This article highlights why measuring audit's performance is critical and how it can help improve overall business performance.Download a Insight
Over the years, the Internal Audit function has gained popularity as the guardian of good corporate governance and business performance. Considering that, measuring the Internal Audit’s performance can play a critical role in your organization’s overall business performance. Moreover, regulators and investors are demanding increased scrutiny of an organization’s operations, making the Chief Audit Executive’s (CAE) job more complex and challenging.
As investors place more emphasis on business fundamentals and management credibility, the CAE’s oversight of planning and performance takes on a new urgency.
Measuring performance ensures high standards for audit strategy, execution, and reporting. In addition, it helps you integrate the audit strategy with the organization’s overall business strategy, thereby linking the audit’s performance to the organization’s mission and objective. This ensures that all stakeholder audit needs are fulfilled.
Key benchmarks of performance measurement outlined by leading research institutes and a few regulators include:
- Effectiveness of audit in covering key areas
- Feedback of audit findings during audit
- Duration and timeliness of the audit
- Accuracy of audit findings
- Value of the audit recommendation
- Value added by the internal audit function
The first step in assessing the Internal Audit function involves reviewing the management’s expectations and achievements. This can also include measures of improvement to achieve better results, if required, and should be formally reported to the board/ CEO.
Keeping Track of Performance
The Internal Audit function can be kept on track by understanding the business and its changes, as well as the team’s role in creating business value. Today’s executive management and business unit managers want auditors to clearly understand the underpinnings of business. This is essential not only to assess the business operations but also to foster a healthy relationship.
Another key point is integrating the Internal Audit function with corporate governance. The Internal Audit function should become an integral part of governance with focus to provide independent advice to directors on the organization’s ability to meet its governance obligations.
The practical performance of the audit program is not just in the technicality of the audit function but also in its correctness. Essentially, auditing and the measurement system need to be kept transparent. It also leads to high level of trust the most critical factor for success.
Finally, the Internal Audit function needs to focus on improving business performance by being fully integrated into the business and adding value by supporting strategic business objective.
With such a vital role to play in corporate governance and business performance, it is critical for the Internal Audit team to maintain oversight of the traditional requirements, and, at the same time, evolve with the demands of the role. CAEs would need to align people, process, and systems with the overall organizational objective, allowing the executive management to confidently answer the critical questions that investors are asking today.