A value adding internal audit function supportive to corporate governance for gaining a strategic advantage

Abstract

A value adding internal audit function supportive to corporate governance for gaining a strategic advantage. The aim of this study is to develop an integrated model for a value adding internal audit function, supportive to corporate governance, for gaining a strategic advantage. Studies indicate that investors are willing to pay a premium for shares of a company with good governance and that the exercising of ownership interests focus management on corporate governance and performance issues resulting in an increased return on investment. It is thus difficult to comprehend recent surveys indicating that no South African company fully comply with the requirements of the King Report on corporate governance. The components of a value adding internal audit function were established, as a modern internal audit function is required to add value. The ten most significant components are independence, status, skills, professionalism, audit methodology, strategic direction, risk management, assurance consultants, risk assurance partnering and performance measurement. The value adding abilities of a modern internal audit function are enhancing of the control environment, assisting management with the identification and improvement of control and performance weaknesses, enhancing the quality of the management process, improving management's understanding of internal control and risk management, enhancing fraud prevention and detection and enabling the demonstration of corporate governance compliance. The most significant corporate governance principles are accountability, communication, structure, goals and strategy, control environment, risk management, ethics, affirmative action, environmental management and worker participation. Enhancement of shareholder value and stakeholder assurance were identified as the strategic advantages to be gained from corporate governance. It was established that all the components of a value adding internal audit function must be present to deliver value. Internal audit must provide the full spectrum of value to support corporate governance. All the corporate governance principles must be embraced for the gaining of strategic advantages. A model has been developed demonstrating the integration of the above mentioned.