In the Kingdom of Saudi Arabia (KSA), regulatory expectations around governance, risk management, and internal control systems have intensified significantly. Regulators such as the Saudi Central Bank (SAMA), Capital Market Authority (CMA), Zakat, Tax and Customs Authority (ZATCA), and sector-specific oversight bodies increasingly rely on internal audit functions as a frontline defense against misconduct, financial misstatements, and operational failures.
Internal audit is no longer viewed as a compliance formality. It is expected to operate as an independent, risk-focused, and forward-looking assurance function aligned with Saudi Vision 2030, corporate governance regulations, and international best practices. When internal audit functions fail to meet these expectations, organizations face heightened regulatory scrutiny, enforcement actions, reputational damage, and financial penalties.
1. Lack of Independence and Objectivity
One of the most serious weaknesses regulators identify is compromised independence within the internal audit function. Independence is fundamental to audit credibility. When auditors are influenced by management or lack direct access to the board or audit committee, their findings lose reliability.
Common Indicators of This Weakness
- Internal audit reporting administratively and functionally to executive management rather than the audit committee
- Audit plans being altered or restricted by management
- Pressure on auditors to soften findings or delay reporting
- Performance evaluations controlled by audited departments
Why Regulators Scrutinize This
Saudi regulators expect internal audit to operate without interference, particularly in regulated sectors such as banking, insurance, capital markets, and government entities. A lack of independence suggests that risks may be intentionally concealed or underreported.
Regulators often interpret weak independence as an indicator of broader governance failures. It raises concerns about management override, conflicts of interest, and ineffective oversight by the board.
2. Ineffective Risk-Based Audit Planning
A robust internal audit function must be driven by risk. However, many organizations continue to rely on static, checklist-based audit plans that fail to address emerging risks relevant to the KSA business environment.
Typical Shortcomings
- Annual audit plans not linked to enterprise risk assessments
- Failure to incorporate regulatory changes or new compliance requirements
- Limited focus on high-risk areas such as cybersecurity, AML, data privacy, and third-party risk
- Repetitive audits of low-risk processes
Regulatory Perspective
Saudi regulators expect internal audit to proactively identify and assess risks, especially those tied to financial reporting, regulatory compliance, and operational resilience. An audit plan that does not evolve with business growth, digital transformation, or regulatory updates signals a reactive and outdated approach.
This weakness often results in regulators questioning whether internal audit adds meaningful value or merely fulfills a procedural obligation. It may also lead to deeper regulatory reviews and expanded inspections.
3. Insufficient Coverage of Regulatory Compliance
In KSA, regulatory compliance is complex and continuously evolving. Organizations are expected to comply with multiple frameworks, including corporate governance regulations, sector-specific rules, Saudization requirements, tax laws, and anti-financial crime obligations.
Where Internal Audit Falls Short
- Limited testing of compliance controls
- Overreliance on management self-assessments
- Inadequate understanding of local regulatory requirements
- Failure to track regulatory changes and their impact
Why This Attracts Scrutiny
Regulators rely on internal audit as a key assurance mechanism that compliance obligations are being met. When internal audit does not provide sufficient coverage of regulatory risks, authorities may suspect systemic non-compliance.
This is particularly critical in industries subject to strict oversight. Weak compliance assurance can trigger targeted regulatory examinations, enforcement actions, or mandatory remediation programs.
4. Poor Quality of Audit Reporting and Follow-Up
Even when audits are conducted, their value is diminished if findings are poorly communicated or not effectively followed up. Regulators frequently identify weaknesses in audit reporting quality as a sign of immature internal audit functions.
Common Reporting Deficiencies
- Vague or overly technical audit findings
- Lack of root cause analysis
- Absence of risk prioritization
- No clear accountability for corrective actions
- Weak or inconsistent follow-up on management action plans
Regulatory Expectations
Saudi regulators expect internal audit reports to clearly articulate risks, control deficiencies, and potential impacts on the organization. Reports should enable informed decision-making by the board and senior management.
Poor reporting undermines transparency and accountability. When regulators observe recurring findings or unresolved issues, they often escalate their scrutiny and question the effectiveness of internal controls and governance frameworks.
5. Inadequate Skills, Resources, and Audit Maturity
The effectiveness of internal audit depends heavily on the competence and capacity of its team. Regulators increasingly assess whether internal audit functions possess the expertise required to evaluate complex and emerging risks.
Key Resource-Related Weaknesses
- Insufficient staffing levels
- Limited expertise in IT, cybersecurity, data analytics, or regulatory compliance
- Lack of ongoing professional training
- Absence of modern audit tools and methodologies
Why Regulators Are Concerned
As Saudi organizations adopt advanced technologies and expand internationally, internal audit must evolve accordingly. Regulators view under-resourced audit functions as incapable of providing reliable assurance.
This weakness becomes particularly visible during regulatory inspections, where audit teams struggle to explain methodologies, justify risk assessments, or demonstrate audit coverage. Organizations often address this gap by leveraging specialized internal audit consultancy services to enhance capacity and technical depth without compromising independence.
The Broader Governance Implications
Each of these weaknesses, when viewed individually, poses a risk. When combined, they signal deeper governance and control deficiencies that regulators cannot ignore. In the KSA context, internal audit is expected to serve as a strategic assurance function aligned with national governance standards and international best practices.
Boards and audit committees are increasingly held accountable for the effectiveness of internal audit. Regulators assess not only the existence of an internal audit function but also its maturity, influence, and impact.
Organizations that proactively strengthen internal audit independence, adopt dynamic risk-based planning, enhance compliance coverage, improve reporting quality, and invest in skills are better positioned to withstand regulatory scrutiny.
For leadership teams seeking deeper understanding and regional insights into governance expectations, platforms such as Insights KSA advisory help organizations view complete information related to evolving regulatory priorities and internal audit expectations within the Kingdom.
Finance Advisory 