What to do when you get Internal Audit Assignments

The role and importance of internal audit in development and monitoring of internal controls designed to mitigate business risk in no way can be denied. Internal Audit has gained popularity over the years and it is not only used by Listed companies as traditionally was done in past. It has also brought benefits of cost reduction in terms of operations and fees reduction for statutory assurance engagements. Internal Audit can be employed / outsourced for following projects / assignments;

  1. Value for Money (VFM)
  2. Best Value Audit
  3. Financial Audit
  4. Operation Audit
  5. IT Audit

Value for Money (VFM):

VFM audits focus primarily on Economy, Efficiency and Effectiveness of activities carried out in business. These also famously known as THREE E’s

  • Economy refers to getting resources at optimum possible cost. Achieving lowest cost is not the objective here as it may undermine quality of the resources. Example: For manufacturing an item Human Resource (Labor), Input (Raw Material) and Power (Electricity) are usually the resources.
  • Efficiency is concerned with maximizing Output with a given level of Input. The aim is to reduce wastages or bottlenecks in a process.
  • Effectiveness means whether the said process has achieved its desired objectives. Output per unit of Input measures effectiveness. A most common form of measuring effectiveness is ROI (Return over Investment).

Best Value:

A framework mostly used by government to compare performance of local authorities. It focuses on answering following questions;

Why the process / service is needed (Challenge?)

What others are doing (Comparison?)

Set targets in consultation with different stakeholders (Consultation)

Beat the market or competitors (Compete)

Financial and Operational Audit:

Both Financial and operational audits are part of traditional auditing; as seen in statutory audit. Financial Audit is concerned with performing procedures over Financial Statements / Financial reports. Operational audit is linked with ensuring policies implemented are adequate and complied with. Major areas covered under Operational audit are Procurement, Sales and Human Resource etc.

IT Audit:

Information Technology audit ranges from Desktop audit to Data Base Management system to E business. IT audit is becoming most commonly used services that come under internal audit.  It has proved to be a gateway or new strategic dimension to the field of Internal Audit. Specialist carrying out IT audit more often possess dual IT certification (such as CISA) along with accountancy degree.