Role of Internal Audit in Corporate Governance

It has been widely recognized that the role of the Internal Audit has become increasingly more important in terms of creating good Corporate Governance structures. In today’s business environment, Internal Audit provides the management with a far broader range of information. This strengthens the management and helps it take prompt decisions concerning the organization’s financial, operational and compliance related issues to improve effectiveness, efficiency, and the economy.  Internal Audit is important because the Internal Audit function is the eyes and ears of the management. It is a significant part of a preventive vigilance mechanism.

Clearly, without a sound Internal Audit system, the Board and the management will not be able to identify process gaps, human errors, and even frauds. The sole purpose of the Internal Audit is to enhance Corporate Governance and support the Board of Directors in fast and accurate decision-making. Therefore, Internal Audit has the responsibility of getting into the details of representative transactions to study, and suggest remedies, for identified shortcomings. Based on its findings, the Internal Audit recommends changes to improve processes and follows up on their implementation.

An organization only maintains the effectiveness and efficiency by following the policies and guidelines, which also help it to deliver quality products and services to the clients. The Internal Audit is certainly one of the most dynamic yet important ingredients of a good corporate governance structure. It is best positioned to provide assurance when its resource level, competence, and structure are aligned with organizational strategies. An effective Internal Audit leads to a fair presentation of the financial statements and thus increases stakeholders’ confidence. Since every business has inherent risks, it is the function of Internal Audit, acting in concert with the risk management function, to identify risks, and put in place acceptable risk mitigation mechanisms. 

However, Internal Audit can function effectively only if it enjoys the complete trust and support of management and the Board. Without that support, Internal Audit will not be taken seriously by some functional heads in the company. By maintaining its independence, internal audit can perform its assessments objectively, providing management and the board an informed and unbiased critique of governance processes, risk management, and internal control.

Therefore, Internal Audit can add value by providing advisory and consulting services, intended to improve governance, risk management, and control processes, so long as it assumes no management responsibility. This is vital to maintaining Internal Audit’s objectivity and avoiding conflicts of interest. Selection of the type of audits or services to be performed should be based on the audit activity’s authority, maturity, and purpose, as well as the organization’s needs and issues. For more information: http://excellenceenablers.com/