The Role and Limitations of Internal Audit.

The role of internal audit:

The internal audit has two key roles in relation to risk management.

1:Monitors the company's overall risk management policy to ensure it operates effectively.

2:Monitors the straregies implementes to ensure that they continue to operate effectively.

Internal may assist in the development of systems.However,its key role will be in monitoring the overall process and in providing assurance that teh systems which departments have designed meet objectives and operate effectively.It is important that the internal audit department retains its objectivity towards these aspects of its role,which is another reason why internal audit would generally not be involved in the assessment of risk and the design of the systems.

Limitations of internal audit:

Internal audits are employed by the organization and this cn be impair their independenc and objectivity and ability to report fraud/error to senior management because of perceived threats to their continued employment with in the company.to ensure the transparency ,best practice indicates that the internal audit should report both to management and those charged with governance(audit committee).Internal auditors are not required to be professionaly qualified and so there may be limitations in their knowledge and technical experties.

Objective of commercial organization and Business risk

Objective of a commercial organization: 

Objective of a commercial organization is to maximize share holder's wealth in two ways :
1:Through capital growth.

2:Payment of dividends.

Business risks to objectives:

There are two broad categories of risks towards the objectives of a commercial organization.
1. Internal Risks:

>Change in managerial duties

>Disruption in information system

>Employee accessibility to assets. 

>New personnel.

>Rapid expansion of operations.

>Incorporation of new technology.

>Corporate restructuring.

>Expansion/Acquisition of foreign operations.
2. External Risks:

>Natural disasters.

>Technological changes like competing technologies, transportation, communication, information.

>Operating environment change.

>Legislative change.

>Change in business conditions like money supply, interest rates, employment levels, demand, consumer.

>Regulatory change.

Internal Audit

Internal Auditing is an independent ,objective assurance and consulting activity designed to add value and improve an organization's opertions. It helps the organization to:

1: Accomplish its objectives by bringing a systematic,disciplined approach. 

2: To improve the effectiveness of risk management.

3: To improve controls.

4: To improve governance process.

If we focus again on Definition you will get some  points to focus on:
>Independence: Free from interference in determining scope,performing work and communicating results.
>Objective: NO undue influences.
>Assurance services: Its an objective examination of evidence to provide an independent assessment on risk manangement , control and governance process,E.g.,Financial performance,Compliance,System security and due diligence engagements.
>ConsultingServices:Advisory and related client services activities, E.G,Counsel,Advice,Facilitation,Process design,Training.
>Add Value: Benifits to owners,other stake holders,customer and clients.
>Governance Process: procedures of stake holders, E.G.,To provide oversight of risk and control processes of management.