Chapter 9 Internal Audit

Jul 17, 2026

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Chapter 9 on internal audit explains why an internal audit function is needed and how its necessity depends on business scale, activity diversity, operational complexity, workforce size, cost-benefit tradeoffs, senior management interest, and the existing control environment. It outlines key differences between internal and external auditors, defines the role of internal audit in governance, risk management, internal controls, reliable information, compliance, and fraud prevention, and lists additional activities such as investigations, IT reviews, contract audits, asset verification, and support to external auditors. It also covers qualities of an effective IA function, key limitations, and outsourcing advantages and disadvantages, followed by examples of internal audit assignments including value for money, operational, IT systems, and financial audits.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages12

Reading Time30 min

Chapter – 9: Internal Audit Chapter – 9: Internal Audit Need for Internal Audit (‘IA’) The need for internal audit (IA) therefore will depend on: ✓ Scale and diversity of activities of a business ✓ Complexity of operations ✓ Number of employees ✓ Cost/benefit considerations ✓ Desire of senior management ✓ Current control environment Chapter – 9: Internal Audit Difference between internal and external auditors Chapter – 9: Internal Audit Role of IA Function Key role • Assessing if the company is following best corporate governance practices • Evaluating the company's risk identification and management processes. • Testing the effectiveness of internal controls. • Assessing the reliability of financial and operating information. • Assessing the economy, efficiency and effectiveness of operating activities • Assessing compliance with laws and regulations. • Providing recommendations on the prevention and detection of fraud Additional roles • Fraud investigations • IT systems reviews • Mystery shopper visits • Contract audits • Asset verification (including cash counts and physical inspection of non-current assets) • Providing direct assistance to the external auditor Chapter – 9: Internal Audit Qualities of an effective IA function • Sufficiently resourced • Well organized • Independent and objective • The chief internal auditor should be appointed by the audit committee to reduce management bias. • No operational responsibilities must be given to the IA function • The audit committee should set the plan of work. • There should be no limitation on the scope of their work Chapter – 9: Internal Audit Limitations of IA ✓ Internal auditors being the employees of the company, may not raise issues ✓ In smaller organisations , internal audit may be managed as part of the finance function. ✓ Familiarity threat may arise when the internal audit staff have worked in the organisation for a long time Chapter – 9: Internal Audit Outsourcing the internal audit function Advantages • Independence of professional firms from the client • Qualified, competent staff having specialist skills required for a job, exist with professional firms • These firms can be employed on a flexible basis • Employment costs of permanent staff are avoided • The risk of staff turnover is passed to the outsourcing firm • The company obtains access to new market place technologies without the associated costs, [e.g. data](e.g. data)[ ](e.g. data)analytic tools and audit software • Saving in management time earlier spent in administering an in-house department Disadvantages • Lack of understanding of the organisation when an outside agency is hired for IA • The decision may be based on cost with the effectiveness of the function being reduced. • Engagements with professional firms are constrained by contractual terms. • High fees charged by professional firms • An ethical threat

Jul 17, 2026

Upload by Violet