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Governance · Board of directors · Internal audit

Why internal audit is an ally of the board of directors

For a director or a board member, internal audit often evokes control, compliance, sometimes constraint. This is a reductive view. Well positioned, internal audit is above all a management tool at the service of the board: an independent perspective that helps to see what standard reporting does not show.

Category: Governance Reading time: 4 minutes Series: Understanding Internal Audit (1/7)

Internal audit examines, in an objective manner, whether the organisation's risks are genuinely under control: do its processes function as intended? Do the mechanisms supposed to protect the company hold up in practice? Its scope is broad — operations, information systems, compliance, finance, strategy execution — extending far beyond the accounting dimension alone.

Independent assurance The primary role of the function
All risks A field wider than the accounts
Audit committee The affiliation that guarantees independence

What is internal audit really for?

An image helps to understand this. The board steers the company using a dashboard prepared by management. Internal audit, on the other hand, checks that the instruments on this dashboard are reliable — and flags those that indicate «all is well» when reality is more nuanced.

Internal audit, external audit: do not confuse them

Both are complementary, yet distinct:

  • The external audit (The registered auditor) certifies the annual accounts. Their mandate is statutory, periodic and focused on financial information.
  • The internal audit is an internal organisational function, which is permanent, covers all types of risk and operates on an ongoing basis. It informs management and the board on the actual operation of control systems.

Why consultancy is the primary beneficiary

A board of directors has a duty to oversee management and ensure that major risks are controlled. Yet most of the time, it only sees the company through the information passed on to it by management. Internal audit provides it with a source of information independent of that management: precisely where its value lies. For this reason, it reports to the board or its audit committee, and not solely to management.

Please note: for certain entities regulated by the Commission de Surveillance du Secteur Financier (CSSF), having an independent internal audit function is a requirement. However, the value of the function goes far beyond the regulatory framework: any organisation that manages significant risks stands to benefit.

A partner, not a copper

Modern internal audit is not limited to pointing out mistakes after the fact. It anticipates, advises and proposes improvements. Used well, it does not slow the business down: it helps it make better decisions, by giving the board the assurance that the foundations are solid.

Clarify the role of internal audit in your governance.

ARCAD supports boards and executive management teams in making it a genuine management tool.

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References & further reading

  • Global Internal Audit Standards, Institute of Internal Auditors (IIA), 2024 — definition of internal auditing.
  • CSSF internal audit requirements applicable to concerned regulated entities.
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