Internal Auditing: Effectiveness of the Internal Audit Function Be Improved - Coursework Example

Internal Auditing

Internal auditors perform internal audit process. It is a dynamic process engaged in helping the firm get its objectives. The procedure is independent, consulting activity and objective assurance designed to improve the risk management efficiency, governance and control protocols in a firm. It provides necessary recommendations derived from assessments and analyses with the aim of improving the organization’s management and processes (Lessambo 2013). Therefore, this paper seeks to find ways of accomplishing effective internal audit in protecting the interests of shareholders and how the findings can help in improving opinions of the external auditors.

The audit process should be done promote the interests of the shareholders. It is possible through enhancing the accountability and integrity of the auditing process. Therefore, governance of the company should make sure that the process is performed in time and feedback does not have biases. When integrity and accountability are achieved, the external audit can a find a platform to lay their foundation of thoughts. Therefore, the internal audit process should be detailed enough such that it can guide external auditors (Burnham and Horton 2013).

It is true that external auditors are entirely independent bodies that execute the function of reviewing an organization. The results retrieved from internal audit procedure provides insight on the opinions that external auditors would give concerning the company. One way to achieve the effectiveness of the audit process is to ensure that right terms are involved in the report, especially conditions that most affect the firm. The auditors are employees of a company, and their opinions are of great value. Their assessment and analysis result is reported to the shareholders of the firm. Therefore, the findings from internal audit process do act as a sound basis for test results of external audit procedure. Their opinions will be based on the data available from the internal audit protocol.

One way of protecting the interests of shareholders is to comply with standards of the company, laws, and regulations. Also, the frauds and conflicts in the company must be solved amicably so that the audit process cannot be jeopardized. It is an excellent way of improving the results of the audit process. As such the shareholders will be protected at all times since the company will be concentrated towards the mission and vision. Solving internal conflicts amicably means that the team management is perfect and workflow is perfect. It will improve the dignity of the audit process. The information results should be available to the shareholders in time so that the external auditors can assess and provide their opinions within exact duration to allow the involvement of governance in solving perceived issues.

One way to improve the internal audit process is through embracing the ethics that are involved in the process. It will ensure that flaws are well taken care of and that the results of the auditing process are legit (Tritschler et al. 2014). The credibility must be improved at all times. The main way to acquire it is through encouraging expertise in the area of duty. The employees I the audit department must be qualified personnel. Also, they must be allowed to work independently without any influence from the company’s management system will improve the outcome of the audit process. Their state of mind must be independent so that they can develop objectives that are viable and complies with shareholders expectations. When the above objectives are observed, the internal audit can provide valid information to external audit.

It is true that much work performed by internal auditors has relations with external auditing. In the process of evaluating the financial controls in the firm that are related to work that external auditors would do, internal auditors become instrumental. They must perform their duty in compliance with the International Standards on Auditing (ISAs) when relating to external auditors. Firstly, ISA 315 states that the external auditors can get the information related to misstatements of materials in the firm that are related to fraud or error. Secondly, portion 610 provides that external auditor to utilize the internal auditors’ work as a partial substitute for auditing evidence. Thirdly, under section 610, internal auditors should assist to the external auditors in their execution of auditing duty.

Complying with U.K. Corporate Governance Code will improve the internal audit process. Significantly, all the corporates are defined with the primary goal to maximize profits. In their financial analysis, the firm must comply with U.K. Corporate Governance Code that lay down the rules required for auditing. The code provides areas of concern such as leadership, accountability, effectiveness, and the relations with several shareholders of the company (FRC 2016). Therefore, in the process of auditing should place shareholder’s interest at the forefront. The shareholders’ participation in airing their opinions in the firm is very vital since it will assist the auditors in providing required recommendations (Sussan and Deborah 2002). Also, the code provides accountability and effectiveness. When the employees of auditing procedure are qualified, the audit process will be efficient.

The employment of right expertise in the field of the internal audit process is authentic in improving the process. The skills necessary at the management level is vital for the continuity of the firm since they will manage to deal with the complexities at hand. It means that employees’ experienced auditors and management will ensure that independence of carrying out duties is in place (Association of Chartered Certified Accountants (Great Britain) 2009). Acquiring independence is significant at helping the external auditors because the data they will get from internal audit department will be clean and free from prejudice.

