About Internal audit
Internal audits evaluate a company’s internal controls, including its corporate governance and accounting processes. These types of audits ensure compliance with laws and regulations and help to maintain accurate and timely financial reporting and data collection. Internal auditors are hired by companies who work on behalf of their management teams. These audits also provide management with the tools necessary to attain operational efficiency by identifying problems and correcting lapses before they are discovered in an external audit. An internal audit offers risk management and evaluates the effectiveness of many different aspects of the company.
Some future trends of Internal audit :
1. Privacy focus will be the key compliance:
More and more number of privacy regulations are expected to be made, it requires Internal audit to be more informed so as to know different risks of privacy. This also helps them to identify compliance risks and to make controls for mitigating risks. Internal audit must start incorporating privacy considerations into its enterprise risk assessments.
Internal audit is responsible for validating the organization’s data classification policy. To do this, Internal audit will have to review the processes for collecting, analyzing , storing, and sharing personal information to ensure compliance with current and new data regulations. This will not only help to identify current and emerging risks but also to draft a roadmap for future compliance efforts.
2. Third party risk management will become a concern
There is an increase on reliance on third party for the purpose of various business functions. Unfortunately, many organizations are unsure where their data goes or who has access to it once it is shared with a third party, which leads to non compliance, penalties, legal action, and reputational damage.
As third-party relationships increase an organization’s exposure to new risks, formalizing an effective third-party risk management (TPRM) program to mitigate these risks will become a common practice. Internal audit can assist in this process by:
- Reviewing the existing TPRM program to assess processes and controls, including third-party selection, contract negotiation, ongoing monitoring, and vendor termination
- Validating that the TPRM program is meeting organizational concerns in various areas, such as data privacy, cybersecurity, contracts, business strategy, etc.
- Evaluating management’s oversight of vendor performance and contractual obligations with the third party.
- Detecting critical or high-risk third parties and ensuring they are evaluated and monitored more frequently.
- Conducting an assessment of third-party risk management controls and recommending opportunities for improvement on lacking controls.
3. Values and company culture are now recognised as material to growth:
Shareholders, customers and employees now-a-days are all increasingly concerned with the ethics of the companies they engage with. From the environmental impact of the company’s activities to the core values it places ahead of making a profit and how its employees are treated,
stakeholders are eager to know whether the image a company projects is upheld throughout the organisation , with failure to uphold these values leading to material losses.
Internal auditors can help provide a detailed and realistic view of where a company’s external values and internal culture either align or diverge, identifying key areas of risk. Frameworks published by the Institute of Business Ethics provide helpful guidance on how to internally audit company culture and ethics, but should be used in conjunction with the internal auditor’s understanding of their company.
4. Disruption is now the norm
Another important change organization have been facing is a considerable increase in external disruption. While the past three years might seem like an extreme example of this, global leaders agree that major disruptive events are likely to become more frequent and severe. Here, internal audit teams can help their organizations stay prepared for challenges in the face of an unpredictable external landscape. By remaining informed of potential destabilizing factors and regularly assessing the organization’s level of preparedness, internal auditors can have a measurable impact on how their company fares in times of crisis.
5. ESG and sustainability metrics are being monitored more closely than ever
The goal of ESG reporting is comparing company’s standards with those with the industry benchmarks. ESG reporting is the disclosure of information about business operations in relation to environmental, social and governance (ESG) areas of the business.. It also provides stakeholders with valuable insights important for key decision making Internal audit at times can also provide value by not only assessing internal controls but also design controls for management. It’s important for internal audit to develop a strategy regarding auditing ESG-related metrics and topics. Through ESG reporting, companies can show how they’re meeting milestones and targets laid out in their ESG strategy while keeping stakeholders informed of the materiality and impact of the strategy.
Conclusion:
The role and the responsibility on the auditors is increasing day-by-day whether it is for external auditor for statutory purpose or Internal auditor for meeting management’s expectation. The changing business environment and regulatory requirements brings more different kinds of assignment for internal auditor and thus increasing the scope of work.
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Authors Umesh Vishwakarma, Director (umesh@bilimoriamehta.com), and Suyash Pansare, Associate Consultant, can be contacted for inquiries at blogs@bilimoriamehta.com or +91 98709 25375, +91 99305 98581.
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