IMPACT An empirical study on internal audit

                    IMPACT OF
INTERNAL AUDIT ON CORPORATE

                                                      

                                                    
 GOVERNANCE

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                                                An empirical study on internal audit

                                                                  
In Pakistan

 

Chapter 1

                                                   
Introduction

1.1  Importance

 

 Corporate governance is the structure by which
companies are planned and restricted. Boards of directors are answerable for
the governance of their companies. The shareholders’ responsibility in
governance is to hire the directors and the auditors and to assure themselves
that a proper governance composition is in place. The task of the board consist
of locate the company’s strategic aims, providing the leadership to set them
into outcome, supervising the management of the business and reporting to shareholders.

 

             The importance of corporate governance is to assist
valuable, capitalist and effective management that can bring the durable achievement
of the company. While it found that corporate
governance is a “topic of increasing interest to policymakers, investors and
other stakeholders”. But in reality, all companies fight
in an environment where good governance is a business necessary in relation to
things like:

·        
raising capital;

·        
securing debt;

·        
attracting and maintaining capable, skilled directors;

·        
meeting the demands and expectations of shareholders;

 

          “Corporate governance” is not a
single word. It is the term that explains the processes, practices and
structures through which a company maintain its business and activities and
works to assemble its financial, operational and strategic objectives and
achieve durable sustainability. Corporate governance requires qualified
Board of directors, efficient management, skilled employees, policies and proper
decisions which is according to law which enhances the capability of any
business to achieve its requirements, goals and profits and minimize risk of a
business.

              I must say that a good corporate governance
play a vital role for any organization. If I say that it is the back bone of
any company it is not wrong. Corporate governance is as a result about
what the board of a company does and how it sets the ethics of the company, and
it is to be well-known from the day to day prepared management of the company
by permanent executives.

         

            If we talk
about the internal audit it is the process of an independent assurance which examines
the operating efficiency of organization’s risk management, governance and
internal control processes. Internal auditor is responsible for internal audit.
It is the duty of an internal auditor to provide unbiased and objective view. He
must be independent from the operations he evaluate and report to the highest
level in an organization.

 

          For increasing
the efficiency of internal audit is must be done by qualified, skilled and
experienced people which have know how about the Code of Ethics and
International Standards. Internal audit includes;

·        
Assessing the risk management;

·        
Improvements of internal control;

·        
Evaluating controls and advising mangers at all
level;

·        
Analyzing operations and confirm information;

 

      The main objective of internal auditing
is to determine the organization’s procedures and improved organization’s processes.
Good internal audits not only decrease external auditing involvement, improve
effective processes and also increase the productivity of an organization’s.
Internal audit not only play role in income increasing and decreasing product
cost but also improve the profitability and satisfaction of owner or
shareholders. 

 
     

           Without a system of internal controls, a
company would not be able to create reliable financial reports for internal or
external purposes. Thus internal audit is very necessary to improve the
internal control system. It is very important for an organization accomplish its objectives by a systematic

disciplined
approach. Internal audit is the simple and best way for an organization to
improve its operations for achieving best outcomes as it wants.

       

         Without internal audit, it is
always become a challenging situation for a new organization which just comes
out in the market. It could be worse because of weakly cooperate governance as
the result of inefficiency of employees for doing their operational activity in
best manner.

1.2 Recent Past Research

INTERNAL
auditing is an integral part of the corporate governance mosaic in both
the public and the private sectors (Cohen et. al., 2002). Internal audit has high impact on
corporate governance in Pakistan. As in Pakistan there is not so much developed
organizations. The importance of this growing trend in recent years, which
advocates the need to improve oversight of the performance management and the
department itself, it can be attributed the appearance of this trend to three
factors, namely: (Sadani 2005, p. 188-190)

 

1. Increase in cases of failed companies and bankruptcy.

2. Change in ownership patterns of companies.

3. Changes in the regulatory environment in which companies
operate.

 

 Misappropriation of funds and corruption
are now the order of the day in the public sector in all countries due to weak internal
control systems (Van Gansberghe, 2005).