be aggregated for the analysis of internal control activities by the main “customers” (the board of directors and the top executive management of the company).
However, whatever the chosen criteria, it is possible to formulate a generalized definition of effective and efficient internal audit: it achieves the set goals in accordance with the performance standards, and also takes into account the structure of the company and the specifics of its business, the maturity of its main business processes and management systems of the company.
The “performance” indicator of an internal audit conducted in a company assesses the degree to which a set goal has been achieved, regardless of the cost and the way it is achieved. In other words, effective work is the ability to set goals and objectives, which are the starting point, and to achieve the planned result in any way possible.
The indicator “effectiveness” assesses the work process in terms of the way the goal is achieved. In other words, this indicator focuses specifically on the expenditure of resources. To assess the effectiveness, we will compare the results achieved with the costs of achieving them. An effective process brings the best results at the least cost (time, effort, money).
Thus, if you are evaluating the performance of an internal audit, you are answering the question: “Has the goal been achieved?”
The effectiveness and efficiency of internal audit activity are assessed according to the following processes and goals:
- Main processes: (1) conducting independent audits and (2) providing consulting services;
- Main objectives: (1) assessment and improvement of the efficiency of internal processes of a company in the specified areas of activity and (2) maintaining and increasing the value of the organization.
How, in practice, can the effectiveness and efficiency of the internal audits be assessed? The criteria for evaluating the performance of the service can be as follows:
Compliance with performance standards
- Development, approval, and execution of a risk-based work plan (the degree of coverage of the company’s key business processes, considering the understanding and satisfaction of the needs of shareholders, the Board of Directors, management, and line management)
- Satisfaction of the audited (consulted) party (presence of complaints, complaints, and refusals to implement the IAS recommendations)
- Practical recommendations that directly affect the added value of the company (trust in employees and management of internal processes, the ratio of recommendations provided during the audit (consultations), and implemented recommendations)
- Protecting or increasing the value of the company because of control over the business environment, reducing costs and losses, increasing cash flow, etc.
- Effective communication and building constructive relationships with the auditee and management
Some other indicators that can be used to assess the effectiveness of an internal audit are:
- Execution of the approved budget
- Timely start of audits (consultations), adherence to deadlines and volumes of work, planning, and use of resources to cover key business processes
- Compliance with reporting deadlines
- The professionalism of staff and implementation of the professional development program
- Timely and correct identification of risks and deficiencies in the company’s internal control system
- Timely response to internal control risks (audit risks)
- Knowledge of the business, operational processes of the company, and the industry
Knowledge and application of special technical skills and technologies to achieve internal audit objectives