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Crimes shaking the management of large companies are countless. To prevent a recurrence, companies have reinforced the internal audit department. Internal audit is an independent assessment activity within the organization, for review of activities and providing suggestions for improvement thereof. Internal auditing monitors the appropriateness of corporate activities from within the organization. An audit firm checks the suitability of financial statements, and an auditor monitors the overall management. In present conditions of economic uncertainty, internal audit has become a critical resource that can help companies to improve their internal control and risk management systems. An internal audit occurs within an organization. So an independent auditor, who as employees of the organization will review the financing, accounting and operating activities of the organization. It is a part of the internal control system of the company.
Role in internal control
Internal auditing activity is firstly directed at evaluating internal control. Under the COSO framework, internal control is generally defined as a process, effected by an entity’s management, a board of directors and other personnel, designed to provide reasonable assurance considering the achievement of following core objectives for which all businesses contend:
Management is responsible for the internal framework, which comprises five critical components:
Managers establish processes, practices and policies in these five components of management control to help the organization achieve the four distinct objectives listed above. Internal auditors perform audits to evaluate; whether these five critical components of management control are present and functioning effectively and if not, provide recommendations for improvement. Auditing on a timely basis keeps a company large/small and all its employees at the top of their province. Regular internal audits are essential for every organization in a wide range of industries, including healthcare providers and financial institutions. They have positive experiences for the business directed at evaluating performance and identifying actionable ways to improve in the future.
This should not be considered for intimidating processes for employees because the auditor is not there to place blame. When staff is informed of upcoming audits and their scope, the method provides a good insight that will helps in strengthen your company and allow it to dominate the market.
Role of risk management
Internal auditing professional standards require the purpose to evaluate the efficiency and effectiveness of the organization’s risk management functions. Risk management is the process by which an organization identifies, analyzes, responds and assembles information, and observes strategic risks that could actually or potentially affect the organization’s ability to achieve its mission and objectives.
As per the COSO enterprise risk management (ERM) framework, an organization’s scheme, operations, reporting, and compliance goals all have associated strategic business risks – the adverse outcomes resulting from internal and external events that prohibit the organization’s ability to achieve its goals. Management determines risk as a part of the ordinary course of business activities such as marketing planning, strategic planning, capital planning, budgeting, hedging, incentive payout structure, credit/lending practices, strategic partnerships, mergers and acquisitions, legislative changes, conducting business abroad, etc.
Internal audit planning checklist
The significant role of the internal audit is to provide the independent assurance that the organization’s risk management and internal control processes are functioning effectively and efficiently. We must be separate from the operations; we evaluate and report to the highest level in an organization, i.e. senior managers and governors. Internal auditors are better than anyone versed in the complexity of internal control and risk management, as well as fluent in the practice of preparing financial statements.
At AJSH, we assist our clients in dealing with internal audits, various corporate matters (Company incorporations, statutory audits, ROC compliances, company winding up) in India by providing them adequate support and guidance from our end. If you have any questions or wish to know more about Internal Audit for the Businessmen, kindly contact us.
