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Internal Audit is a very important function and it is very important for an internal auditor to understand the basic functions of an organisation so as to conclude the internal audit assignment effectively. In case of in-house internal audit department, the problem of industry specialization is low but if the internal audit is being done by the professional team, then to bring effective result, it is necessary that the internal auditor should be comfortable with the business process of the organisation where he is carrying out the internal audit assignment. This article critically analyzes the importance of industry specialization in Internal Audit.

Internal Audit is a function in which to carry out the responsibilities effectively, it is necessary to know the business processes. Generally it is thought that industry specialization is must for carrying out the internal audit and without industry specialization, it is not possible for carrying out the internal audit.

The golden rule is that “you can't audit what you don't understand "! The question here is: does "understanding the operations” of an organization mean that you need to be an industry specialist

In my opinion, this branch of thought is not correct. An internal auditor needs to be skeptical in his approach and he should be having following traits.

1. Thorough in his approach: An Internal auditor needs to be thorough in his approach. He should ensure that he analyze and understand the business process thoroughly.

2. Good relation with management: For being a successful internal auditor, it is important that the management believes in you. The auditee (Management) should have full reliance in Internal Auditor and they should share their problems with the internal auditors. They should not fear that Internal Auditor will make a fuss of small deviation and his aim is only to find out some small irregularities. The management must have faith in internal audit.

3. Good knowledge of Business Processes:  In any industry, the technical processes may be different but the business processes are same.  An internal auditor should have good knowledge of business processes which held him in finding out the deviations. It is also notable that all technical deviation has effect on business process so thorough analysis of business process enables an internal auditor to know about the deviations in technical processes.

4. Good understanding of Analysis tools and enterprises resource software. In the time of consolidation and integration, most of the process are integrated and put on a common platform which is called enterprises resource program. The internal auditor should be having good knowledge of enterprises software and integration logics. The knowledge of integration tools may help him in analyzing a process in a better manner.

5. Having Skeptical bent of mind: An Internal Auditor should be having skeptical bent of mind. No deviation should come out of his notice. He should be able to see the pattern and identify the deviation in first instance. In spite of being skeptical, he should be having good relations with the management and should be having a polished behaviour. This only helps him in getting success in his professional endeavour.

After analysis the basic qualities of an Internal Auditor, we will now analyze the positive part of having industry specialization.

The industry specialization helps an internal auditor to save time. An industry specialized internal auditor is generally aware about the fallouts of the industry specifics and he is able to get the result from the very date but this does have a drawback as well. Generally the specialized internal auditor does not carry out the due diligence analysis from the beginning itself and it may result that some inefficiencies are wrapped behind the curtains for long.   Even an industry specialist internal auditor should see that he analyze the processes afresh every year/period so that he get this limitation is curbed out. It is very evident that industry specialization may help an internal auditor to carry out the task little early but it does not limit the capability of a new internal auditor to carry the task effectively.


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Category Audit, Other Articles by - Ca Jai Prakash Agarwal 



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