benefits of Internal Audit & Control
Benefits of Internal Audits
Spectrum Business Consultancy
Companies derive significant business value from the internal audit function at multiple levels. At a minimum, most companies that use internal audits rely on the function to provide assurance on the financial reporting and compliance processes. To derive greater value, management may also consider giving a broader role to internal audit and include elements of enterprise risk management into the internal audit charter. Some of the key benefits include:
a) Identification and assessment of risks: Internal audit helps companies identify the risks and barriers they might face in the path to achieving their business objectives. Internal audit also assesses the likelihood of the risk materializing and its possible consequences, thereby giving a perspective of what risks are “key” and therefore require more urgent management attention. Internal audit can help companies be better prepared to prevent certain adverse events from occurring and also to provide an adequate response should such events occur. This means that an organization is likely to face fewer surprises or crises situations and be better prepared for most eventualities.
b) Evaluating Controls: Companies can assess whether the controls and procedures they have put in place are adequate to mitigate the identified risks. This enables companies to improve controls procedures and make course corrections where needed. Evaluation of controls through experts in this field can help remedy gaps in internal controls and may even lead to prevention and/or detection of fraudulent activities.
c) Ensuring compliance with regulations: Compliance with regulations as well as internal policies and procedures is a key result of the involvement of internal audit. A constant focus on this area through the internal audit function can help management promote a culture of “compliance consciousness” where compliance occurs as a part of everyone’s daily work rather than as a separate process.
d) Improve effectiveness and efficiency of processes: When management extends the internal audit scope to include evaluation of enterprise risks, this can enhance the effectiveness and efficiency of processes by identifying duplication and redundant activities.
e) Provide comfort to management, the Board and other stakeholders: One of the most important benefits of internal audit is to provide assurance to management and a level of comfort to the Audit Committee, Boards of Directors and external stakeholders that the company has a strong control environment that sufficiently mitigates the risks that a company might be exposed to and contributes towards meeting business objectives.
Management must actively utilize the services of internal audit to act a sounding board for strategies under development, to anticipate risks before they materialize and take appropriate and timely action. Used effectively, internal audit thus becomes a tool that helps creates significant business value.