Before the Sarbanes-Oxley Act of 2002--the Government's response to the infamous Enron and WorldCom Adelphia--the internal audit function focuses largely on compliance and financial reporting. "It was not surprising," says Paul Sobel, chief audit executive with Georgia-Pacific and a member of the Institute of Internal Auditors, and executive Director. While the internal auditors can offer a range of skills, he says, "are known to be well versed in financial controls and reporting."
But while those skills remain critical, several other problems are increasing in importance in recent days, shifting the focus of many of the responsibilities and accounts that require some slightly different skills. These are the conclusions of a report from the IIA Research Foundation, based on input from over 13,500 survey participants in 107 countries.
Interviewees identify several areas that will assume greater importance in the next five years: corporate governance, corporate risk management, strategic review, ethics audits and the migration of International Financial Reporting Standards. Regulatory compliance and audits of financial risks and internal controls remain important, they've decreased some. Many companies have become more skilled in these areas, reduce the level of care needed by internal audit, Sobel says.
' Follow ' risks
These movements reflect the ongoing need to align internal audit with the risks that companies face, notes Richard Chambers, of the IIA President and CEO. "The trends that we see are indicative of what we consider the large enterprise and public sector business risks". While many people assume that the internal audit is essentially an extension of the external audit process, which is not necessarily the case, he adds.
Given the financial crisis of the past two years, investors and creditors increasingly expect companies to implement sound corporate governance policies, together with the strategies for managing operational risk. Internal auditing is set fire to help companies meet these needs. For example, internal auditing can verify that the company's processes for issuing contracts incorporate adequate controls. Chambers "is the mantra that marry, ' Follow ' risks," he says.
How these shifts have occurred, the internal auditor's profile grew, says John Higbee, a member of the audit committee with Rex Energy Corp., headquartered in State College, PA. A few decades ago, the internal audit was rarely considered members of the leadership team of the company. No more. Higbee "you're watched from the audit committee as their eyes and ears," she says.
What's more, because analyze processes between departments and watch "in the bowels of the Organization", internal auditors can help businesses operate more effectively, says Mary Beth Vitale, Chairman of the Audit Committee with CoBiz financial, a Denver based financial services. "Have a unique view of society".
No more independent
At the University of Colorado, the change was significant, says Joseph Tinucci, Assistant Treasurer. Until a few years ago, the role of internal audit was to review after the-reality, remain the length of the arm away from any processes or procedures that have reviewed – namely, does not give any advice – and identify problems ". More recently, the audit function has adopted a consultative approach; for example, have contributed to setting up security and internal controls as new systems have been implemented. "This change of perspective – from internal consultant company policeman – was refreshing and for a long time," says Tinucci.
If these changes occur, however, the skill set at the request of the internal audit staff has changed as well. While knowledge of accounting is important, it is no longer sufficient, Chambers says. Experience is key in the activation of accounts offer sound insight in risk management and operational processes. Strong interpersonal skills are also key; with them, internal auditors are better able to guide their colleagues in the right direction, rather than focus on the resolution of problems after they have occurred, adds Vital.
Sobel offers his thoughts on what these changes mean for CFOs: "CFOs and CEOs can raise the bar for internal audit executive and say ' given the challenges in the business environment continues to evolve, we will need more from you and your facility in the coming years." "
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