Internal audit is a function of the organization which performs to provide the assurance and consulting activities designed to evaluate and improve the effectiveness of the governance, risk management and internal control processes. Internal audit is a key element of effective corporate governance.
As per the IIA, the word corporate governance had become a staple of the boardroom and C-suite lexicon. Governance means the process and systems on how the organization are controlled, and decision making is made to help the organization to achieve the goals and objectives.
The word “good corporate governance” is considered as the risks that affect success and includes efforts to manage those risks and discover unknow risks.
What is the relationship between internal auditing and corporate governance?
An internal audit role can assist the board by:
- Acting as auditors for board reports not otherwise audited by the external auditors
- Being experts within the company in fields such as auditing and accounting standards, and assisting in the implementation of new standards
- Liaising with external auditors, particularly where external auditors can use the work of internal audit and thereby reduce the length and cost of the external audit
- Internal audit can play a key role in assessing and monitoring internal control policies and procedures.
The structures and processes are defined and established by the board of the entity to be considered the perspectives of shareholders, regulators, management and the working group of the entity.
By defining good corporate governance, the board responsible for overseeing and monitoring the entity’s strategic, operational, financial, and compliance risk exposures, and working with management to set the risk appetite of the entity, risk tolerance to align with the setting of strategic, mission and objectives of the entity.
Normally, the practical work on corporate governance is for listed companies where most of them are mandated. The audit committee is involved in this practical exercise to provide a strengthened oversight of the financial and ethical integrity of the publicly held companies.
The audit committee is an independent functions who made up by the independent directors which assigned by the shareholders to greatly strengthen and independence, integrity and oversight the effectiveness of audit activities by providing the independent judgment, professional and overseeing of the internal and external auditing work, planning and results, assessing the internal auditing resource, demand of qualified auditors, and the mediating between the auditors’ relationship and the entity.
Also, the audit committee to ensure the audit results are communicated, and any recommended improvement or corrective actions to be addressed or resolved.
Basically, internal auditors are functionally reported to the board or audit committee and administratively to management.
It believes that the strong management and board to support internal auditing activities or internal audit function in the entity is the nurtured by relationships built on mutual trust and frequent and meaningful interactions with the chief audit executive.
How Internal Audit Supports Corporate Governance
- Risk Management:
Internal audit identifies, assesses, and monitors the risks that could impede an organization’s ability to meet its objectives, providing assurance on the effectiveness of risk mitigation strategies.
- Internal Controls:
It evaluates the design and operational effectiveness of internal control systems, ensuring they are functioning as intended to protect the organization’s assets and integrity.
- Compliance and Ethics:
Internal audit ensures adherence to relevant laws, regulations, and internal policies, including codes of conduct and ethical standards.
- Transparency and Accountability:
By providing objective assurance and insights, internal audit helps to promote transparency in decision-making and ensures that governance principles are upheld.
- Continuous Improvement:
Internal audit identifies areas for improvement within the governance structure, providing actionable recommendations to enhance the overall effectiveness of the governance process.
- Stakeholder Confidence:
An effective internal audit function contributes to building confidence among stakeholders by demonstrating a strong commitment to good corporate governance and responsible operations.
The internal audit functions are mandate to strengthen the corporate governance through the risk-based audits that provide assurance and insights on the processes and structures that drive the organization toward success.
As risks grow and become more complex, internal audit’s role is likely to expand in areas such as risk governance, culture and behavior, sustainability, and other nonfinancial reporting measures.
As organizations address the growing array of risks created by new technology, geopolitics, cybersecurity, and disruptive innovation, a vibrant and agile internal audit function can be an indispensable resource supporting sound corporate governance.