Why and how should internal audit reinvent itself to respond to the significant and rapid changes and challenges experienced by organisations over the past year.
In this series of insights our experts consider the drivers of change for internal audit and what this means in practice.
We are keen to hear your thoughts on how internal audit could be adapting and reacting to our changing world.
How internal audit needs to reinvent itself
Over the past year we have seen organisations transform. They have experienced truly significant, rapid change and faced varied and extensive challenges. We’re at a junction where internal audit needs to reinvent itself to remain relevant and meet the changing needs of its stakeholders.
This is against the backdrop of audit reform and the recent release of the BEIS consultation paper to revise the broader corporate governance systems, which will place renewed scrutiny on boards, audit committees, and their work. Internal audit will have a critical role to play in supporting audit committees to understand the key issues and determine the effectiveness of internal controls.
How internal audits should be responding and adapting
1. More dynamic and flexible internal audit plans focused on the right risks
Whilst internal audit still needs to continue providing core assurance over the key processes, it must focus on the rights risks impacting an organisation’s strategy. Organisations have transformed like never before during the Covid-19 pandemic, with many being forced to alter their business strategies and operating models. Internal audit should spend more time auditing change, the strategic initiatives within the organisation, and respond to the shifting risks and controls landscape. Internal audits must adjust to the continually changing risk environment in a sustainable manner and incorporate a flexible approach to planning future audits, creating maximum value for the organisation. As organisations adapt, internal audit should focus on providing validation for those changes to drive business confidence.
2. Faster assurance through real-time reporting
Leading internal audit functions are adopting agile working practices and are providing assurance faster through high-impact reports, supporting their organisation to build fully integrated assurance models. Many internal audit functions now leverage data analytics to improve coverage and efficiency and this should be fully embedded in every audit plan. Typical internal audit reports are a blunt instrument, slow to finalise and slow to drive action and change. With a growing demand from stakeholders for quick assurance and relevant insights, a shift away from an ‘annual’ internal audit exercise with a set number of audits to a more agile approach seems necessary. The implementation of automated assurance models can assist in speeding up the reporting process and focuses teams on more value-adding and complex activities. This, however, identifies a need to invest in technologies that facilitate real-time reporting such as easily accessible apps showing control performance.
3. Horizon scanning to understand the future risks
In our recent video update, we considered the many new risks on the horizon, such as climate change, which despite being a very topical issue is rarely considered within internal audit plans. In the post-Covid business environment, certain risks have gained significance including operational resilience, fraud and cybersecurity and failure to monitor them may have detrimental consequences for organisations. Internal audit work should take advantage of horizon scanning to anticipate the emerging risks and help organisations seek better preparedness to tackle them in the future. More organisations need our assistance and validation in devising strategies to build a plan against new business risks. We need to undertake a futuristic view, as opposed to the traditional backward-looking approach in auditing, to eliminate blind spots in the plan and help organizations understand future risks better. Failing to evolve will diminish the value generated from internal audit work and force it to become irrelevant in this dynamic world.
4. Invest in technology and change to build capability for the future
As well as high-quality internal audit skills which challenge senior leadership, we need to develop more specialist capability in technology and transformational change in order to respond to the changing risk landscape. Investment in new technologies and data analytics to implement automated assurance models, as mentioned above, will be required to facilitate the provision of faster assurance. It is critical to realise that with the changing demands of internal audit, certain skills will be valued more than others. While internal audits are being performed in a remote manner, it is imperative that team members display high intellectual curiosity while addressing the risks to gain sufficient assurance. Flexibility and adaptability will drive the renewed purpose of internal audit and team members must be prepared to rise to this challenge. The involvement of technology in internal audit raises a need to train team members to maximise the utility of resources. The future internal auditor will look very different from today and we must leverage both technology and human resources to meet the demands of the changing, ‘new’ internal auditing world.
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Covid has been a real wake-up call for some internal audit functions and it is time to react and adapt.
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