Emergence of Corporate Doctor: Internal Audit in a new Avatar

Need of a Corporate Doctor – Internal Audit

An organization which is able to meet its objectives consistently is termed as ‘healthy’. Risks – events which may prevent an organization in achieving its objectives – are inherent in every business activity; how effectively organizations manage risks determines to a great extent how well they succeed in accomplishing their objectives. Thus, to be healthy an organization needs to manage its risks successfully. Here arises need of a corporate doctor, who, by way of a structured approach, can help organizations in managing risks effectively. One of the structured approaches is Internal Audit (‘IA’). Risk management process, internal controls and governance are three threads which knits entire operations of an organization, and also act like a safety net for it. Their ineffectiveness can result in business failures (disasters in large organizations), and make even best of business ideas and strategies fail. To make these three frameworks (threads) more effective and strong, organizations need their continuous evaluation and improvement; this activity is performed by Internal Audit. Primarily, through IA organizations get an ‘independent and expert’ assessment of their risk management capabilities and effectiveness of governance and internal controls to mitigate key risks; and suggestions for improvement by way of controls, processes and (some time) strategies. Though it is more than that, internal audit activity, can be compared to a regular health check-up of an individual, where presence of symptoms of ill-health (read risks) are examined, adequacy and effectiveness of the measures taken for good health such as diet, exercise, medicine, etc. (read controls) are evaluated and suggestions for additional or alternate measures to maintain and improve health (read control improvement measures) are made. Evolvement of Internal Audit Not long ago IA was considered as a low value generating activity. To most of the corporate executives it meant an exercise which is conducted by accountants who focus on observing and reporting mistakes and is concentrated around accounting procedures and policy compliance. However, in the past few years IA has evolved significantly in terms of its approach, competency base and technology usage. With its key objective to help management minimize the risks in achieving business objectives, IA has moved its focus from compliance to risk management, controls and governance, besides maturing gradually over these years as a value add service. The Road Ahead Though, IA has emerged from the backyards of traditional accounting verification it faces new challenges in today’s business environment, which is becoming increasingly complex and competitive. With their increased responsibility and accountability, top management and oversight Boards expect more from today’s IA functions – greater coverage, comprehensive & authoritative assurance and enhanced business value. To transform itself into a new role, IA will require a greater level of business based competencies and understanding of the activities than previously may have been necessary. However, even with its current approach and competencies it is still one of the most effective tools available today to independently evaluate and strengthen the risk management capabilities of an organization, thus help the organization in achieving its objectives and to be healthy. In an era marked by corporate scandals and distrust, internal audit in its new avatar might be one of the answers that management is looking for to win back the confidence and trust of the stakeholders, and be truly healthy.