Five Steps Involved in a Risk-Based Technique for Internal Audits
Companies are increasingly facing different types of risks that affect how they operate. Identifying and managing these risks has become critical in the wake of some high-profile corporate failures in the past. The companies need to get accurate information about their risk capacity, risk appetite, and other risk-related factors. Only Internal auditors in Dubai, experienced in carrying out a risk-based audit, can provide you with such critical information about your company.
Risk-based internal audits (RBIA) place the risk at the centre of the audit strategy for addressing management’s top priority risks. During an audit cycle, auditors in Dubai will address these risks and then report to provide insights back to the senior management team so that they can make well-informed decisions in the next steps. Continue reading to know what is an RBIA and the key five steps it constitutes.
What’s a Risk-based Internal Audit?
The Chartered Institute of Internal Auditors (CIIA) defines RBIA as: “A methodology that links internal auditing to an organisation’s overall risk framework. RBIA allows internal audit to assure the board that risk management processes are managing risks effectively, about the risk appetite.”
Unlike a traditional internal audit, a risk-based audit will have an audit plan that focuses on risks. Here, the auditors attempt to address the company’s highest priority risks first. In a traditional audit universe, the focus will be on processes, controls or specific areas. The risk-based approach to audit views audit from an entirely different perspective: analysing and managing risks.
The risk-based approach enables audit firms in Dubai to assess the importance and performance of each audit area. In a nutshell, this kind of risk-based audit approach links the firm’s internal audit function to its overall risk management framework. RBIA ensures that the companies achieve their goals and objectives while focussing on how they respond to risks when they occur.
How Does Risk-Based Approach Audit Work?
An RBIA has several steps that internal auditors in Dubai strictly follow. Management of the companies should understand these steps to enhance the scope of risk management. The following are some of the important steps involved in a risk-based approach to the audit:
1. Assessing Risks
Audits that involve a risk-based approach begin with the auditors assessing the company’s organisational risks. They consider the processes and departments they audit and assign a risk level for each area. The audit firms in Dubai may consider several factors during an audit such as performance risks, compliance risks, or risks to the company’s operations.
In normal practice, the auditors rank each area by assigning it a score. Once the assessment of all the areas is done, they combine the scores to provide an overall risk score for a process or department. In this way, the internal auditors can separate high-risk areas from low-risk areas.
2. Audit Plan Modification to Include Risks
Once the risk rankings are assigned, the auditors will create an audit plan. The areas prone to higher risks will get priority in the audit schedule. It means the high-risk areas will get more attention and will be audited more frequently. Low-risk areas are not a priority, but they will not be abandoned. Instead, auditors in Dubai will audit the low-risk areas less frequently.
The final audit plan will define various aspects of the audit process such as timing of the audit, resources required and size of the team etc. The higher-risk areas require more time, and more resources and it will take a long time to finish. Lower-risk areas will not have similar requirements. Hire the best internal audit firms in Dubai to ensure everything is done the right way.
3. Carrying out a Risk-based Audit in Dubai
After completing all the pre-audit assessments, the RBIA finally happens in this step. At this juncture, the auditors turn the audit plan into action. The audit process will be longer for high-risk areas as they require adequate time to ensure such areas have proper risk management. Auditors then report their findings and submit recommendations on the weaknesses they identified.
4. Risk-Based Follow Up
The auditors are required to carry out follow-ups for any deficiencies they discovered during the internal audit process. Generally, the auditors in Dubai will track the audit report recommendations to see whether the management has resolved any weaknesses mentioned in the report. The auditors also assign a risk level for each finding in the report so that they can effectively follow up on the high-risk findings.
5. Monitor Changes in Risk
Risk-based approach audits also require auditors to monitor the risks continuously. As mentioned, auditors investigate various processes to identify risk areas. Based on that, they assign ratings to each area. However, these risks may change with any changes in the company’s external or internal environment. Therefore, auditors need to be aware of any fluctuations in the risk levels.
Hire the Best Internal Audit Firms in Dubai for Risk-Based Audits
Risk-based approach audits are especially helpful for companies going through substantial changes. During an internal audit, the auditors in Dubai identify the higher-risk and lower-risk areas, which enables the companies to develop an efficient and effective approach to risk management. The companies need to hire the best audit firms in Dubai with sufficient experience in conducting risk-based audits. Jitendra Chartered Accountants (JCA) is one of the best audit firms in Dubai with over 20 years of commendable experience in the industry.
Our team of highly qualified audit professionals, work with clients and relevant external parties to understand the changing business environment. What distinguishes us is the fact that our team spends more time focusing on the significant issues facing companies’ businesses, using proven methodologies and technologies. We add value beyond financial statements through the business insights we bring to each engagement. JCA believes that providing exceptional client service starts with understanding our clients’ expectations.