The Benefits of Internal Auditing to SMEs

21 October 2014

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 organization 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.

Improving Internal Controls

Internal audit helps organizations improve their internal controls. The audit itself can be considered an important part of organization’s internal control while also being used to evaluate other internal control processes.

Internal control comprises a number of primary components including the monitoring and control environment, information and communication and risk assessment and control activities. By offering 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.

Improving Corporate Governance

The second benefit of internal audit is in helping an organization with corporate governance. Corporate governance can be thought of as the policies, processes and structures used by the organization’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, internal audit evaluates the organization’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.

Improving Risk Management

The third major benefit of internal audit is its role in improving the organization’s approach to risk management. 

Risk management is a process used by organizations to identify relevant information for monitoring and analysis in order that they can respond appropriately to strategic risks that could actually or potentially impact the organization's ability to achieve its strategic objectives.

Due to the features of independence, timeliness and regularity, internal audit has a special advantage in the risk management process. It measures the effectiveness and soundness of the risk management system promptly and offers controlling methods to avoid the risk of loss or damage.

Conclusion

Internal audit provides the board and senior management with assurance that helps them better fulfill their duties to the organization and its stakeholders. Its objective assessment of internal controls, corporate governance and risk management, means internal audit is 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 organization.

Internal audit can benefit businesses of all sizes but SMEs often feel the greatest benefits as systems and processes are formalised in the process. For specialist advice regarding internal audit contact our Principal, Grant Franklin

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