Accountancy Age states that a more collaborative relationship between internal and external audit
will be a critical step as the profession strives to increase quality
and bolster its standing in the public eye, according to industry
voices.
“I think it would produce much stronger assurance,” says Liz
Sandwith, chief professional practices advisor at the Chartered
Institute for Internal Auditors (CIIA).
“Each side knowing and
understanding that control environment and what new and emerging risks
are being mitigated, would help them both do their job that much
better.”
Though fundamentally similar, several disparities exist between the
two functions. Internal audit will examine issues related to business
practices, while their external counterparts issue opinions regarding
financial statements and records.
The purpose of the two sides is also key. Internal audit reports act
as a tool for the organisation’s management, whereas external audit
caters to key stakeholders such as lenders, investors and creditors.
“Internal audit are there 365 days a year and, therefore, have a much
greater understanding of the organisation, and a much broader remit.
There is a real opportunity for external audit to build on this
knowledge rather than repeating it.”
Sandwith’s view largely resembles that of Sir Tony Redmond, who was commissioned by the UK government in 2020 to conduct a review
into the effectiveness of external audit and transparency of financial
reporting in local authorities. While focusing on the external side of
audit, the review makes several references to its relationship with
internal auditing.
“There is a question as to whether external audit could make more use
of the knowledge and expertise of internal audit in developing
sufficient understanding of the local authority,” it said.
“Internal auditors are likely to be much closer to the business than
external audit and, in many authorities, a proportion of their work
focuses on governance and service delivery matters. This could make
internal audit a rich source of knowledge, should the external audit
team wish to use it.”
I find it more than a little ironic that the usefulness of internal audit, and the need for collaborating with it, is only now being discussed when in 2002 I wrote about the Added Value of Internal Audit here is a brief extract:
"Internal audit provides independent objective assurance to the Board as to
the adequacy of the business controls, and the effectiveness of the
risk management and risk identification process.
In other words, the internal audit department should tell the Board when
the company is being poorly managed, where risks are not being
identified or mitigated and when the business objectives are not likely
to be met.
In addition to this very wide ranging remit, a well run internal audit department adds value in the following ways:
It acts as a training ground for future line managers, by exposing
fast track members of the department to a variety of situations,
activities and functions within the organisation.
It provides a “one stop shop” for best practice advice.
It provides an independent, objective opinion as to the quality of the business controls.
It stimulates risk awareness throughout the organisation.
It is a source of qualified, experienced talent that can aid management in business improvement programmes.
It provides specialist professional independent opinions on a variety of situations; such as due diligence exercises.
It reports on fraudulent activity within the organisation, with a view
to understanding how it happened and how to prevent it occurring again.
It ensures that the company wide initiatives, such as a code of conduct, are being adhered to.
In 2003 I went on to list the Attributes of a World Class Internal Audit Department based on my experience as Head of Internal Audit and International Forensic
Co-ordinator, in both Philips and De Beers.
It is more than a pity that it has taken almost 20 years for people to realise the worth of a well run internal audit department!
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