Importance of Internal Controls Review for any Organisation

The business environment today is becoming more competitive, increasingly complex and hugely exposed to risk. As the risk landscape expands, adopting new ways to deliver more value to differentiate your business becomes important.

Internal Controls Review is a key pillar of good governance. It provides all the stakeholders with an independent view on whether the organisation has an appropriate risk and control environment, whilst also acting as a catalyst for a strong risk and compliance culture within an organisation.

“Internal Controls Reviewing is an independent, objective assurance and consulting activity designed to add value and improve an organisation’s operations. It helps an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.”

Now let’s discuss objectives of Internal Controls Review: -

• Risk Assessment – To evaluate risks, Internal Controls Reviewers scrutinize the organization’s risk management processes, internal controls, and governance processes. After a detailed evaluation, auditors share the report with the senior management.
• Monitoring emerging risks – After consulting with the management, auditors understand the amount of risk the company is ready to take. This helps auditors in predicting future concerns and then provide solutions accordingly.
• Achievement of business objectives – Internal Controls Reviewing ensures that the company achieves excellence in its operations by complying with standard operating policies.
• Cost control management– Auditing practices facilitate the detection of frauds, losses, and prevention of the same. Auditing also checks the validity and authenticity of a company’s accounting and statistical records.

Hence, failure of conducting a regular Internal Controls Review can increase business exposure to unpredictable risks and potential deterrent.

Internal Controls Review executes a systematic and objective approach to examine the books of accounts, statutory records, documents and the current financial situation of an organization. Internal Controls Reviewing takes place with an aim to ascertain if the financial and non-financial disclosure of the company meets the true and fair view.

Internal Controls Review can take place daily, weekly, monthly or annually.

“Internal Controls Reviewers are the scrutinizers of the company; be sure you are not deaf and blind”

The following are the importance of Internal Controls Review: -

1. Organization receives key insight - Internal Controls Reviewing is a constant process of investigating business events. However, as a business owner, you cannot audit your own work with a critical eye. A separate team, free from operational responsibilities can objectively undertake the process of auditing internal records of an organization. Internal Controls Reviewing helps in identifying errors and redundancies in operational and control procedures. With an independent and unbiased view, Internal Controls Reviewers provide recommendations to improve the procedure to boost the efficiency and effectiveness of the business and as a result add value to the organization.
2. The overall efficiency of operations is improved - A constant and objective review of policies and procedures ensures that they are being executed as mentioned in the company’s documents. Hence, the organization is assured that the policies are being followed. It eliminates the risks that are foreseen. A regular audit includes a continuous monitoring and analysis of procedure which can enable a quick identification of control recommendations to increase the efficiency of the procedures. Thus enabling everyone to rely more on systems instead of individuals.
3. Risk assessment and evaluation - Internal Controls Review, through an effective risk assessment, enables an early identification of risks which helps the management and stakeholders to understand the gap areas and develop an action plan to mitigate the same. A structured audit plan can distinguish any changes in the environment. The audit team can help to establish a company’s defence policy against risks after identifying and documenting the risks.
4. Assesses controls - A regular Internal Controls Review examines the policies and procedures of the business and assesses the organization’s efficiency and operating effectiveness. Whenever there is an introduction of a new policy, a company’s Internal Controls Reviewer will check to ensure that the policy is in compliance.

Conclusion: -

The role of Internal Controls Review is becoming more central and strategic one. The scope of Internal Controls Review has grown from compliance to financial controls to more strategic decisions. It demands more skills and expertise from Internal Controls Reviewers. In this digital age, having only traditional skills is not sufficient. To balance the insufficiency, companies can either outsource Internal Controls Reviewing or train internal employees to move Internal Controls Review in the right direction and make it their core competency.

Authors

Yash Shah | Associate Consultant | LinkedIn Profile | yash.shah@masd.co.in

Prashant Taparia| Partner| LinkedIn Profile | prashant.taparia@masd.co.in

Gyanesh Shukla| Partner| LinkedIn Profile | gyanesh.shukla@masd.co.in