Advantage of internal audits in Sri Lankan context;
Strong internal control systems – To put simply Internal control is what we do to see that the things we want to happen will happen and the things we don’t want to happen won’t happen. Internal controls include actions, systems, and processes. It is the duty of an internal auditor to make sure that internal controls function as they should. Due to rapid digitalization, decentralization, and relaxed internal controls in Sri Lanka due to the COVID-19 restrictions, internal auditors in Sri Lanka have a significant role to play in this regard.
Efficiency and effectiveness of operations – Internal audit evaluates controls and implement recommendations to improve the efficiency and effectiveness of organizations. With the ever-increasing staff cost in Sri Lanka and relatively high staff turnovers in Sri Lanka, this allows the Sri Lankan companies to be dependent on the processes, rather than employees.
Identify risks – For Sri Lankan companies managing risks has become essential for success. Changes in the external environment in Sri Lanka (political, economic, environmental, etc.) have put Sri Lankan organisations under increasing pressure to identify all the business risks they face and to explain how they manage them. Internal auditors play a vital role in identifying internal as well as external risks organisations face.
Detects and reduces frauds – Unfortunately, frauds have become a common and everyday occurrence in Sri Lanka. Almost all Sri Lankan companies have faced similar incidents. As internal auditors in Sri Lanka, it is our responsibility to not only detect frauds in our clients but also to prevent them.
Compliance with rules and regulations – Internal auditors have to play a vital role in a country like Sri Lanka with continuous changes to regulatory rules and regulations. It is the responsibility of the internal auditors to ensure compliance with any and all relevant laws and regulations. Internal audits can also help your organization to prepare for ISO and other statutory audits.
Increase reliability of the company – Internal audits can help Sri Lankan companies to ensure transparency and efficiency in company processes. By showing this to the public, companies can help build trust between employees, customers, providers, and partners.
Possible disadvantages of internal audits in Sri Lankan context;
High Cost – The cost of establishing and operating an internal audit in an organization is very expensive. To reduce the costs of internal audits Sri Lankan companies have the ability to outsource internal audit functions to expert audit firms like Ranwatta & Co.
Unsuitable for Small Organization – Internal audit due to involvement of high cost is not suitable for small organizations. But this may not be the case for all situations small businessmen in Sri Lanka can outsource and conduct specific functions such as cash, human resources, procurement, etc. Small businessmen can consult audit firms or consultants in Sri Lanka to identify focus areas for internal audits.
Ineffectiveness – When the records of operations are not checked immediately after they are completed or when there is a time lag between two audits, internal audits may become ineffective.Unreliable Opinion – If the Internal auditors are employees of the organization the reports given by them may not be true and fair. It is recommended to outsource internal audit functions to maintain the internal auditor’s independence.
Article By – Sithira Ranwatta