Factors affecting the need for internal audit and controls

(Based partly on Turnbull guidance)

1. The nature of operations within the organisation arising from its sector, strategic positioning and main activities.

2. The scale and size of operations including factors such as the number of employees. It is generally assumed that larger and more complex organisations have a greater need for internal controls and audit than smaller ones owing to the number of activities occurring that give rise to potential problems.

3. Cost/benefit considerations. Management must weigh the benefits of instituting internal control and audit systems against the costs of doing so. This is likely to be an issue for medium-sized companies or companies experiencing growth.

4. Internal or external changes affecting activities, structures or risks. Changes arising from new products or internal activities can change the need for internal audit and so can external changes such as PESTEL factors.

5. Problems with existing systems, products and/or procedures including any increase in unexplained events. Repeated or persistent problems can signify the need for internal control and audit.

6. The need to comply with external requirements from relevant stock market regulations or laws.



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