Objectives of Internal Audit in Organization

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Name of the Student
Name of the University
Author Note

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Table of Contents
Title............................................................................................................................................2
Rationale....................................................................................................................................2
Research Objectives...................................................................................................................3
Research Questions....................................................................................................................4
Literature Review.......................................................................................................................4
Theoretical Framework..........................................................................................................4
Internal Audit in Organization...............................................................................................6
Objectives of Internal Audit in Organization.........................................................................9
Mechanism of Internal Audit...........................................................................................10
Benefits Brought by Internal Audit in Organization............................................................12
Research Methods....................................................................................................................14
Conclusion & Recommendation for Future Research.............................................................15
Reference..................................................................................................................................17

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Title
The aim of this research paper is to do discussion on “role and importance of internal
audit in the organization”.
Rationale
Nowadays the business organization operates in competitive, fast and ever-changing
environment. The success of organization depends on ability to adjust according to change in
environment for fulfilling objectives of organization and managing risks as the landscape of
business evolves at regular interval of time. The organizations that were leader once in their
sector, have suffered greater decline in value and the sector status (Abbott et al. 2016).
Further, the major accounting and corporate scandals of organizations at beginning of 2000
such as WorldCom, Enron, Parmalat and Ahold, resulted into tightened law in form of
“Sarbanes Oxley Act of 2002” and the other legislations, regulations and recommendations
around the world. Even after introduction of these law and regulations, there were still many
fraud cases were found such as Toshiba internal audit scandal, Caverion alleged bribery cases
in Germany and others. These cases result in damaging reputation, loss of trust and financial
losses for company’s management (Al-Matari, Al-Swidi & Fadzil, 2014).
Recent scandals of corporate and resultant turmoil for honesty and transparency in the
reporting have raised two dissimilar yet the logical results. Firstly, the international skills of
auditing have become important in unravelling complicated manoeuvre of accounting, which
have complicated the financial statements. Secondly, demand of public for the changes as
well as subsequent actions of regulatory has transformed the corporate governance
(Annunziata, Rizzi & Frey, 2014). The directors and officers of company are under legal and
ethical examination. These trends have common objective of addressing responsibly to the
concerns of investors regarding system of financial reporting. However, there are great

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negligence in implementations of the findings and recommendation of internal audit
(Alzeban, 2015).
For assuring the shareholders and for managing those risks, organizations increased
their concern in the internal audit and the control. Further, objectivity, skills and perception
of the internal audit helps in assisting stakeholders and providing valuable insights. Internal
components are considered as vital mechanism of corporate governance. The information
disclosures regarding system of internal control is known to be the key component in the
process of reinstating trust of public in corporate integrity that is in wake of financial scandal
(Alzeban & Gwilliam, 2014).
There has been various research conducted in the area of importance and role played
by internal audit in company, however, none of research has provided with the conclusive
results. Hence, with the help of this research paper, insight will be gained on role and the
importance of organization’s internal audit (Alzeban, 2015). Further, discussion will be
objectives and benefits of internal audit in organization. In the current situation, this topic
holds great importance because of the need to strengthen system of internal control for
preventing any kind of losses in future (Alzeban & Sawan, 2015).
Research Objectives
The objectives of this paper are as follows:
The first objective is describing different theoretical framework related with the role
and importance of internal audit.
The second objective is explaining about internal audit in organization.
The third objective is explaining objectives of the internal audit in organization.
The fourth and the last objective is benefit brought by internal auditing in the
organization.

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Research Questions
This research paper aims for finding the answer of research questions. The research
questions are given below:
RQ: What is role and the importance of internal audit in and company?
1: What are objectives of the internal audit in an organization?
2: What are benefits that internal audit can bring to organization?
Literature Review
Theoretical Framework
Agency Theory
Agency theory is principle used for explaining and resolving issues in relationship
between the principals of business and their agents. This relationship is between principals,
shareholders and executives of company as agents. This theory states that the executives of
corporate have financial and moral duty for acting in best interests of parties they serve,
particularly the shareholders. Agency theory is based on philosophy and assumption that the
separation of management and ownership results in the transparency in audit (Baharud-din,
Shokiyah & Ibrahim, 2014). It is also based on argument that functions of the audit reduce
problem, which arises because of principals, who are firm’s stakeholders and owners and the
agents, who are management that undertakes assigned roles with firm’s managerial spheres.
The assumption of other theory is that the agency costs led to the audit practices design,
which are applied by companies for mitigating any problems of agency that may arises
(Arena & Jeppesen, 2016).
Stakeholders Theory

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The view of stakeholders’ theory is that the corporation’s duty is maximizing profits
that accrues to the shareholders. The management works on shareholder’s behalf for
delivering maximum returns for them that is either in form of the increased prices of shares or
in the form of dividends. This theory addresses business morals, values and ethics, when
managing the stakeholders, who are involved with the organization or project (Boyle,
DeZoort & Hermanson, 2015). It is the capitalism view, which stresses interconnected
relationship between the business and its investors, customers, communities, suppliers and
the others, who are having stake in organization. This theory provides best way to identify the
relevant stakeholders as the legitimacy surrounding stakeholder’s claims, urgency of
demands of the stakeholders and stakeholders’ powers over firm (Chambers & Odar, 2015).
Since performance of company and the internal audit is significant for the various
stakeholders including government, owners and the communities at large. Stakeholder’s
theory add knowledge on findings of study and the way stakeholders and get the advantage
through the strict adherence to the internal audit, as privilege to the good financial
performance. The stakeholder vests interest for ensuring that the resources are utilized to
greatest effect and that should respond to societal benefit (Chang, Ittner & Paz, 2014).
Contingency Theory
The contingency theory accounting explains the situational factors and it portrays that
the system of accounting is contingent upon these factors in the reality. This theory posits that
the internal audit might be more effective, when it is matched with the inherent nature of
experienced financial risks of organization. The crux of contingency theory in the internal
audit is finding out the fit between the contingent aspects and the internal practices of audit
management of firm (Christ et al. 2015). It establishes the plans of fit, which results in the
desired set of result. As per this theory, company embraces to focus on the financial risks
from beginning and establishes distinct process for checking resilience of organization to