Internal audit can play a vital role in improving the performance of a company
Internal auditors assist companies in identifying key risk factors. This enables the company to anticipate potential future concerns as well as identifying current weaknesses. It also enables a company to identify processes and controls that are not working effectively and allows an opportunity to improve on these.
What is internal audit? The role of internal audit is to provide assurance that a company's risk management, governance and internal control processes are operating effectively. Internal auditors must be independent from the operations they evaluate and report to the highest level in a company - senior managers and Board of Directors or the audit committee. Internal auditors work with management to review systems and operations. These audits identify how well risks are being managed by the company and whether the right processes are in place, and whether procedures are followed. Internal Auditors evaluate the controls a company has in place. They also identify areas where improvements might be made and where procedures might be done more efficiently.
What are the benefits of internal audit for a company?
It assists management to improve internal controls by identifying weaknesses in systems and provides an opportunity to correct those weaknesses. Internal auditors deal with issues that are important to the continued existence and prosperity of any company. This is done through a combination of assurance and consulting. The assurance part includes informing managers and directors how the systems and processes put in place by management are working. Consultation then takes place on how to improve these systems and processes where necessary. This provides directors and senior management with assurance that assists them in fulfilling their responsibilities to the company and its stakeholders. It also provides the directors and management with a way of showing shareholders and other stakeholders that they are managing the company effectively on behalf of the shareholders by evaluating important risks and highlighting where improvements are necessary.
What is the difference between internal auditors and external auditors?
External auditors report to shareholders or other stakeholders who are outside the company’s governing body, whereas internal auditors report to the Board of Directors and senior management of the company. Internal auditors will evaluate and recommend ways to improve the effectiveness of a company’s control processes. Internal auditors are usually company employees and are responsible to the company’s management. However, a company which does not have an internal audit function, could hire professional internal auditors to perform internal audit services. Internal auditors will examine issues related to company business practices and risks, while external auditors examine the financial records and issue an opinion regarding the financial statements of the company. External auditors work for an independent audit firm and are normally appointed by a shareholder vote and as such are responsible to the shareholders.
Internal auditors provide assurance on whether a company’s risk management, governance and internal control processes are operating effectively by evaluating and recommending ways to improve the effectiveness of a company’s control processes. They report to the Board of Directors and senior management and are responsible to the company’s management. This assists management to improve those controls and show shareholders and other stakeholders that they are managing the company effectively.
Associate: Audit, Cape Town