Internal audit is the process of evaluating the organisation’s internal controls, risk management, and governance to give an independent opinion whether the organisation is operating effectively. It, therefore, provides a basis for improving processes and system that supports organisational growth and sustainability. It involves a detailed examination of a business process to identify innovation opportunities that make an organisation competitive. Internal audit is essential in both large companies and small and medium enterprises.
Internal Audit in Large Companies
The internal audit in large companies is emphasised as it promotes good corporate governance. In public companies and those with many shareholders, the internal audit department is established to keep the management on check. This function is under the non-executive directors in public companies. These companies are governed by a board of directors appointed by the shareholders during general meetings. The board comprise of the executive and non-executive directors. The executive directors are involved in the daily running of the company and are therefore fulltime employees. On the other hand, the role of the non-executive directors is to put the executive directors on check. They are responsible for creating the internal audit function, a practice that ensures the internal auditors are not influenced by the managers that enhance their independence. In public companies, the internal auditor, therefore, reports to the non-executive directors who are in turn answerable to the shareholders.
Internal Audit in Small and Medium Enterprises
An internal audit in SMEs plays a vital role as it enables a business to identify shortfalls in the business process thus providing a basis for making improvements. Most small businesses suffer from poor policies, inadequate internal control system, and weak corporate governance. An internal auditor examines the internal environment of an SME to identify these weaknesses and make proposals to create a stable enterprise. One of the main challenges facing internal audit in SMEs is the absence of a reliable internal audit department caused by resources constraints. However, this weakness should not worry SMEs since they can outsource the internal audit services from reputable service providers at an affordable fee. Outsourcing the internal audit function in SMEs enhances the output of the audit process as the service provider’s staff is independent of the client’s management thus increasing objectivity when giving an opinion.
Duties of Internal Audit
- Assessing the company’s risk and the effectiveness of the risk management approaches in place
- Evaluating the internal control systems and making proposals on how they can be enhanced
- Investigating fraud
- Ensuring the company complies with the relevant regulatory framework
- Evaluating the fitness of the existing policies and assessing the extent to which these policies are followed
- Examining the suitability of systems/information systems/information technology systems
- Giving an independent opinion to the top management
- Communicating the findings