www.theiia.org internal auditing 2012: trends and outlook for the global profession richard...
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Internal Auditing 2012:
Trends and Outlook for the Global Profession
Richard Chambers, President and CEOCIA, CCSA, CGAP, CRMA
The Institute of Internal Auditors
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Presentation Agenda
• Five Key Challenges Facing Internal Auditors in 2012
– Identify and align with stakeholder expectations
– Step up to the plate in “risk management”
– Become more efficient with limited resources
– Strive to demonstrate quality
– Enhance our ability to provide insight
• The Path Forward – What’s Next for Internal Audit?
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Identify and Align With Identify and Align With Stakeholder ExpectationsStakeholder Expectations
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StakeholderStakeholder Value ExpectationsValue Expectations
Board Assurance and no surprises / eyes and earsExecutive Assurance, value for money / management toolLine Management
Help, controls assurance, recommendations / management control
Internal Audit Staff
Career, development, exposure, making a difference / WIFM
External Audit Combined assurance, information sharing / substantive testing
Regulators Objective opinion, peace of mind / investigatorsCommunity Social responsibility, protecting the economyShareholders Value protection, whistleblowers
The New Order Is Creating New Expectations for Internal Auditing
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Meeting Stakeholder Expectations: Are we Being Honest With Ourselves?
Audit Audit CommitteeCommittee
Executive Executive ManagementManagement
Unacceptable 0.0% 0.4%
Poor 0.4% 1.9%
Acceptable 16.1% 25.9%
Good 57.6% 57.8%
Outstanding 25.9% 14.0%
“If surveyed today on how well internal auditing is meeting its needs and expectations, my audit committee/executive management would probably rate their overall satisfaction…”
Source: Emerging Trends and Leading Practices Spring 2011, The Institute of Internal Auditors – Audit Executive Network
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Source: Ernst and Young Global Internal Audit Stakeholder Survey, November 2010
• 74% of stakeholders believe IA needs improvement• 96% within the next 24 months
• Only 44% believe IA helps achieve business objectives• Only 37% involve IA in key business decisions and strategy• Only 32% believe IA attracts future leaders and high potential
talent from within the business
The View from the Other Side:
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Ascending to the Level ofA Trusted Advisor
Relationships
Compliance Compliance functionfunction
Engaged Engaged but not but not
strategicstrategic
Trusted Trusted advisoradvisor
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Step Up to the Plate in Risk Step Up to the Plate in Risk managementmanagement
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Risk Management
• Risk management failures were key factors in the financial crisis• Growing pressure on management to strengthen risk management• Growing pressure on boards to demonstrate RM oversight
• Internal auditing should play a critical role:– Natural experts on risk management
– Champion or facilitate ERM
– Maintain a continuous focus on risks
– Be capable of addressing the full “portfolio of risks” in audit coverage
– Provide assurance on the effectiveness of risk management
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Internal Auditing’s Role in Risk Management
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Focusing on the “Real Risks”
Strategic & Business 60% Operational 20%
Financial 15% Compliance 5%
Key Imperatives for the Coming Decade: Fully Embrace a Risk-Centric Strategy
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Become More Efficient With Become More Efficient With Limited resourcesLimited resources
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Enhance Capacity Through Innovation
• Sourcing solutions that are:– Strategic– Innovative– Efficient
• Reengineer processes– Risk assessment– Engagement planning– Reporting
• Leverage technology
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Strive to Demonstrate QualityStrive to Demonstrate Quality
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A Comprehensive Quality Assurance and Improvement Program
• Commitment to quality that extends beyond conformance to IIA
standards• Formal quality assurance and improvement
program including:– Continuous quality controls– Periodic formal internal assessments– Periodic external assessments that include extensive benchmarking
/insight on how internal audit compares with peers
• Generally includes dedicated resources to manage the
professional practices/quality assurance
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• No universal enforcement mechanisms for IIA Standards
– 30% still do not have a “formal” quality assurance and improvement program
– Up to 60% still have not undergone an external quality assessment
Compliance with Professional Standards
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• More than 70% percent believe compliance with the Standards is a key factor in the ability IA to add value to the governance process
• ……90% of stakeholders indicate that adherence to the Standards increases their confidence in internal audit
Compliance with Professional Standards
Sources: 2010 Global Internal Audit Survey and 2010 Stakeholder Expectations Survey, The Institute of Internal Auditors
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Enhance our Ability to Enhance our Ability to provide Insightprovide Insight
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Value Proposition for Key Stakeholders
Internal Auditing: • Assurance• Insight• Objectivity
Governing bodies and senior management rely on Internal Auditing for objective assurance and insight on the effectiveness and efficiency of
governance, risk management and internal control processes.
