7.6 Role of Internal Audit in Risk Monitoring
Internal audit is an activity that evaluates a company’s internal controls, including corporate governance and accounting processes, as well as risk monitoring. These audits ensure compliance with laws and regulations, maintain accurate financial reporting, and identify areas for improvement (Tuovila, 2024).
Internal Audit system supports Risk Monitoring in the following areas (The Institute of Internal Auditors, n.d.):
- Independent Assurance: Internal Audit provides independent and objective assurance on the effectiveness of risk management processes and internal control systems. This helps organizations assess whether their risk-monitoring activities are adequate and effective.
- Risk Assessment: Internal Audit conducts risk assessments to identify and analyze risks that could affect the achievement of organizational objectives. This supports ongoing risk monitoring efforts by highlighting areas of concern.
- Evaluation of Control Activities: Internal Audit reviews and evaluates control activities implemented to mitigate risks, ensuring they function as intended and effectively address identified risks.
- Monitoring of Risk Management Processes: Internal Audit assesses the quality and effectiveness of risk management processes over time, helping to ensure that risk monitoring activities remain relevant and effective.
- Reporting on Risk Issues: Internal Audit provides periodic reports to the Audit Committee and senior management on significant risk exposures and control issues, supporting ongoing risk monitoring efforts.
- Recommendations for Improvement: Internal Audit offers recommendations to improve risk management practices and internal controls, enhancing the organization’s ability to monitor and manage risks effectively.
- Advisory Role: Internal Audit can act as a consultant or advisor on risk-related matters, providing insights and expertise to support risk monitoring activities.
- Promoting Risk Awareness: Internal Audit helps foster a risk-aware culture throughout the organization, which supports more effective risk monitoring at all levels.
- Compliance Assurance: Internal Audit assesses compliance with laws, regulations, and internal policies, an important aspect of risk monitoring.
- Continuous Monitoring Support: Internal Audit can help implement and assess the effectiveness of continuous monitoring processes for key risks and controls.
By fulfilling these roles, Internal Audit supports Risk Monitoring by providing an independent perspective, enhancing the effectiveness of risk management processes, and offering valuable insights to improve the organization’s ability to identify, assess, and manage risks continuously.
