Understanding the business is a crucial and important manner. Like any other organizational unit, a business is a complex web of people, processes, ideas, history, money, and many other things.
The audit procedures used to gain an understanding of the company and its environment, including internal controls, in order to identify and evaluate the risks of material misstatement, whether due to fraud or error, at the financial statement and relevant assertion levels.
Importance of Understanding the Business
A business owner’s extensive reservoir of understanding on customers’ needs and preferences, business environments and their dynamics, staff skills, experiences, and potentials, and the business’ overall foreseeable direction is referred to as business knowledge.
Continuous and optimal business growth, as well as more opportunities for financial success, can be ensured by effectively gathering and applying business knowledge.
Effective internal audit activity is a valuable resource for management and the board due to its understanding of the organization including culture, operations, and risk profile.
An internal auditor must also understand the following points:
What an organization does,How its departments interact to achieve strategic objectives,How the organization is evolving because of the influences of internal and external forces and how change affects the internal audit operations, andHow the organization is responding to its mission, strategy, and environment (its structure, stakeholder needs, and the status of ethics and governance in the organization).
To deliver services satisfactorily against each engagement, an auditor should understand:
The needs of the management officials, including the nature, timing, and communication of engagement results;The possible motivations and reasons of those requesting the audit service;The extent of work needed to achieve the engagement’s objectives; The skills and resources that are needed to conduct the engagement;Effect on the scope of the audit plan previously approved by the audit committee;Potential impact on future audit assignments and engagements; andPotential organizational benefits to be derived from the engagement.
How to “Understand the Business”
Take whatever steps are necessary to gain a firm grasp on your company’s business model, operating model, and competitive positioning.
All of your company’s financial statements and filings should be read.Obtain duplicates of all operational and analytical reports.Examine trade publications, websites, and analyst reports.Attend industry conventions.Participate in peer groups.Pose inquiries.Know your business and operating model inside and out.
Finally, become an ardent supporter of your company’s competitive positioning. It will almost certainly play a prominent role in your influence-seeking interactions.
What is Business Knowledge?
Using knowledge in a business does not always imply inventing clever new products and services or devising inventive new ways to grow. It’s a lot easier to understand.
In a company, useful and important knowledge already exists. It can be found in the following:
Employees’ experienceProducts’ and services’ designs and processesDocument files (whether held digitally, on paper or both)Plans for future activities, such as new product or service ideas
The challenge is to apply this knowledge in a consistent and productive manner.
Importance of Business Knowledge and Understanding
Create a business culture that values and prioritizes knowledge and knowledge sharing.
Employees and staff who not only supply useful market developments but also find ways to use said market news to upgrade the current line of products/services or design new ones to respond to said market demands and developments should be rewarded.
Business owners must ensure that their intellectual property is protected. Ascertain that competitors cannot illegally copy the company’s knowledge items with the help of a trusted lawyer or a legal team. This means that they can only use these ideas after obtaining a license, providing business owners with more opportunities to profit from their knowledge reservoir.
Business executives should safeguard and secure their knowledge base by creating a system for easily storing, retrieving, updating, and combining data. Store files, knowledge items that contain all information on offerings (products and services), processes, systems, and any other relevant data digitally or traditionally (on paper), and design an effective storing system that protects them from being illegally accessed or plagiarized.
Sources of Business Knowledge
Business knowledge can be obtained from a variety of sources, including:
Analyses of the market and needsNetworks of employees and suppliersThe environment and dynamics of businessResearch and development of products and services
Analyses of the market and needs
Market and needs analyses are used to broaden the knowledge pool of business owners, improve general operations, and clarify the long-term objectives and plans of the business.
Understanding present and prospective customers’ needs, wants, and purchasing habits will make it easier to adapt products and services to ensure customer satisfaction.
Create a mutually beneficial relationship with your customers by opening a line of communication that is easily accessible. A social media presence can be beneficial. Communicate and engage with customers to gain a clear picture of their future needs.
Business Environment and Dynamics
External factors and stimuli, such as changes in local and international politics and economies, technology, and society, can have an impact on business goals and development.
Maintain a keen business sense while determining whether adapting to these factors is the best option.
Final Thoughts
Understanding the business will assist the company in developing realistic plans and ensuring their successful implementation. It also enables the company’s growth and proper completion of tasks.
Understanding how the business works and an employee’s role in the company’s success cannot be optional; everyone is responsible for taking ownership of their own metrics as well as understanding how the business works.
