March 12, 2023

Why internal audit is important

Internal auditing helps the entity to implement proper financial and operational controls and assures stakeholders that the entity's policies and procedures are being followed, as well as providing a safeguard against potential fraud or mismanagement.
Why Internal Audit is Important

Internal auditing is essential to any entity's control mechanism and governance, as it helps ensure proper financial and operational controls are in place. It assures stakeholders that the entity's policies and procedures are being followed, as well as providing a safeguard against potential fraud or mismanagement.

What is the primary role of internal auditing?

The primary role of an internal audit is to provide independent assurance that an entity's risk management, governance, and internal control processes are operating effectively.

Internal audit serves as the eyes and ears of the board and audit committee, assuring the veracity of financial data, adherence to the entity's policies, and compliance with relevant laws and regulations.

Auditors are instrumental in analyzing the effectiveness of risk management systems, control systems, and governance structures across the entity to ascertain that operations are conducted proficiently and effectively.

One must consider the six reasons why internal auditing is important for operational excellence:

  1. Offers unbiased viewpoint
  2. Increases operational efficiency
  3. Risks are assessed, and assets are safeguarded
  4. Evaluates entity controls
  5. Encourage adherence to laws and regulations
  6. Facilitates continuous improvement

1. Internal audit offers an unbiased viewpoint 

The Internal Audit function is endowed with a unique position within the entity's hierarchy, granting them the legitimate authority to identify potential risks and suggest areas for improvement.

They have adequate personnel expertise and technological resources to ensure their tasks can be carried out without hindrance. 

Furthermore, their unique placement in the entity allows them access to any information and individual associated.

2. Internal audit increases operational efficiency

An internal auditor impartially evaluates the entity's policies and procedures, identifying areas of deficiency and cost savings and recommending improvements to systems and processes.

By providing an independent review and analysis, the auditor can ensure that the entity runs as efficiently as possible and complies with the entity's policies and applicable laws and regulations.

3. Internal audit assesses the risks 

Identifying any known and potential risks that could impact the entity, its stakeholders, and its operations is essential.

When conducting a risk assessment, consider internal and external factors affecting the entity. Internal factors include processes, procedures, governance, management, and employee practices. External factors include environmental changes, economic conditions, competitive forces, and regulation changes.

Identified risks are then evaluated by considering the risk's likelihood and potential impact. After that, those risks are prioritized to focus on the most significant ones and devise an audit plan.

4. Internal audit evaluates the entity's controls

The internal audit evaluates the tone at the top within the entity by assessing the dedication of the Board and senior management to ethics and compliance. 

Moreover, the internal auditor considers how this commitment streams down the corporate structure. Hence, it incorporates reviewing the entity's policies and procedures and evaluating policy changes to guarantee conformance.

Likewise, the auditor interviews key personnel to understand the entity's ethical culture and atmosphere. The auditor reviews the development process of policies and procedures and their compliance to ensure that the commitment of top management is well translated into the entity's policies and that such policies are well communicated to the employees and relevant stakeholders.

Finally, an internal audit pays particular attention to any red flags or areas of concern and recommends addressing them.

5. Internal auditor validates the adherence to laws and regulations

Rules and regulations are important in shaping the entity's internal control mechanisms.

By performing an internal audit, entities can ensure they comply with applicable laws and regulations and build trust with their clients.

In addition, internal audits can help identify and address any issues before they become costly fines or penalties. Regular internal auditing can also help prepare entities for their external audit or regulatory inspection and stay ahead of any potential issues.

6. Internal audit facilitates continuous improvement

Through the internal audit process, employees are made aware of their responsibilities, which helps to keep them alert and motivated. Hence, it can improve efficiency and performance, as employees are more likely to take their roles seriously and strive to do their best.

The internal auditor can identify the gaps in resources and skills within an entity where they are most needed. In addition, the auditor may validate the performance measurement mechanism and provide feedback to improve it where needed.

Further, during the audit, the auditor may seek employee feedback on improving the entity's processes that keep the employees engaged and motivated.


In conclusion, an internal audit adds value to any entity by providing independent and objective assurance to the management and stakeholders about its processes and controls.

The internal audit seeks to ensure that all operations are conducted in accordance with the policies and procedures of the entity and that all resources are used efficiently and effectively. Furthermore, it helps identify areas of potential risk and can be used to improve performance.

Do share your thoughts and experience in the comments below.

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