Understanding the benefits of an internal audit help enhance and protect business integrity through risk-based internal controls, objective assurance, and recommendations for continuous improvement. Many small businesses rarely give this the required attention.
Furthermore, employees generally do not like these audits as they see them as being conducted for punitive purposes and they therefore are unwilling participants in the exercise. This opinion is now more and more being debunked in the current business environment.
Increasingly, internal audits are now seen to operate in a collaborative way to build a partnership between management and the employees because a well conducted audit works for the success of the business.
The Key Benefit of An Internal Audit
An internal audit is established to be independent and objective by separating its reporting from line management.
This ensures that top management decision-makers receive unfiltered and unbiased messages from operations line management.
However, it has direct reporting to the audit committee and, when completed, a final report of the findings and recommendations is issued to the business owner or Chief Executive Officer.
This means that the commentary, findings, and recommendations of the report can therefore be honest and unbiased because they are not passed and modified by the various layers of management.
Other Advantages of An Internal Audit
There are at least eight known benefits of an internal audit.
1.Follow-up on Recommendations of Previous Audits
Every time an audit, review or evaluation is conducted there are recommended improvement actions to be implemented by management.
A subsequent audit is expected to track and assess if remedial action have been effectively implemented in a timely way.
Without this function of the internal audit, the cost and effort, reviews and evaluations submitted to management is wasted if necessary changes were not implemented.
2. Maintain the Focus of the Business on Its Objectives
It provides a risk-based assessment aligned to the strategic objectives of the business. The final audit report presents an evaluation of whether business objectives are on track to being achieved or whether they are at risk. It also proposes recommendations for mitigation.
3. Assess if Business Activities are Conducted to the 4 – E’s (Efficiently, Effectively, Economically and Ethically)
The audit assesses if activities in the management systems are being conducted to the 4 E’s Efficiency, Effectiveness, Economy – reasonable cost of output (product or service).
It further assesses ethical conduct in the provision of the goods or services.
4. Assurance of Compliance with laws, regulations, standards, policies, and contracts
Most internal audit engagements focus on whether there is compliance with laws and regulations with which the business must comply, and then provide a gap analysis to show areas of non-conformance and improvement.
5. Validate Reliability and Integrity of Information – Benefits of An Internal Audit
An audit checks the reliability of documented policies, procedures, checklists, and data to ensure that appropriate controls (such as document version controls) are in place to maintain their integrity.
6. Assess Reliability of Measures to Safeguard Company or Operational Assets
An asset is something of economic value or future benefit. Business assets include money, land, buildings, facilities, warehouse stock, information, patents, intellectual property, equipment, and people.
Equipment and Vehicles are additional assets of operations that are reviewed. For financial audits, the exercise promotes activities that will minimize the risk of fraud and theft of company assets
7. Provide Assurance that Approval Decisions Were Properly Authorized
A key component of an internal audit engagement is to ensure that the approval process for purchases and decisions were properly authorized by approved delegated authorities.
8. Benefits of an Internal Audit – Help Identify Opportunities for Business Improvements
The highlight of an audit is to identify gaps in operations, non-compliance and provide recommendations to top management of mitigation measures and opportunities for improvement. A root cause analysis may be required for issues that negatively impact the functioning of the business as part of the recommendations.
It is then left to management to prioritize recommendations and decide on which ones to begin implementing.
Special Audits – Project Reviews
Special audits known as project reviews may be conducted to monitor projects and high-risk initiatives to ensure they remain on track. These are conducted a certain number of times over the duration of the project.
Independent assessments of projects by an internal audit can pinpoint issues and ultimately save money by helping to keep projects on track.
Reviewing projects after they are completed is too late as the cost over-runs and extensions would have already been allowed to occur.
Conclusion – Benefits of an Internal Audit
There are several benefits of an internal audit that make conducting periodic audits a necessity rather than an option for any business that want to continuously improve and grow. For Assistance:
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Deloitte. Internal Audit- Make it your strongest link https://www2.deloitte.com/content/dam/Deloitte/na/Documents/risk/na_Internal_Audit_%20Make_it_your_strongest%20link.pdf
IIA Australia (2017) Factsheet: Internal Audit Benefits https://iia.org.au/sf_docs/default-source/technical-resources/2018-fact-sheets/factsheet-internal-audit-benefits.pdf?sfvrsn=2