Function and importance of internal audit
1.1 Definition
Internal audit is an independent appraisal function established within an organization to examine and evaluate its activities as a service to the organization
1.2 Importance of internal audit
<1> In some jurisdiction it is required by statute or codes of good practice
<2> It is a management control and provides an independence check on the control systems in a company.
<3> The scope of internal auditing within an organization is broad and may involve internal control topics such as:
a. Efficiency of operations
b. Reliability of financial reporting
c. Deterring and investigating fraud
d. Safeguard assets
e. Compliance with laws and regulations
1.3 Factors of the need for internal audit
<1> Not all organizations have an internal audit function. The need for an internal audit function will vary depending on company specific factors including:
a. Scale, diversity and complexity of company’s activities
b. The number of employee (size of organization)
c. Changes in the organizational structures, reporting processes or underlying information systems
d. Changes in key risks (any trends or current factors relevant to the company’s activities, markets or other aspects of its external environment that have increased, or are expected to increase the risks faced by the company)
e. Problems with internal control systems
f. An increased number of unexplained or unaccepted events
g. Cost-benefit considerations
<2> If the company does not have an internal audit function
a. The audit committee should from time to time review whether there is a need for an internal audit function and make a recommendation to the board
b. The reasons for the absence of an internal audit function should be explained in the relevant section of the annual report
1.4 Objectives of internal audit
<1> Review of accounting and internal control systems
<2> Examination of financial and operating information
<3> Review of the economy, efficiency and effectiveness of operations
<4> Review of compliance with laws, regulations and other external requirements
<5> Review of the safeguarding of assets
<6> Review of the implementation of corporate objectives
<7> Identification of significant business and financial risks, monitoring the organization’s overall risk management
<8> Special investigations into particular area, e.g. suspected fraud
1.5 Organizational structure of internal audit
<1> Internal audit function reports to the audit committee
<2> In large organizations internal audit function will be a separate department
<3> In small companies it may be the responsibility of individuals who perform some specific tasks related to internal audit
<4> Some companies may outsource their internal audit functionFunction and importance of internal audit
1.1 Definition
Internal audit is an independent appraisal function established within an organization to examine and evaluate its activities as a service to the organization
1.2 Importance of internal audit
<1> In some jurisdiction it is required by statute or codes of good practice
<2> It is a management control and provides an independence check on the control systems in a company.
<3> The scope of internal auditing within an organization is broad and may involve internal control topics such as:
a. Efficiency of operations
b. Reliability of financial reporting
c. Deterring and investigating fraud
d. Safeguard assets
e. Compliance with laws and regulations
1.3 Factors of the need for internal audit
<1> Not all organizations have an internal audit function. The need for an internal audit function will vary depending on company specific factors including:
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