“I just wish the internal auditors understood the business better!” I can’t count the number of times I have heard this lament from company executives during my years in the profession. While they may have been speaking about their specific business, they were often alluding to what they viewed as a lack of strong business acumen in general. While I believe a great many internal auditors do bring sound business acumen to their roles, we can all be better.

When I set out to write my fourth book, Agents of Change: Internal Auditors in an Era of Disruption, I asked chief audit executives around the world to identify the traits that internal audit change agents share in common. Not surprisingly, being innovative, strategic and relationship-centric were on the list. But the leading attribute was something of a surprise: The CAEs surveyed were emphatic that, to be agents of change, internal auditors must possess strong business acumen.

I knew business acumen was important. After all, I addressed its value in an earlier book, Trusted Advisors: Key Attributes of Outstanding Internal Auditors. In that book, published in 2017, I observed:

“In recent years, an increasing number of companies have designated the chief audit executive position as a rotational assignment. Seasoned executives from within the company are often asked by the CEO or audit committee to assume the role for what is often a three- to-five-year assignment. The CAE role is often seen as one that prepares executives to assume positions of greater responsibility within the company in the future. However, the candidates who are asked to take on the CAE role are often tapped based on their business acumen. They assume their new role with years or even decades of experience in the company or industry. In that regard, they are seen by other executives in the company as being prewired as, or to become, trusted advisors.”

Results of the Agents of Change survey were enlightening because they clearly conveyed that business acumen isn’t a skill essential to only the CAE. Instead, it is seen as critical for all internal auditors – particularly those who aspire to drive change within their organization.

After decades in our profession, I have come to appreciate the value that business acumen brings in differentiating good internal auditors from great ones. Internal auditors who have a deep knowledge of their organization, its industry and broader business principles are often respected, admired and sought out for advice in the organizations they serve. 

When considering what business acumen entails, I boil it down to some important traits:

• Financial Literacy: Understanding financial statements, key financial ratios and basic accounting principles. This knowledge helps in analyzing the financial health of a company, making budgeting decisions and assessing investment opportunities.
• Market Awareness: Being aware of industry trends, market dynamics and customer preferences. This enables informed decisions regarding product development, marketing strategies and growth opportunities.
• Strategic Thinking: The ability to think long term and understand the broader goals and objectives of the business. This involves considering the competitive landscape, potential risks and opportunities and aligning decisions with the overall business strategy.
• Risk Management: Identifying and evaluating risks and their potential impact on the business. Business acumen involves understanding how to mitigate risks, develop contingency plans and assess the trade-offs between risk and reward.
• Operational Insight: Understanding how different parts of a business work together and impact each other. This includes knowledge of supply-chain management, production processes and operational efficiency.
• Customer Focus: Prioritizing the needs and preferences of customers. This means understanding customer behavior, feedback and expectations for products and services that can meet their demands.
• Adaptability: Being open to change and responsive to shifts in the business environment. Key here is the ability to adjust strategies and tactics, as needed, to remain competitive and relevant.
• Problem-solving: Effectively identifying and working through complex business challenges. Business acumen helps in breaking down problems, analyzing root causes and devising practical solutions.

It is not enough to understand what business acumen is. Great internal auditors must understand how to leverage it. I believe there are at least 10 ways we can do that:

1. Understanding Business Context. We need to be cognizant of our organization’s goals, strategies, industry dynamics and competitive landscape. Only then can we tailor our audit approach to address specific risks and challenges that are relevant to the organization.
2. Effective Risk Assessment. Strong business acumen enables us to identify and assess risks more accurately. We can anticipate potential risks and vulnerabilities that might not be immediately apparent and prioritize audits based on the organization’s strategic priorities.
3. Value-added Insights. Those with strong business acumen can provide valuable insights beyond just identifying compliance issues. We can offer recommendations that align with the organization’s goals, helping to improve operational efficiency, effectiveness and profitability.
4. Strategic Alignment. When we understand the business, we can align our audit plans with the organization’s strategic objectives. This ensures that audits are focused on areas that matter most to the organization’s success.
5. Effective Communication. Being able to speak the language of the business is crucial to communicating effectively with various stakeholders, including executives, management and board members. Clear communication of audit findings and recommendations helps us drive positive change.
6. Problem-solving. We must be able to analyze complex business issues, connect the dots between different processes and functions, and offer practical solutions that address root causes.
7. Risk-based Approach. We need to prioritize our efforts based on the risks that could have the greatest impact on the organization. A deep understanding of the business helps us identify those high-impact risks and allocate internal audit resources accordingly.
8. Adapting to Change. Business environments are constantly evolving. With strong business acumen, we are better equipped to adapt our audit plans and strategies as the organization responds to changes, such as in the market, regulations or technology.
9. Relationship-building. Understanding the business allows us to build rapport with business unit leaders and managers. This, in turn, can foster collaboration, making it more likely that audit recommendations will be accepted and implemented.
10. Staying Relevant: As business practices evolve, we need to be on top of industry trends and best practices. Keeping up with these changes helps us to ensure our audits remain relevant and impactful.

Strong business acumen enables us to go beyond the traditional assurance/compliance-focused approach and become more insightful and trusted advisors and change agents. We elevate our value when we clearly grasp the bigger picture and align our efforts with business objectives contributing to the organization’s overall success.

To be sure, business acumen doesn’t happen overnight. It is an ongoing process that involves continuous learning, real-world experience and a willingness to adapt to changing circumstances. And, as I mentioned, it’s a valuable skillset for internal auditors at all levels, from entry-level to CAE.

Never stop learning, and never stop developing your business acumen.

What are your thoughts? Please share with me on LinkedIn or Twitter, or drop me an email at blogs@richardchambers.com.