Environmental Control
A sound internal control system lays the foundation for internal audit, which tends to focus more on important audit issues rather than being distracted by less important areas. The first step in creating a better control environment is to formulate an ethical code for organizations. If ethical values and integrity are at the heart of organizational processes, the internal control environment will be better. Moreover, the
Strong HR policies are also important for improving the control environment. For example, hiring personnel who are members of accounting bodies that are actively engaged in raising moral values, arranging trainings for employees will be beneficial in creating a sound internal control environment across the enterprise. Moreover, a comprehensively developed organizational structure with a clear delineation of roles and responsibilities is well conducive to a sound internal control environment as well. In conclusion, from an internal audit perspective, the Internal Audit Department will need fewer resources in terms of time and money for example to audit an organization with a sound internal control environment.
Risk assessment procedures
Risk assessment procedures play an important role in determining the Control Risks of the organization. Working on the traditional risk equation (audit risk = inherent risk × control risk × disclosure risk) is one of the usual rules for audit teams during the planning stage. Internal auditors usually increase the scope of the audit and the extent of objective actions when control risks are assessed as high.
Control risk indicators
Internal auditors need to check the performance of those organizational employees who are assigned the duty of monitoring the general control environment of the enterprise from time to time and inform those responsible for Governance about shortcomings. Internal auditors will also have to assess the response of those responsible for governance in the implementation of corrective actions. Well-established guidelines for Monitoring Control Risks in organizations affect the scope of internal audit work to be performed.
Effectiveness of internal controls
Internal auditors need to assess the effectiveness of internal controls in the organization they audit. This can be achieved by giving due consideration to the two main components of internal control systems, namely policies and compliance. The organization may have well-established internal control policies but this does not allow internal auditors to reduce the scope of work if there are compliance problems regarding internal control policies. For example, if there is a clearly stated policy regarding the protection of confidential details of organizations using periodically changed passwords that are also generated by combining uppercase, lowercase, numeric and private letters , internal auditors will check compliance with the policy and raise marks, if the passwords are common phrases that have not yet been changed The specified time frame, for example.
Data analysis
At the planning stage of audits, data analytics through comprehensive analytics will allow internal auditors to gain a deeper understanding of the company and its surroundings, which will subsequently strengthen their risk assessment procedures and enable internal auditors to adjust their audit plan accordingly.
While conducting audits, a lot of data should be analyzed to obtain conclusive evidence before giving an audit opinion. Data analytics is a hot topic of discussion in the current corporate world and going forward, it will have wide-ranging effects on the ways in which internal audits will be handled in the future.
It will not only improve the sampling audit after a thorough analysis of the entire scenario surrounding the nature of the business in which the audited entity operates, but will also allow to detect trends and criteria that may have been lost in a sea of data previously, using data analytics.
Moreover, it will allow to make operational or financial forecasts about potentially risky transactions or events more accurately than before, thereby attracting auditors ' attention more towards important audit issues.
