The internal audit department provides an independent and objective consulting and assurance in order to add value and improve the performance of the organization. It assists the organization to achieve its goals and objectives by implementing an organized and systematic approach. It helps in improving the efficiency of risk management, internal controls and corporate governance procedures (Marquette University, 2018).
In this context , Auditing Standard ASA 610 which pertains to ‘Using the Work of Internal Auditors ‘ deals with the accountability of the internal auditors . The goals of the internal audit function are evaluated by the management and assessed on the parameters defined by corporate governance (Auditing and Assurance Standards Board, 2013).
So, in this report, the assessment of the functions of internal audit department would be evaluated. Additionally, the criteria regarding the performance of the internal audit department would also be recommended.
According to IIA Netherlands (2018) internal auditing can be defined as an independent and objective consulting and assurance activity which is performed for enhancing the worth and improving the activities of the company. It assist the organization to achieve its goals by implementing an organized and systematic approach in order to assess and improve the effectiveness of its operations, risk management activities , internal controls and corporate governance practices.
Furthermore, the assessment of the performance of internal auditors should be done on the basis of the code of ethics which says that integrity, confidentiality, objectivity and competency are the main pillars on which the performance of internal audit is based. The code of ethics is the essential part of the system of quality assurance in the internal audit department.
It should be verified that an appropriate audit plan is being implemented in the internal audit department which is in accordance with the overall strategy of the organization. The internal audit department should assess the appropriateness of the internal controls and verify the existence of the assets of the organization. It should suggest proper safeguards for their protection (Al-Matari , Al-Swidi and Fadzil , 2014).
The internal audit department should evaluate that the company complies with the policies, procedures and sound business practices as stated by the corporate governance. It should further assess whether the organization is complying with the relevant laws and regulations of the state as well as with the contractual obligations. It should verify several operations and programs of the organization to assess whether the results are aligned with its objectives and the programs are being executed as per the schedule.
It should analyze the repetitive happening of frauds, theft, wastage processes and embezzlement in the organization and report the same to the management (Abdullah, 2014).
While the external auditors are responsible for auditing the financial statements of the company and presenting their view regarding the truth and fairness of the fiscal documents, the internal auditors are accountable for assuring that the risk management and control framework are adequate and effective to protect the organization from possible threats and frauds.
As per HM Treasury (2013) the framework for assessing the competence of the internal audit function should comprise of four sections –the first being evaluating the appropriateness of the role, status and independence of internal audit function so that it can fulfill its professional obligations. Its structure and resources should also be evaluated so that it can deliver the expected services. The impact which it creates on the corporate governance, risk and controls in the organization should be assessed along with analyzing the efficiency of the processes so that it can deliver quality auditing services to the company.
In the process of performing the evaluation, it should be considered that the internal audit service is in accordance with the statement of best practices. The evolution should be with combination of interviews with the stakeholders, questionnaires to be completed by the consumers and the staff, verification of the sample of completed audit files and reviewing any other supporting documents.
The independence of the internal auditor which comprise of the authority to access the records, the concerned personnel and the physical properties appropriate to the performance of the audit function should be evaluated in this regard. The internal audit services should be free of executive accountabilities so that it can provide quality and independent assurance to the management. The internal audit function should identify the potential conflict of interest, regulate and avoid those.
According to The Institute of Internal Auditors Australia (2017) the internal audit should be in confirmation with core principles for the professional practice of internal auditing and the internal standards for the professional practice of internal auditing. The core principles state that integrity, competence and professional care should be practiced while conducting internal audits.
According to IAASB (2014) the quality of the audit can be assessed by the engagement team by analyzing that appropriate values, attitudes and code of ethical conduct have been implemented while conducting internal audit. The internal auditors should possess appropriate knowledge, skills and expertise while conducting audits and they should be allotted sufficient time for performing the audit function.
It should be assessed that the auditors had applied rigorous auditing and quality control procedures which are in compliance with the applicable laws, regulations and standards. They should provide timey auditing reports which are relevant and useful. They should interact appropriately with the relevant stakeholders prior to the finalization of the audit reports.
The accountability for performing quality audits lies upon the internal auditors so quality audits are best achieved in a supportive environment where there are appropriate interactions amongst the stakeholders in the reporting supply chain. The auditors are required to comply with the applicable standards of accounting and quality control along with following the code of ethics and other relevant laws and regulations.
Certain factors which must be considered while determining the work of internal auditors are objectivity, due professional care, technical competence and communication. Objectivity can be referred to as determination of the status of the internal audit function within the organization and impact of the status on the capability of the auditors to be objective. It determines that the internal auditors report the matters to the officials responsible for corporate governance and if they can directly access those officials. The internal auditors should be relieved from any conflicting responsibilities (Mustafa et al., 2016).
