Internal Audit Resource Budgeting

It has been argued that internal audit is a cost center based on accounting principles. This is given that it does not generate income in the course of its activity but many have contested these positions, which is understandable. However, it is undisputed that internal audit adds value and saves the organization a lot of headaches and hassles that sometimes cannot be tangibly quantified. To effectively discharge its responsibilities, internal audit incurs a lot of cost, which are not limited to personnel cost, travel cost, fixed asset cost, software cost, training cost, etc.

Internal audit department produces a budget in the beginning of every fiscal year showing activities, projects and initiatives it intends to undertake, which it sends the board audit committee and executive management for consideration and approval. To achieve its assurance deliverables, the board audit committee and management must demonstrate support to the internal audit department by ensuring that resources needed for it to discharge its duties effectively and efficiently is provided.

Resources are budgeted based on the audit plan of the department. The audit budget will not be concluded if the audit plan for the department is not in place. Resources (personnel and financial) are allocated to each audit area based on what has been projected. The department can also budget for audit activity based on what was spent in executing similar audits in the past. Audit funding is essentially one of the ways management and the board audit committee demonstrate their support/backing for the internal audit function. Internal audit department that is underfunded will most likely be ineffective and inefficient as such will be evident in its performance.

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