What is the Role of Internal Audit in Risk Management?

Risk management represents policies and procedure adopted by an organization for identification, assessment, controlling, transferring and accepting operational and strategic risks. Risk management activities are aimed to protect value of shareholders / stakeholder. 

Internal audit is an independent and objective evaluation of internal controls with respect to each major business process. Internal audit is aimed at adding value to the business operation of a company. 

Companies face different types of risks. Importance ranking is different for each risk throughout the different stages of organizational development. Accordingly, risk management framework is also reviewed and updated. 

Most common risks faced by an organization include liquidity risk, reputation risk, interest rate risk, market risk, currency risk, operational risk, cyber security risk and strategic risk.

How internal audit can help in effective risk management? 

Internal audit is an important function within an organization. It helps to ensure that organization's operations are effective, efficient and in compliance with relevant laws and regulations.

It helps the organizations to manage risks effectively as internal auditors can identify potential risks and ways to mitigate them. An independent internal auditor evaluates the effectiveness of risk management process to ensure that there is no lip service / box ticking exercise by management. Therefore, internal audit can help to provide independent assurance / valuable suggestion(s) regarding risk management framework. Relevant assurance matters include 

1) Effectiveness of risk management culture throughout the organization; 

2) Understanding of risk management policies and procedure by the relevant process owners; 

3) Appropriateness of response given by management to identified and un-identified risks; 

4) Gaps in risk management policies; 

5) Implementation of approved risk management policies; and 

6) Relevance of risk management framework with respect of changing business environment. 

Overall, internal audit and risk management are closely linked as internal auditors play critical role in helping organizations identify and mitigate potential risks. They help the organizations to operate more effectively and efficiently, and protect against potential threats. 

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