Published 09. Nov. 2018
The New Role of Internal Audit: Key Enablers in 2019
Unleash the value creation power of internal audit through Internal Audit 3.0, anchored by these 4 key enablers.
More than ever, the Internal Audit (IA) Department is becoming one of the key pillars of any modern organization. Their roles have evolved beyond the regulatory compliance responsibilities, diving deeper into the financial facets of an organization to provide insights in support of a high-quality audit.
With new expectations from stakeholders and business leaders, the finance function is getting a major lift to support organizational value creation. And internal auditing is expected to focus more on assessing future risks than telling companies what they did wrong in the past.
Let’s explore the key enablers of tomorrow’s internal auditors below.
Critical Thinking in Auditing
Industry 4.0 is characterized by a culture of disruptions and experimentation, which enforces a higher level of risk analyses as part of the investment procedures. As a result, it is expected of the auditing committee to remain forward-looking and solution-oriented while performing internal audit, no longer focus solely on value preservation.
This requires internal auditors to develop critical thinking skills to cope with the new responsibilities and enhance the quality of the audit. In a recent study, the Institute of Internal Auditors (IIA) reveals that 81% percent of organisations prioritize analytical and critical thinking as the number one desired skill for internal auditors.
Critical thinking will enable IA to analyze fundamental risks in the past, offer more strategic input and give a new perspective on business processes, not just assessing the existing controls.
Technology Adoption for Internal Audit 3.0
The future of internal audit is anchored by the 3A’s: Assurance, Advising, Anticipating, otherwise known as internal audit 3.0. Key areas of transformation include:
- Improve the quality and consistency of internal audit processes.
- Improve the efficiency of planning, testing, and reporting activities, creating more time for critical thinking activities.
- Increase coverage and frequency of testing across the audit universe.
- Expand the audit scope for individual audits.
- Move from limited sample testing to full population testing.
- Manage labour capacity and geolocation constraints.
Of course, aside from providing insights on necessary to relevant aspects, auditors should also be able to develop metrics that show the value of the expanded services in the fourth industrial revolution. In PwC’s 2018 State of the Internal Audit Profession survey report, it discusses how internal audit functions soon will be implementing transformational new technologies. The survey of more than 2,500 board members, senior executives, and audit professionals in 92 countries revealed the adoption state of internal audit foundational tools as demonstrated below:
The Power of Data Analytics
In a recent study, PwC further highlights the rising impact of analytics use cases in risk assessment and driving relevant business insights. A disciplined and focused analysis of big data is the core of high-quality audit. From diagnosing anomalies to predicting future probabilities, data enables more rigorous auditing processes and enhances the risk assessment of material misstatement, while automating routine tasks in the audit cycle.
With a robust analytic platform in place, internal auditors are able to harness the power of data to reap exponential business outcomes. It is achieved by leveraging operational insights to mitigate risks, reduce costs of compliance, and enhance traditional governance, risk and compliance efforts. Not only does it help to improve auditing efficiency, but the power of data analytics also elevates stakeholders’ level of confidence of internal auditors.
New Focus on Fraud
The nature of internal auditing allows IA professionals to develop a comprehensive knowledge of the organization’s processes, risks, control systems and personnel which can contribute to an effective fraud risk management. Hence, the auditing function must extend their scope to fraud prevention initiatives.
As such, the Institute of Internal Auditors (IIA) has launched a mandatory guidance for internal auditors to evaluate fraud risks – the International Professionals Practices Framework. It is now expected of the internal auditors to evaluate the potential for the occurrence of fraud and how the organisation manages its fraud risk.
Read more: Finance Leadership in the Digital Economy
With these enabling factors, the IA function can maximize its potential as a company’s secret weapon to dive into organisational operations, people, finances and industry to uncover any risks that could impact growth. Ultimately, it’s all about aligning the goals of an organization through the balanced functionalities of internal audit, bringing visionary business opportunities to the board and devising winning strategies.