There should be no constraints on the internal auditors and the corporate governance officials. It should be evaluated that up to what extent the management acts on the suggestions of the internal auditors and the method through which such action is recorded. Due professional care should be practiced while planning t, supervising, reviewing and documenting the internal audit activities. The accuracy and the existence of the audit manuals, work programs and documents related to internal audits should also be evaluated.
Technical competence refers to assessing if the internal auditors are members of the relevant institutions and they should possess appropriate training and proficiency as internal auditors. It should also be analyzed that the organization should have appropriate policies for recruiting and training of such auditors (Njoroge, 2013).
With the help of communication amongst the internal and external auditors, it should be evaluated that if the internal auditors are free from communicating with external auditors. It should be analyzed that the meetings are held appropriately at regular intervals and the external auditors are authorized to access the internal audit reports. The external auditors are informed about the crucial matters which might influence their work .The external auditors should also inform the internal auditors in cases where the relevant issues may affect their work (Tijani, 2014).
The external auditors should evaluate that to who does the internal auditors are reporting in the organization and verify their appropriateness. The head of the internal audit department should be free from impact of the operational management which can affect his objectivity. The head of the internal audit department should have direct access to the administrating body and its chairman, the chief executive and to the head of the audit committee.
It should be assessed whether the internal audit regularly verifies the control over the crucial accounting operations which have an impact on the financial reporting. The head of the internal audit should act in accordance with the suggestions of the external auditor and he should apply a professional approach to the audit assignments.
With the help of above mentioned criteria, it can be evaluated whether the work of the internal auditors can be relied upon or not (Lakovi?, Smolovi? and Stanov?i?, 2016).
Hence to conclude, it can be said that internal auditors play a very important role in the organization. They are accountable to verify the business processes of the organization and for assessing the efficiency of the risk management framework which are currently implemented in the organization.
Their function is to safeguard the organization against potential threats posed to the assets of the organization and ensure that it is complying with the relevant laws and statutes. The work of the internal auditors is evaluated by the external auditors regarding the assistance of their work in the external audit function and determining the adequacy of the work for the audit purpose.
Abdullah, R. B. (2014) Redefining internal audit performance: Impact on corporate governance [online] Available from: https://ro.ecu.edu.au/cgi/viewcontent.cgi?article=2568&context=theses [Accessed 17th May, 2018].
Al-Matari , E.M., Al-Swidi , A.K. and Fadzil , F.H.B.( 2014) The Effect of the Internal Audit and Firm Performance: A Proposed Research Framework. International Review of Management and Marketing.4(1),pp. 34-41.
Auditing and Assurance Standards Board(2013) Auditing Standard ASA 610 Using the Work of Internal Auditors [online] Available from: https://www.auasb.gov.au/admin/file/content102/c3/Nov13_ASA_610_Using_the_Work_of_Internal_Auditors.pdf [Accessed 17th May, 2018].
HM Treasury (2013) Internal Audit Quality Assessment Framework[online] Available from: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/204214/internal_audit_quality_assessment_framework.pdf [Accessed 17th May, 2018].
IAASB(2014) Framework for Audit Quality: Key Elements that Create an Environment for Audit Quality Audit [online] Available from: https://www.ifac.org/system/files/uploads/IAASB/Framework-for-Audit-Quality-Outline.pdf [Accessed 17th May, 2018].
IIA Netherlands (2018) Internal audit functions assessed [online] Available from: https://www.iia.nl/SiteFiles/IIA%20Internal%20audit%20functions%20assessed.pdf [Accessed 17th May, 2018].
Lakovi?, T. , Smolovi?, J.C. and Stanov?i?, T.(2016) The Internal Audit Function and the Quality of Financial Reporting: Empirical Evidence from Montenegro. Management International Conference [online] Available from: https://www.hippocampus.si/ISBN/978-961-6984-81-2/71.pdf [Accessed 17th May, 2018].
Marquette University(2018) Role Of Internal Audit [online] Available from: https://www.marquette.edu/riskunit/internalaudit/role.shtml [Accessed 17th May, 2018].
Mustafa, G., Fatima, S., Saleem , S. and Ain, N.U.(2016) An Empirical Study of Internal Audit and Firm Performance: A Proposed Research Framework. International Journal of Information Research and Review.3(3),pp. 1952-1956.
Njoroge, K.N.(2013) Factors Affecting the Performance of the Internal Audit Function in Government Ministries in Kenya [online] Available from: https://erepo.usiu.ac.ke/bitstream/handle/11732
The Institute of Internal Auditors Australia (2017) Quality Assessment of Internal Audit [online] Available from: https://iia.org.au/sf_docs/default-source/quality/pdf-toolkit/report-template-external-assessment.pdf?sfvrsn=2 [Accessed 17th May, 2018].
Tijani , G.(2014) Analyzing the importance of internal auditors for John Holt Nigeria Plc. [online] Available from: https://www.theseus.fi/bitstream/handle/10024/83223/TIJANI_GBENGA.pdf?sequence=1 [Accessed 17th May, 2018].
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