Internal Audit Organizations: Understanding the Context is Critical

Understanding the context is often a prerequisite for success.

There is an absolute need for internal audit organizations to understand the context in which they operate, the company’s strategy, its processes, the challenges and opportunities, and its evolution. The internal audit function needs to put its efforts where things matter to deliver value and achieve success. Deploying resources in areas where the business strategies and processes are not supported would be a waste of energy. Not deploying audit resources where topics are strategically or operationally critical would be a mistake.

There are three essential factors for internal audit organizations to consider to understand the context in which they operate. They need to understand who their stakeholders are and what are the external and internal issues.

Identifying its relevant stakeholders

An internal audit organization should determine which stakeholders are relevant. One question is critical: which ones present a risk to success if their needs and expectations are not met and provide opportunities to enhance the value delivered? Answering this allows the organization to identify needs and expectations, determine which ones to address, and install processes to fulfil them. Establishing an ongoing relationship with stakeholders is also a way to understand each other and the objectives being pursued.

Understanding the external issues

External issues exist outside of the internal audit organization and can affect its ability to achieve its goals and to provide value to the full. They include regulatory requirements, social, economic and cultural factors, and innovations and advances in technology. The pandemic we are going through is an example of an external issue with which audit organizations had to cope.

Understanding the internal issues

Internal issues exist within the organization. They include size and complexity, activities, strategy, type of products or services, performance, resources, level of competence and organizational knowledge, to name a few. These factors vary all the time. It is critical to monitor and evaluate them to take action as needed.

A successful internal audit organization identifies the needs and expectations of all relevant stakeholders. It analyzes them, evaluates and reviews them. It also installs processes for the monitoring, review and evaluation of external and internal issues. Very importantly, it takes action on these insights for the benefit of all. As the context of the internal audit organization is ever-changing, considering and addressing the three factors described is foundational for success.

By Marc Cwikowski
April 26, 2021

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