Thursday, August 9, 2012

Objective of Independent Internal Audit Function / Department

Objectives of Internal Audit Function

  • Special investigations such as fraud.
  • Value for money (3E’s) audit for various parts of the organization.
  • Helps ensuring board of directors that organization meets its objectives.
  • Reviewing effectiveness of internal control system.
  • Reviewing the documentation and design of internal control.
  • Monitoring internal controls through observation; to ensure that they are thoroughly implemented and followed by employees.
  • Recommending remedies to any weaknesses found in the system of internal control to the audit committee and board of directors.
  • Reviewing policies on risk management and risk management system for effectiveness toward achievement of organizational objectives. It should also ensure that risk remains within risk appetite of the board of directors.
  • Reviewing compliance with law and corporate governance codes.
  • Reviewing financial and operational information. Ensuring that gathered information is sufficient & appropriate for financial reporting and helpful for decision-making purpose.


Independence of Internal Auditor

Internal audit is a part of the organization. Internal auditor is effectively an employee of the organization. It is a part of techno structure according to Mintzberg organizational structure and sub-ordinate to executive directors and chief financial officer. However, internal audit function may be outsourced to external firm.

In both cases, internal auditor is venerable to intimidation threat (loss of job) from board of directors.

Internal auditor to be able to objectively assess performance on internal controls (for which board of directors are responsible), they need to be Independent from chain of command in the organization.

It means internal auditor should not report to finance director or chief financial officer effectively boss. Internal auditor should report directly to audit committee comprised of independent non-executive directors to claim their independence. However, they may consider reporting to audit committee and board together.