WHY A RISK-BASED METHODOLOGY IS THE BEST AUDIT APPROACH

The internal audit team in most companies often suffers from what is termed as “audit fatigue”, bogged down by the time-consuming nature of audits. Facilitating an internal audit requires precision and a perfectly seamless process flow which is why choosing the right approach can make all the difference.

As opposed to the more traditional controls-based approach that inspects and verifies that compliance and financial controls that are based on several criteria, the risk-based methodology can yield more productive and insightful outcomes.

Here are the five steps that are involved in applying a risk-based technique for internal audits:

1. Planning and Risk Identification: To begin with, companies are required to establish and confirm their understanding of company management. This helps identify the scope of the company’s services. One of the primary components of this step is to assess internal control at the entity level and identify and understand business and other risks (including IT environment complexity and fraud risks), and as part of the audit planning process, design services to address these risks and their implications on the company’s financial statements.
2. Risk Assessment: Existing knowledge is used to assess the company’s financial reporting risk – particularly in business-critical areas. This step helps to identify issues and their impact on the company early on and allows time for a thorough investigation in order to set up a robust risk response framework.
3. Evaluation of Internal Controls: Robust internal controls are key to a stable organisation as they ensure that the necessary safeguards have been set up to ensure that financial reporting objectives are successfully achieved. At this stage, the existing internal controls are evaluated and alternatives suggested if required, to reduce the risk of financial inaccuracies or misstatements in the company’s financial statements.
4. Audit Testing: The Audit Testing process involves drawing the understanding of the business and the risk assessment. This step can include tests of controls, tests of journal entries and other mandatory fraud procedures, substantive procedures of significant account balances and transactions and general audit procedures. Continuous communication is critical for delivering a seamless audit.
5. Conclusion and Reporting: This is the wrap-up step of the engagement. The key deliverables in this step are review reports or audit opinions on financial statements and management letters to bring to attention significant audit, system and control issues.

In addition to setting up a robust audit approach, companies should also ensure that they partner with auditors that adhere to frameworks defined in consistency with the International Standards on Auditing (ISA). This involves having a specific focus on ethics, confidentiality, training and documentation.

WHY MBG CORPORATE SERVICES?

MBG Corporate Services provides independent audit services that will help to enhance the reliability and credibility of the financial reporting of our clients. With our team of skilled and experienced audit professionals, we work with clients and relevant external parties to understand the changing business environment. What distinguishes us is the fact that our senior team spends more time focusing on the significant issues facing companies’ business, using proven methodologies and technologies. We add value beyond financial statements through the business insights we bring to each engagement. Our independent audit services enhance companies’ reliability and credibility. We also understand that providing exceptional client service starts with understanding our clients’ expectations. For more details, please get in touch with us at [email protected]