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Insight = Catalyst, Analyses and AssessmentsInsight = Catalyst, Analyses and Assessments
“Internal audit is a catalyst for improving an organization’s “Internal audit is a catalyst for improving an organization’s effectiveness and efficiency by providing insight and effectiveness and efficiency by providing insight and recommendations based on analyses and assessments of recommendations based on analyses and assessments of data and business processes.”data and business processes.”
“Insight is an end product or result from internal audit’s “Insight is an end product or result from internal audit’s assurance and consulting work. Insight can involve assurance and consulting work. Insight can involve ‘connecting the dots’ to deliver value-added results to key ‘connecting the dots’ to deliver value-added results to key internal audit stakeholders. Providing insight may require internal audit stakeholders. Providing insight may require many IA activities to improve their overall capability, staff many IA activities to improve their overall capability, staff competencies, and audit process/practices.”competencies, and audit process/practices.”
Insight Defined
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Research Results
Should Deliver In General, IA
Delivers My IA Delivers Frequently Delivers
SA/A SA/A SA/A A/F
Internal Audit 90% 72% 81% 66%
Board 86% 77% 79% 61%
Executives 89% 57% 56% 38%
Overall Result 89% 71% 76% 60%SA/A – Strongly Agree/Agree A/F – Always/Frequently
Survey also provided potential examples of insight delivery to illustrate the concept, and asked CAEs and the stakeholders to evaluate if internal audit should deliver, and if internal audit actually did deliver, with what frequency…
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Closing the GapKey Enabling Factors
Strong control environment and ‘tone at the top’ in the organization 62%
Board and management expectations for value delivery from the internal audit function 59%
CAE reporting relationship that supports independence of the internal audit function 55%
Highly competent CAE 50%
Internal audit personnel with significant industry and organizational knowledge 46%
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Successful Strategies for CAEs• Assess stakeholder expectations and, if needed, agree
on reasonable timeline and approach to closing the gap
• Consider reporting relationships and sufficient organizational independence
• Align internal audit mission and focus with agreed expectations
• Refocus internal audit approach to agree with mission
• Critically assess leadership skills and communication styles of the CAE and staff
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The Path Forward:The Path Forward:What’s Next For Internal AuditWhat’s Next For Internal Audit
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1. Sharpen Your Focus on Risk Management and Governance
6. View Compliance with The IIA’s International Standards as Mandatory, Not Optional
2. Conduct a More Responsive and Flexible Risk-based Audit Plan
7. Acquire and Develop Top Talent
3. Develop a Strategic Vision for Internal Auditing
8. Enhance Training for Internal Audit Activities
4. Focus, Monitor, and Report on Internal Auditing’s Value
9. Take Advantage of Expanding Service Provider Membership
5. Strengthen Audit Committee Communications and Relationships
10. Step up Your Use of Audit Technology and Tools
CBOK 2010: Imperatives for Change
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RankRank Currently PerformedCurrently Performed Next Five YearsNext Five Years
1 Operational audits Corporate governance reviews
2 Compliance audits ERM reviews
3 Auditing of financial risks Strategic reviews
4 Fraud investigations Ethics audits
5 Evaluation for internal control
Migration to IFRS/Social and Sustainability audits
The CBOK Study: Top FiveInternal Audit Activities
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Questions?
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The Institute of Internal Auditors
Richard Chambers, CIA, CGAP, CCSA, CRMA
President & Chief Executive Officer
Twitter: @rfchambers