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Internal audit
The need for internal audit
2.1 Factors that affect the need for internal audit
 The scale, diversity and
complexity of the company’s
activities
 The number of employees
 Cost/benefit
 Changes in the organisational
structures, reporting processes
or underlying MIS
 Changes in key risks
 Problems with existing internal
control systems.
 An increased number of
unexplained or unacceptable
events.
The larger, the more diverse and the more
complex a range of activities is, the more
there is to monitor (and the more opportunity
there is for certain things to go wrong).
As a proxy for size, the number of employees
signifies that larger organisations are more
likely to need internal audit to underpin
investor confidence than smaller concerns.
Management must be certain of the benefits
that will result from establishing internal audit
and they must obviously be seen to outweigh
the costs of the audit.
Any internal (or external) modification is
capable of changing the complexity of
operations and, accordingly, the risk.
The introduction of a new product, entering a
new market, a change in any of the
PEST/PESTEL factors or changes in the
industry might trigger the need for internal
audit.
Any problems with existing systems clearly
signify the need for a tightening of systems
and increased monitoring.
System failures or similar events are a clear
demonstration of internal control weakness
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