Use Of Internal Audit By Australian Companies

1117 Words5 Pages
The use of internal audit by Australian companies Abstract: The main purpose of this study is to identify the reason behind the voluntary use of internal audit by public listed companies and to determine the factors that lead listed companies to have an IA function. There are number of reasons behind the implementation of IA function and it is strongly related with risk management, indication of effective internal controls and efficient corporate governance. This study is based on the work done by Jenny Goodwin-Stewart and Pamela Kent(2006). They examined and study the data from the annual reports of public listed companies. This paper also provides detailed information on the need of Internal Audit and examines the relationship between…show more content…
Internal audit as a risk management mechanism Internal auditors can add value to the entity by providing assurance that its risk exposures are properly understood and managed (Walker et al., 2003; Leithhead, 1999). Internal audit should play a key role in monitoring a company’s risk profile and identifying areas to improve risk management processes (Lindow and Race, 2002). As Walker et al. (2003, p. 52) assert, internal audit can “help organizations identify and evaluate risks, moving the profession into the front line of risk management”. We would therefore expect there to be a link between the use of internal audit and the company’s commitment to sound risk management. A strong organizational commitment to managing risks requires the development of a risk-based culture within the company (Kwan, 1999). Such a culture is established by the practices of senior management and the board of directors (Steinmetz and Arthus, 2001) and should result in the development of an integrated risk management framework (Kwan, 1999). One indication of an integrated framework is the existence of a separate committee or group responsible for risk management, comprised of directors and senior management. Internal audit can then provide the required support to ensure that internal controls are in place to adequately monitor the identified risks. We therefore predict that those companies that have established a separate risk management committee are
Open Document