How does internal audit participate in risk management?
Abstract
Internal audit is an important part of the company management system, it is the company 's core business group. But how does it participate in risk management? This essay will have a short discuss on it.
Introduction
"Practice of Internal Auditing Standards" of the internal audit made a clear definition: Internal auditing is an independent, objective assurance and consulting activity designed to add value for the organization and improve the operational efficiency of organizations. It uses a systematic, disciplined approach to evaluate and improve risk management, control and governance processes to help organizations achieve their goals (SPIRA, L. F. & PAGE, M. 2003).
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In this environment, in order to enhance the efficiency, company need to establish an independent control system. As a further control of the company, the various departments of enterprises can be effectively supervised by internal audit to achieve internal supervision and self-discipline of enterprises (BEASLEY, M. S., & HERMANSON, D. R. 2005). Therefore, the internal audit system is established to achieve self-improvement, serve as an important part of the objective requirements of internal oversight, but also part of the company management system.
Internal Audit on behalf of the Board of Directors should belong to the core layer of the corporate who perform oversight functions, the Board is the highest level group of companies, so the internal audit is part of the core layer of the board of directors has supervision and management behavior evaluation in favor of enterprises (BEASLEY, M & HERMANSON, D). ‘If internal audit belongs to other departments of company, such as the general manager, although it is closer than the board of directors, supervision can be combined with the reality, but general manager of the company does not do decision-making but only execute it, and therefore the independence of the audit process will be affected (FELIX L. & GRAMLING, A 2001).’ As part of the board of directors, internal audit has a higher level of audit independence and the authority are guaranteed conducive to internal audit should
The external audit focuses on identifying and evaluating trends and events beyond the control of a single firm. An external audit reveals essential opportunities and threats confronting an organization so that managers can formulate strategies to take advantage of the opportunities and avoid or reduce the impact of threats.
Due to increasing economic and financial growth, many types of audit have been incorporated throughout the development process of internal activities. Audits can be performed manually or they can incorporate technology. According to Hunton and
A company might decide to establish an internal audit department because an effective and independent internal audit department add values and improve effectiveness of risk management, control, and governance processes. It also helps prevent and detect the frauds.
When auditing a public company, the auditor must form an opinion on the effectiveness of internal control
Internal control plays an increasingly significant role in firms and many other organizations. Businesspeople, especially managers, pay more attention to internal control and its relationship with management (Krishnan, 2005). They tend to discover how internal control affects the operation of the companies. Although managers of some companies have doubts on the value of internal control, it directly helps managers to make open and effective management of the companies when designing, undertaking and optimizing their plans. The definition of internal control is presented in the first section. Then next section shows the importance of internal control, which mainly functions as risk assessment, effective communication and monitoring,
The company should hire it’s own internal auditor’s to ensure that the staff understand the company’s accounting procedures. This also helps the external auditor as it give the external auditor another viewpoint when assessing fraud risks. The internal auditors are apart of those charged with governance and that helps take the pressure off of the external auditor if a fraud should be discovered.
Internal auditing is an independent objective assurance and consulting acitivity designed to add value and improve an organizations operations.
Internal auditors cannot effectively provide an analysis on the company’s internal dealings as they are part of the company. External auditors, however, can observe these processes from the outside and then determine where the funds of the company and whether the dealings adhere to the regulations. Using external auditors in a company prevents conflict of interest from happening. Conflict of interest is a situation where an individual or organization has multiple interests and of those multiple interests, one could possible corrupt the motivation for an act on the other when the auditor has any kind of beneficial interest in their client’s performance. In other circumstances, there is also the threat of familiarity where auditors become
The role of internal audit is to provide independent declaration that an organization’s threatadministration, governance and internal control processes are functioning effectively. Internal auditors deal with concerns that are essentially important to the existence and success of any organization. Unlike external auditors, they aspect beyond financial possibilities and statements to reflect wider problems such as the organization’s reputation, development, its power on the location and the approach it treats its organizations.In summary, internal accountantssupport organizations to thrive.
All over the world there is a realization that the Internal Audit activity has the potential to provide hitherto unparalleled services to management in the conduct of their duties. This potential has been turned into a challenge and embodied in the new definition of Internal Auditing from the Institute of Internal Auditors (the IIA).
The internal audit’s work is necessary to the entity. The internal audit can accumulate evidences from different documents, statements and reports. Their reprehensibility is to provided reasonable assurance in entity’s daily operation. In this case, there are some materials has been founded in MCS. From my opinion, the internal audit could pay more attention on the manager’s internal control evaluation. The additional work can be started by evaluating all financial records to ensure the accuracy of the financial statements, and reviewing administrative control with the university policy and regulations to
The internal auditing was important for each company management because it provides reporting for management and prevent the fraud inside the company. The internal auditors are the main reason that contributes to the success of the company. I will prepare the findings of both primary and secondary research. Thus, the discussion which including a detailed analysis of strengths and limitations of the project. After that, I will write the recommendations which resolve the problem of the company.
International Professional Practices Framework (IPPF) 2011 and Institute of Internal auditors (IIA), Defines, the Internal auditing as an independent, objective assurance and consulting activity intended to add value and improve an organization’s operations. It helps an organization to achieve its objectives by bringing a methodical, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes. The overall objective of internal auditing is to assist all members of management in the effective discharge of their functioning, by endorsing them with objective analysis, appraisals, recommendations and pertinent comments concerning the activities reviewed. The Institute of Internal auditors under the glossary of the Standards for the Professional Practice of Internal Auditing,(IIA 2004c:25) outlines the concept of ‘value added’ in the integrity and objectivity of internal auditing and financial report scrutiny states that:(Institute of Internal Auditors
According to the Institute of Internal Auditors (IIA), (2011), the internal auditing is a team of consultants, a department and a division or other practitioner which independent, have objective assurance and conduct a consulting activity which is designed to add value and improve the organization operations. The internal auditor can help an organization in achieving its objectives by bringing a discipline and systematic approach in order to improve and evaluate the effectiveness of risk management, control and governance process.
Methods are an important part of a company to help maintain the proper documentation. Such methods can be used in society PIFCO ZEN CHEN. This leads to eliminate missed deeds of all financial documents of the company or the head of the company, as Director such methods in the company. The director of the company also has management of all a law firm. Director should all actions taken into account by all employees. Such actions are any of the financial or accounting records. The auditor checks for each manipulation in numbers or accounts. So you must have in mind, what are the accounts clear and all the information is correct.