Arguments for and against establishing IA dept (for non listed companies)

For,

 If the company has some relatively complex systems, IA may be able to offer VFM services of
review potential upgrades to these systems checking against whether value for money is
provided.
 While not complex, systems must provide accurate information. IA can audit these systems in
detail to ensure that they provide accurate information.
 If maintenance of computer system is critical to a company, without computers the company
cannot operate. IA could review the effectiveness of backup and disaster recovery
arrangements.
 If internal control systems are limited, IA could check whether basic control systems are needed,
recommending implementation of controls where appropriate.
 If external audit is required, IA may decrease the audit fee for external audit, as external
auditors can place reliance on the work of IA. This is unlikely to happen during the first year of
internal audit due to lack of experience.
 Provision of IA will enable the company to provide a better ‘image’ to its clients or customers.
 Although non listen companies need not comply with corporate governance regulations, IA
could still recommend policies for good corporate governance.

Against

 As there is no statutory requirement, the directors may see IA as a waste of time and money and
therefore not consider establishing the department.
 If many systems are not necessarily complex, directors may not see the need for another
department to review their operations, check integrity etc.
 There would be a cost of establishing and maintaining the IA department. If the company is too
small with trustworthy employees, the cost of establishing IA department will out pass the
benefits.
 Some directors may feel challenged by an internal audit department reviewing their work. They
are therefore likely to not want to establish an internal audit department.
 If the company is owned by few shareholders in the same family, there is no need to provide
assurance on the effectiveness of controls, accuracy of financial statements etc.

NOTE: Tailor your answer according to the scenario provided in the exams.