When it’s fully developed, a company’s internal audit function possesses a tremendous amount of knowledge and expertise that can help guide the business toward making fully informed decisions based on current risks and pursuing opportunities that would not otherwise be apparent.
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These capabilities may not be readily inherent if you interpret the term “internal audit” at its simplest level or view the internal audit process only in a traditional way. An internal auditor objectively reviews IT and business processes, evaluates internal controls, and assesses the company’s enterprise risk management efforts, among other areas. But there’s more involved in internal audit services today. The function has greatly expanded in recent years and can become a crucial asset to the company.
Internal audit offers a unique perspective compared to every other area of the company. An internal audit team—which could be outsourced, fully in-house, or “co-sourced”—can be set up to be proactive, to become a strategic business asset, to uncover, by asking the right questions of business leaders, pertinent emerging risks and opportunities. Knowledge gaps that have stymied the company from getting at such information can dissipate.
Achieving this elevated version of the internal audit function requires steep experience and a commitment to truly understanding the business. It’s not something companies would generally develop organically as few have the resources or specialized expertise to properly take on this initiative with only their in-house staff. Companies that combine in-house and outsourced expertise (a.k.a. co-sourcing) can achieve the optimal benefits for their internal audit function.
Internal audit experts are able to hone in on some of the most pressing risks facing the company today, some of which may not have been on the company’s radar, along with rising opportunities. These are some of the other benefits a fully developed internal audit function can add to your company:
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Actionable insights: As they bring awareness to opportunities, internal audit shines a fresh light on trends and ideas that senior managers may want to incorporate into their overall strategic plan or keep in mind as they work to fend off competition, increase market share and attract new customers.
Once strategic decisions have been made, there’s a tendency to take a narrow view of how the company should move forward. Resources may be limited to take a broader view. By becoming aware of a shifting trend in a customer demographic or a weak link in the business model, management can be shaken out of any tendency toward complacency. Attention will turn to whether it’s time for a product upgrade, investment in innovation, or a strategic pivot.
Organizationwide awareness of key risks: Many companies’ weakest link is the lack of communication between departments or geographic locations. Internal audit can help to fill in some information gaps by asking the right questions about challenges facing the various areas of the company.
For instance, if the recent spate of high-profile cybersecurity attacks have hit your industry in particular, are all your organizations aware and taking extra precautions? For a geographic expansion in the works, do those involved realize the differences in the new country’s way of conducting business? Internal audit brings such issues to the surface, so that they become part of the discussions involved in planning and strategizing the company’s next moves.
Who performs internal audits?
The internal audit function can be completely led by an outsourced consulting firm, or the internal audit function could be a co-sourced arrangement between the company and its outsourced advisory services partner. The pros involved tend to have a background in internal audit, accounting and corporate governance.
Is an internal audit compulsory for every company?
An internal audit function is not required for every company; however, it is considered a best practice for both private and public companies, and the New York Stock Exchange and some other exchanges require publicly traded companies to have an internal audit function in place to assess internal controls and risk management.
What are the main activities of an internal audit?
Activities of an internal audit include assessing internal controls, current and emerging financial risks, how the company manages risk, its corporate governance practices, in addition to uncovering strategic opportunities.
What are the types of internal audit reports?
Internal audits can include audits of compliance, corporate governance processes, internal controls and systems. Internal audit experts could also provide reports to management about problematic issues and risks, and potential solutions.
From reviewing a company’s corporate governance and accounting systems and processes, its internal controls, its compliance efforts and more, the traditional internal audit function can bring many pressing issues to the forefront that need addressing. Such reviews incorporate the latest trends and priorities among regulators, external auditors and the board of directors.
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A more strategically minded, more modern version of the internal audit function goes beyond the compliance and risk management focus (which is still important) to align with a key internal priority—business growth. Is the company making the best strategic decisions? Is something getting overlooked? Business leaders are super-focused on X but should they be focused on Y? With training and mentoring and an infusion of expertise, the internal audit function can ensure that the company is asking the right questions and is pointed in the best direction for the business at this time.
One way to do this is through SWOT (strengths, weaknesses, opportunities and threats) analysis. This work can reveal how the company’s strengths can be further built upon (it could even reveal some surprises!) and how weaknesses can be addressed. Opportunities abound but are not clearly seen as senior management keeps most of the attention on running the business and cannot see everything happening around them at all times. Immediate threats could be looming in the form of changing regulations, the economy, or changing dynamics in the industry. Internal audit experts widen the company’s view to put the spotlight on what the company needs to see now—in order to discuss and potentially take action. This is how internal audit can help the company avoid getting caught off-guard and making wayward decisions that would have a detrimental effect on success.
If you are wondering whether your company needs an internal audit strategic plan, consider this: Is your company operating with blinders on? Has complacency stifled growth? Day-to-day priorities can lead to a view that becomes narrower and narrower the more time passes. Internal audit experts ask the questions you don’t know to ask. They bring an independent mindset and an objective view to their inquiries, along with their steep industry knowledge and their understanding of your business, to uncover the risks and opportunities you need to be aware of and consider now.
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For these reasons, your company may be overdue for an internal audit transformation. Consulting firms that offer internal auditing assurance and advisory services can connect you with the expertise you need—at the level you need. It could be a flexible arrangement, with internal audit experts available to assess and take your internal audit function to the next step, with training and mentoring available, or they could become the team. The right arrangement depends on your company’s growth stage, the state of your internal function today and your future plans.
Internal audit experts can do what they do because they bring fresh perspectives to companies and adjust their guidance to each company they work with; they have the ability to be objective, but they can become a partner. They will make connections between organizations and can support your business with new endeavors, whether the company is contemplating an M&A deal or needs to know it’s making the right decision with a new system implementation. When one of the main goals is to improve how things are done and to be aware of improvements that can be adopted, the answers can be found.
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