Logical relationships between the internal auditors and governance are vital to improving the intern audit procedure. For example, the primary part of audit process would entail financial analysis. Through the financial statements, the directors will be in a position to determine the duration to which the company is capable of meeting its liabilities over a given time. The directors are therefore responsible for making a dynamic analysis of internal control and risk managements systems. Therefore, auditors are very vital to the directors, and a logical relationship is authentic among the two bodies since it will enhance the outcome of the auditing process.

Setting up an audit committee in compliance with FRC provisions is mandatory in improving the internal audit process. External agencies such as Financial Reporting Council are paramount at making sure that the codes of governance are followed within the firm (FRC 2016). Following the guidelines of FRC, the audit committee should be useful. To ensure they are working the chair should be functional and respectable. The layout of the audit committee states that largest companies should have at least three non-executive directors as members of the audit committee while two for smaller companies. Also, provision has it that firm’s chairman can be audit committee member but not chair it. According to code, the chairpersons be non-executives directors and that at least one person on the board should have relevant skills in finance (Deloitte n.d.). The guideline helps in improving the organizational flow of the audit committee, thus improvements of the internal audit process.

Practical chair of the audit committee comes with many advantages. It helps in following best practices in the company and that return improves. Therefore, the chairperson must be capable. The capability of the chair means the internal audit team can work appropriately, thus improving the outcome of the audit process. To conduct the effectiveness of the head through considering position description and its competencies. According to the Code, the chairperson is expected to provide reports and feedback, taking timely and corrective actions, and providing review report on the company’s issues to the shareholders. Improving the functionalities of the chair means that the interests of the shareholders are intact and findings are accurate. Furthermore, the external auditors will get a proper guidance I determining their analysis and assessments of the firm.

Furthermore, authenticating the role of the audit committee is vital in the company. First of all, the code gives other employees mandate to assess the management and directors of the firm and provide their views concerning governance system of the company (Lessambo 2013). Therefore, it is wise to clearly define the role of the audit committee in the enterprise. The financial analysis of the organisation is one of the most of the audit process. The board must be committed to providing reliable formal announcements that can help in developing the financial integrity of the firm. Providing a realistic economic analysis will assist in providing the shareholders with realistic hopes on their financial status with the company. The situation of the investors’ must be protected at all times while doing the financial analysis.

Also, the audit committee should be in a position to analyse the external auditors’ competence. The primary goal of determining the external auditors will aid in protecting the interests of the shareholders. An instance when the shareholders are not happy with certain protocols in the firm, it is the work of the audit committee to realize the problem and address it appropriately. The audit committee is responsible for appointing and removing external auditors while putting shareholders interest intact (SIAS, n.d.). Also, they approve the salary and terms of service of auditors.

Putting the interests of shareholders first-hand help at improving the internal audit process. It is worthwhile to put interests of the shareholders first-hand while doing the internal audit process. Practicing the right codes of ethics, following the guidance of U.K. Code of Corporate Governance, setting up an effective audit committee, and adhering to FRC’s regulations, together make the best way of ensuring the shareholders’ interests are in place. The internal audit report is vital in giving other external bodies ideas for argument basis. Therefore, the best quality report should entail efficiency and effectiveness of firm’s operations. Also, the report must contain careful management and finance issues without prejudice. It will help the shareholders in making their mind about investing in the firm (James 2010). The assets safeguarding is vital in the report as it makes the investors aware of the company’s direction regarding investments.

To gauge the quality of the audit reports, it must be clear, concise, accurate, and timely in release date regarding conducting period. The findings should at least contain the five standard C’s in the report. It will make internal audit process authentic. The "condition" will determine the identified problem; "criteria" will show unmet standard, and the "cause" explains the reason for problem occurrence (Accounting and Auditing Organization for Islamic Financial Institutions 2010). The "Consequence" will indicate the risk outcome of the problem while "corrective action" show the management work about the finding. Therefore, quality of the internal audit is fundamental to improving the company’s performance. Also, it protects the interests of the shareholders and provides an authentic source of opinion to the external auditors.