The essential link between corporate governance and internal audit
Effective corporate governance and internal audit are vital to one another. The Institute of Internal Auditors (IIA) recently released their position paper on ‘Internal Auditing’s Role in Corporate Governance’ in which they stated: ‘A vibrant and agile internal audit function can be an indispensable resource supporting sound corporate governance.’
Corporate governance is the oversight of a company’s policies, procedures and practices usually handled by the board of directors. In our previous blog, we explained how routine internal audits can improve a company’s corporate governance. But what part specifically does internal audit play? And how does a strong relationship between the two benefit your company?
The role of internal audit in corporate governance
An internal audit can provide a fair and accurate review of governance processes, risk management and internal controls. As the third line of defence for a business, internal audit equips the board with a holistic view of governance structures and how well they are working within the company.
As professional insight into procedures and a catalyst for managers, audits can be effective when prompting change, improvements, and innovation within an organisation. By highlighting key areas of weakness and developing risks, an internal audit can identify and foresee emerging trends and challenges, keeping companies one step ahead and ready to act as soon as a crisis occurs.
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The focus of an audit can be based on the organisation’s needs and issues, as they are designed to provide assurance on the procedures in place to manage governance structures. An audit’s scope could include, but is not limited to:
- Board composition (skills, training, support)
- Information on meetings (minutes, attendance, topics)
- The input of stakeholders and the usefulness of their feedback
- The effectiveness of communication within the organisation, from top to bottom
- Any conflicts of interests
- Monitoring of risks and controls
- Tone at the top and the dynamic of the company
Poor corporate governance has led to the reputational damage of many high-profile organisations. Take for example Patisserie Valerie. The company failed to train and develop board member staff which eventually lead to the reputation of the executive chairman being severely damaged following a string of mistakes.
As the risks companies are facing continue to grow, businesses must ensure they continue to follow best practices to effectively mitigate them, including a risk-based approach to auditing. The IIA have named a number of risks that may be of concern for business, these include ‘new technologies, geopolitics, cybersecurity, and disruptive innovation’.
A risk-based approach to internal audits can strengthen an organisation’s corporate governance, providing assurance and insights on the processes and structures in place that ensure the company can succeed.
Now that you have a greater understanding of the link between corporate governance and internal audit, download our white paper, ‘Level Up: Risk-Based Auditing’ to find out how your company can establish a continuous risk-based audit execution process and improve your internal audit maturity.
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