The role of internal audit in the risk management process: A developing economy perspective

Companies in developing economies have faced a myriad of risks. Many of them due to external related party exposures and the potential risks of associated contagion. The function of Internal Audit (IA) has emerged as a significant governance mechanism in the management of risk in developing countries. This exploratory study sought to identify the role of IA across the developing economy of Barbados. Based upon the results of an online survey administered to the Barbados chapter of the Institute of Internal Auditors (IIA), the paper examines IA involvement in the risk management process (RMP) of several types of companies. Findings reveal that IA is critical to the RMP and that it needs to be enhanced through improved risk education, exposure, and training, along with increased support from Audit Committee and Senior Management. The generalizability of the conclusions is however limited since the sample was drawn from a developing country. The paper adds to the existing literature as it highlights the challenges of IA as it develops in a developing economy while also dealing with their integration into the RM framework. Practical key take-away from the paper suggests that (a) RM and the IAF are in a developmental stage primarily due to the need for increased exposure and understanding of international risks and best practices. This is especially since most companies maintain extensive international ties and are highly susceptible to contagion. (b) For an integrated RM system to be successful, the management of risk must be owned at all levels throughout the organization and not just at the Board of Directors and Executive Management, and (c) improved communication of roles and accountabilities especially for IA should be instituted to ensure proper diffusion of risk culture within the organization.