What is an internal audit?
Internal auditing is a consulting activity designed to provide an independent and objective assessment of an organisation in order to add value and improve its operations.
According to the Chartered Institute of Internal Auditors, internal auditing can ‘help an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of its risk management, control and governance processes’.
Internal auditors are independent and provide professional views to the board and senior management based on the principles of integrity, objectivity, confidentiality and competency.
This can bring great benefits to all businesses but it is particularly useful for growing businesses and SMEs looking to formalise their systems and processes.
What are the advantages of SME audits?
Improve internal controls
Internal audits help organisations improve their internal controls. The audit itself can be considered an important part of organisation’s internal controls whilst also being used to evaluate other internal control processes.
Internal control comprises of a number of primary components including the monitoring and control environment, information and communication, and risk assessment and control activities. By offering an unbiased and objective view, internal audit points out the systematic defects and deviations in the implementation of a system.
By doing this, the weak links hidden inside internal controls can be located. As a result, internal audit evaluates whether the main components of internal control are present and operating effectively, and if not, provides recommendations for improvement.
Improve corporate governance
The second benefit of internal audits is in helping an organisation with corporate governance.
Corporate governance can be thought of as the policies, processes and structures used by the organisation’s leadership to direct activities, achieve objectives and protect the interests of diverse stakeholder groups in a manner consistent with ethical standards.
Through the auditing process, an internal audit evaluates the organisation’s management goals, decision processes, investment processes and outcomes. By improving corporate governance, internal audit aims to help the board and senior management perform their responsibilities effectively.
Improve risk management
The third major benefit of internal audits is their role in improving the organisation’s approach to risk management.
Risk management is a process used by organisations to identify relevant information for monitoring and analysis in order to respond appropriately to strategic risks that could actually or potentially impact the organisation’s ability to achieve its strategic objectives.
Due to the features of independence, timeliness and regularity, internal audits have a special advantage in the risk management process. They measure the effectiveness and soundness of the risk management system promptly and offers controlling methods to avoid the risk of loss or damage.
An internal audit provides the board and senior management with assurance that helps them better fulfil their duties to the organisation and its stakeholders.
Its objective assessment of internal controls, corporate governance and risk management, means internal audits are closely related to governance, assurance and compliance. These priorities become increasingly important as businesses grow and stakeholders become more diverse.
The board and senior management can use internal audit to execute their duties more proficiently. The independent status of internal auditors enables them to examine, monitor and analyse the organization’s operations, including the business structures, employee behaviours and information systems.
In addition, internal audit can help ensure an organisation’s compliance with rules, regulations, laws, codes of practice, guidelines and principles as they apply individually and collectively to all parts of the organisation.
Internal audits can benefit businesses of all sizes but SMEs often feel the greatest benefits as systems and processes are formalised in the process
Choose Hillier Hopkins for your audit needs
Find out more about internal audits, the procedure, and view answers to audit FAQs online with us today. Alternatively, contact our friendly and knowledgeable team by calling 0330 024 3200 today.