Unpacking the Strategic Role of Internal Audit in Corporate Risk Mitigation

Jun 22, 2025 | News

the Strategic Role of Internal Audit in Corporate Risk Mitigation

To ensure optimal corporate governance, internal audit serves as an integral component of a company’s management process. Internal auditing is an evaluation activity aimed at enhancing the effectiveness of risk management and control mechanisms within a company’s governance structure. This process is not limited to regulatory compliance but also supports the broader goal of achieving efficient and transparent governance. Additionally, audit functions as a safeguard to protect corporate assets from potential threats that could result in financial or reputational harm.

Legal Basis of Internal Audit in Corporate Structure

The legal foundation of internal audit in Indonesia is governed by Financial Services Authority Regulation No. 56/POJK.04/2015 on the Establishment and Guidelines for the Preparation of Internal Audit Unit Charters (“POJK 56/2015”). According to Article 4 of this regulation, the structure and role of an Internal Audit Unit in a public company include:

  1. Comprising one or more internal auditors;
  2. Led by a Head of Internal Audit Unit;
  3. In cases where there is only one internal auditor, that person also serves as the head of the unit;
  4. The number of auditors should correspond to the scale and complexity of the company’s business activities.

Article 7 of POJK 56/2015 outlines the roles and responsibilities of the Internal Audit Unit, which include:

  1. Preparing and executing audit plans;
  2. Reviewing and evaluating risk management and internal control systems;
  3. Assessing efficiency and effectiveness in areas such as finance, accounting, operations, HR, marketing, IT, and other functions;
  4. Providing recommendations for improvements at all management levels;
  5. Preparing audit reports for the Board of Commissioners;
  6. Monitoring and reporting on the follow-up of audit findings;
  7. Collaborating with the Audit Committee;
  8. Developing quality evaluation programs for internal audit activities;
  9. Conducting special investigations when necessary.

Furthermore, Financial Services Authority Regulation No. 1/POJK.03/2019 on the Implementation of Internal Audit Functions in Commercial Banks (“POJK 1/2019”) provides additional legal context. Article 3 mandates the establishment of an Internal Audit Work Unit (SKAI), which is responsible for submitting internal audit reports to the President Director and Board of Commissioners.

Article 5 of POJK 1/2019 details SKAI’s primary responsibilities, including:

  1. Supporting the Board of Directors and Commissioners in planning, implementing, and monitoring audit activities;
  2. Conducting financial, accounting, operational, and other assessments through audit procedures;
  3. Identifying, improving, and enhancing the efficiency of resource and fund usage;
  4. Providing recommendations for improvements at all management levels.

The Strategic Role of Internal Audit in Corporate Governance

Internal auditing provides an objective evaluation of a company’s effectiveness in managing risks and ensuring compliance with governance standards. The goal is to give assurance to management that potential risks are identified and managed appropriately. Key contributions of internal audit to corporate governance include:

  1. Enhancing enterprise risk management;
  2. Ensuring regulatory and legal compliance;
  3. Improving operational efficiency;
  4. Strengthening internal control systems;
  5. Supporting strategic decision-making.

As such, internal audit plays a vital and strategic role in helping organizations achieve efficiency, regulatory compliance, and long-term sustainability in governance.

Internal Audit as a Pillar of Good Corporate Governance (GCG)

Financial Services Authority Regulation No. 73/POJK.05/2016 on Good Corporate Governance for Insurance Companies (“POJK 73/2016”) defines GCG as a set of processes implemented by corporate organs to enhance business performance and maximize value for all stakeholders. GCG is built on core principles: transparency, accountability, responsibility, independence, and fairness.

These principles aim to establish integrity among shareholders and ensure a balance between profit and corporate social responsibility. Accordingly, internal audit is not merely a monitoring mechanism but a critical contributor to building and sustaining optimal corporate structures. By implementing strong internal audit practices, companies can achieve their GCG objectives and foster stakeholder trust.

Therefore, internal audit is more than just a control function—it is a strategic component of good governance. It provides assurance on effectiveness, regulatory compliance, and operational efficiency. When embedded properly, internal audit becomes a pillar supporting a resilient, compliant, and high-performing enterprise.***

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