Almost every week for the past 11 years, I have posted blogs about various aspects of internal auditing. I have covered hundreds of topics and examined dozens of issues confronting the profession, from independence and courage in the face of fire to building stakeholder relationships and understanding the root cause of high-profile scandals. In each post, I hoped to impart some insight and perspective on the roles and responsibilities of internal audit.
As you can imagine, over such an extended period, I saw trends — and priorities — come and go. I marveled at the evolution of the profession, and I discovered some clear truths:
During the past few months, I have been thinking a lot about the fundamentals of the internal audit profession. There is a vast body of knowledge, anchored by The IIA’s International Professional Practices Framework. At the end of the day, however, there are some basic axioms that I believe define success for any internal audit function.
Drawing on more than 45 years in this profession, I believe there are five key basics to success for internal auditors. I call them the Five A’s of Effective Internal Auditing.
Assess risks. Successfully assessing your organization’s risks is fundamental to the job of internal auditing. As I have said and written on countless occasions, internal auditors first and foremost must follow the risks. However, we must aim for a broad perspective on how we assess those risks. Beyond identifying those things that threaten to disrupt or impede the organization from achieving its goals, we should assess the adequacy of risk management, organizational governance, and culture. We should understand the board’s appetite for risk and evaluate whether executive management is operating within those bounds. To do these things, we must have a keen understanding of the organization’s goals and strategies, as well as the industry in which the organization operates.
Align internal audit coverage to focus on imminent risks. From my experience, the surest path to failure for internal auditors is paved with personal preferences and priorities. The reason we assess risks is to clearly identify the areas where we need to focus. Internal auditors must build relationships with key stakeholders to remain aligned and relevant. Fixating on known risks and straying from the goals and strategies of executive management and the board will surely lead to irrelevance. However, don’t make the mistake of thinking that internal audit must be in lockstep with stakeholders. Having a thorough understanding of goals and strategies and aligning with them offers practitioners the opportunity to provide additional insight and foresight.
Assure management and the board that risks are effectively managed and controls are effectively designed and implemented. This is the fundamental service of internal audit. Assurance over the effectiveness of financial reporting, compliance, operations, cybersecurity, and other areas affords comfort to management and the board that the organization is effectively managed. Before we can offer such assurance, however, we must have carefully planned, conducted, and reported the results of our engagements. If we identify problems, we must articulate the condition, effect, cause, criteria, and recommendations. Of particular importance is making sure we dig deep enough to expose the root causes of risk management or control failures and weaknesses.
Additionally, assurance over organizational governance and culture takes on more subjective measurements and practitioner judgement. Some practitioners are less comfortable auditing the “soft stuff,” but this is increasingly vital to providing effective overall assurance.
Advise management and the board by drawing on our vast expertise. As the risk landscape becomes increasingly complex and fast-paced for most organizations — fed by technology and its disruptive influences — internal audit’s advisory services are more important than ever. After all, there is little value in informing stakeholders that mistakes were made when we could have helped avert the mistakes by advising during design and execution. Assurance is an accurate look in the rear-view mirror. However, as every driver knows, accidents are avoided by looking around and ahead.
Anticipate tomorrow’s risks. The ability to anticipate the organization’s needs, as well as its risks, raises internal audit’s profile and value. Having a grasp on emerging risks, disruptive technologies and threats that lie just beyond the horizon makes internal audit indispensable. This also is a step toward achieving the status of agents of change. This is a phrase you will be hearing more about in the coming weeks and months.
There are many tools that remind us of the fundamentals of effective internal auditing. There are no substitutes for the principles and standards contained within the International Professional Practices Framework. However, I believe The Five A’s of Effective Internal Auditing is a tool that can guide us as we strive for success. They should be seen as no more or no less. They remind us of what we should be doing, where we should be focused, and what our ultimate goals are. They are designed to be directional, not instructional. They are a beginning, not an end to themselves. They are tools of the profession, but the users of the tools are the true artisans.
As always, I look forward to your comments.