As the year draws to a close, I find myself engaged in the familiar practice of looking back on the year and reflecting upon the major news stories and pivotal moments of 2013 — those that are shaping the internal audit profession and undoubtedly will have a lasting effect on the way internal auditing is practiced in the future. Not only is it interesting to see how the profession has evolved and how far we’ve come in just a 12-month timespan, but recapping the year also is a beneficial exercise in that each of these stories holds important lessons for us all.

So, here is my list of the five headlines from 2013 that will shape the future of internal auditing:

1. New Financial Services Guidance for Internal Audit
This year, the United States and the United Kingdom witnessed the release of two substantial pieces of guidance for banks and other financial services institutions: The U.S. Federal Reserve’s 15-page Supplemental Policy Statement on the Internal Audit Function and Its Outsourcing and the Chartered Institute of Internal Auditors’ U.K. code, Effective Internal Audit in the Financial Services Sector. Both call for an adequately resourced internal audit function, internal audit’s unrestricted access to the business, and an organizational reporting line that maximizes independence and objectivity, among other recommendations.

 Lessons Learned: This recognition by regulatory bodies and other internal audit stakeholders speaks volumes in terms of how organizations are acknowledging the value that internal audit provides. Though both documents target financial institutions specifically, their release highlights the importance of having a strong, effective internal audit function — and that’s applicable to allorganizations, regardless of size, industry, or physical address. 

 2. Release of The 2013 COSO Framework 
The Committee of Sponsoring Organizations of the Treadway Commission’s (COSO’s) May release of the 2013 Internal Control–Integrated Framework marked another monumental event for internal auditors, particularly those whose organizations are subject to Sarbanes-Oxley compliance. Furthermore, the U.S. Securities and Exchange Commission (SEC) is deferring to COSO’s established deadline of December 2014 for expected conversion to the 2013 Framework.

 Lessons Learned: Although results from our recent Pulse of the Profession survey (PDF) reveal that many companies don’t anticipate that it will be a substantial effort to convert from the 1992 Framework to the 2013 Framework, someone will need to make sure that the company is in compliance, and internal auditors are well-positioned to undertake consulting work to help their organization map its controls to the new Framework and provide assurance that COSO is adopted accurately.  

 3. Launch of The International Integrated Reporting Framework
Mainstream businesses and investing communities are already responding favorably to the universally applicable International Integrated Reporting Framework (<IR>), released earlier this month. The 37-page framework has gotten the attention of businesses, accounting bodies, and investors from around the world. More than 100 companies in 25 countries are participating in the International Integrated Reporting Council’s (IIRC’s) pilot program, which will test the framework’s relevancy to mainstream business and investor communities.

 Lessons Learned: For organizations that haven’t yet embraced the framework, internal audit could champion the effort. For those that have, internal audit can play a valuable role in providing assurance over new nonfinancial reporting metrics and sustainability disclosures. Either way, the progress that the IIRC made this year is sure to have a lasting effect on the future of corporate reporting, and, consequentially, the work of internal auditors around the globe.

 4. Heightened Concerns Over Cybersecurity
The year started off with continued debate over information privacy and national security, as The New York Times reported the Pentagon is “moving toward a major expansion of its cybersecurity force to counter increasing attacks on the nation’s computer networks.” In February, U.S. President Obama issued an executive order to consider developing risk-based infrastructure standards resulting in a cybersecurity framework that helps “maintain a cyber environment that encourages efficiency, innovation, and economic prosperity while promoting safety, security, business confidentiality, privacy, and civil liberties.” A few months later, SEC Chair Mary Jo White said her staff was looking at whether public companies are in compliance with disclosure guidance regarding cybersecurity to determine its effectiveness.   

 Lessons Learned: Security breaches, leaks of intellectual property and other personal information, and the resulting reputational damage make cybersecurity a significant risk that isn’t going away and should certainly be at the top of audit committees’ and chief audit executives’ list of concerns. If organizations are truly taking a risk-based approach to audit planning, then this is something that should be on their radar. Internal auditors can play a number of important roles in this effort — assessing whether controls and policies are in place, verifying that the organization’s incident response plans are robust, ensuring compliance with changing regulations/legislation pertaining to cybersecurity, and verifying that a breech notification plan are in place.

 5. A Tsunami of Compliance Risks
New compliance requirements proved to be a global phenomenon in 2013. In the United States, we continue to see the ramifications of new legislation and regulations such as the U.S. Affordable Care Act, the Foreign Corrupt Practices Act, the Consumer Protection Act, JOBS Act, PCI DSS, and Dodd-Frank — specifically requirements such as the Conflict Minerals Rule and CEO Pay Ratio. Similar compliance requirements/risks are emerging from new legislation and regulations across Europe and throughout Asia and other regions of the world. These are above and beyond the lengthy, complex, and increasing quantity of disclosures being required and a new era of transparency. As I’ve said many times, today’s legislative headlines are tomorrow’s compliance risks. It’s no wonder our Pulse of the Profession surveys continually show that compliance is one of the most important areas of audit coverage. The IIA has been vocal in advocating to legislators, regulators, and others that need to understand the consequences.

Lessons Learned: ​​The dynamic regulatory environment is something audit committees are concerned about, and rightly so. CAEs have to be knowledgeable about the regulations for their industry and should play a strong role in streamlining their organizations’ ability to comply with current and future requirements. The reputational risks of noncompliance, alone, pose a challenge to organizations and could be the most dangerous of all.

Much can be learned from the headlines of 2013 and their impact on the changing role of internal audit. As I’ve said before, the internal audit plan should be aligned with stakeholder expectations, which are constantly evolving as the risk landscape evolves. Therefore, it’s important that we keep an eye on the news stories of the day, that we identify emerging risks and update the internal audit plan continually, and that we staff the audit function with professionals who have the skills needed to address the issues of the day and the risks of tomorrow.

What additional events or stories from 2013 do you see impacting the internal audit profession? As always, I welcome your thoughts.