What role does an internal auditor play in an entities corporate governance process?
Role of an internal auditor in an entities corporate governance process
First of all the elements of a good governance (Bell , 2002) in a company consists of things like- Functioning wise it should be transparent and accountable to the public, on the performance side it should consist of being effective and efficient as well as responsive.
The internal audit department is responsible for things like- Risk Assessment, providing assurance regarding controls, compliance and consulting and other operations.
Hence according to this an internal audit can be viewed as a “first line defense” against inadequate organizational governance and financial reporting. Along with this when proper support from the Board of Directors and Audit Committee ,is got the internal audit staff is in the best position to gather information on mal accounting practices, insufficient internal controls, and ineffective corporate governance.
It can be said that before the internal audit (Picket, 2006) department of the company was only used as a cross reference for checking for the accounts of the company. However in these years, the role of this department has undergone a huge change. It is now a strong indispensable control tool for running the company effectively and efficiently.
Need and Role of Internal Audit
These are the various reasons necessitating the Internal Audit department-
1. The sizes of the businesses have increased over the years and this has resulted in the dilution of the direct management to look over the various functions. So this requires the need for the need for a regular sovereign group to reconsider the various businesses.
2. The companies are now operating on a global basis. This requires that the rules of all the respective companies are to be followed.
3. Internal auditors take their work in an extra concentrated manner by putting more labours in the regions where there is a high risk, therefore boosting the complete effectiveness of the method and putting increased value with similar resources.
4. Information technology (IT) is increasingly being used all over the company. It is used in data processing, planning, ecommerce etc. This has although raised the fear of various online robberies, losses due to the failure of systems or hacking. Also there is always the requirement to comply with the cyber laws, etc.
5. The regulators are now on the look out to new ways to take care of the attentions of the investors. The concentration of the latest regulations includes ethically conducting the business, strong corporate governance and stringent financial reporting requirements, etc.
6. Globalisation has led to the world becoming a global village, leading to enter in the goods and services markets, free flow of capital, technology and other awareness in the nations. Solid communications has supported deeply in showing down the expenses of production giving the customers a better access. In turn, this has attracted many more companies in the current markets which have stiffened the competition.
Role of Internal Auditor
1. Internal auditor has to be free of the things in which the auditing (Cutting, 2008) takes place. The function of internal auditing can only be done objectively when working freely and objectively. Independence allows the internal auditors to be impartial and give unbiased judgments which are very essential for the proper conduct of audits.
2. Internal auditor’s role should be a dynamic one. It should continuously change to fulfil the requirements of the company. There is very urgent requirement to alter the audit plan, and they should be changed as and when required. Examples of these modifications are expected to comprise new regions, support to the management (Gomez, 2008) in finding the solutions to the problems, and the expansion of new techniques for internal audit.
3. Internal auditor has a management function. So it is his duty to serve the management during its time of needs by positive suggestions in regions such as, inner force, risk, resource utilisation, management information system, fulfilment of laws etc.
4. An effective internal auditor functions by playing a significant role in helping the board of directors to leave its corporate governance responsibilities. So he pays in fulfilment of goals and objectives of the company via many principled ways.
5. Risk management allows the management to deal with risk and uncertainty. Internal auditor carries a significant responsibility in offering declaration to management on the efficiency of risk management.
6. Internal auditor also looks into the internal control system of the company to check whether it is well formed and functioning accurately. Therefore, the test of the control system and appraisal of controls are normally components which are a part of every type of internal auditing assignment.
Thus we can understand that an internal auditor has to play a very important role to play.
Bell, Stephen, 2002, “Economic Governance and Institutional Dynamics”, Oxford University Press, Melbourne, Australia
Picket, K. Spencer, 2006, “Audit Planning – A Risk Based Approach”, The Institute of Internal Auditors, Wiley, New Jersey
Cutting, Thomas, 2008, “How to Survive an Audit”, PM Hut
Gomez,Mejia, 2008, “Management: People, Performance, Change, 3rd edition”, New York USA: McGraw-Hill, pp. 19, ISBN 978-0-07-302743-2.
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