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Sarbanes Oxley : Auditing : Survey
Internal Auditing’s Role in Helping Companies
Through the Economic Crisis
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Richard Chambers
President and CEO
Institute of Internal Auditors
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A major reshaping of risk priorities and audit coverage at some of the largest companies in the United States is underway as organizations respond to a changing business environment and economic crisis. These and other insights were the center of discussions among chief audit executives (CAEs) from Fortune 100 and 250 companies, as well as representatives from the U.S. Securities and Exchange Commission and the Public Company Accounting Oversight Board, at a roundtable event hosted by The Institute of Internal Auditors (IIA) in Washington D.C. early this year. A resulting whitepaper was released by The IIA, titled, “A World in Economic Crisis: Key Themes for Refocusing Audit Strategy.”
“Putting this group together in one room to analyze how internal auditors can be integral and proactive in responding to the financial crisis was a critical step to helping organizations return to or maintain their health in the current economic environment,” commented IIA President Richard Chambers, CIA. “Internal auditing is a cornerstone of good governance and vital to protecting stakeholders. In times like these it would only make sense that our role in strengthening organizations be emphasized and maximized.”
In navigating through the current economic uncertainties, the CAEs participating in the roundtable discussion indicated they are now taking a more proactive and strategic role in working with stakeholders to improve the risk and governance cultures of their organizations. Participants candidly offered their insight and strategies for redirecting the focus of internal audit activities to meet the challenges. While the wide-ranging discussions touched on numerous topic areas, they centered around four key themes.
- Changing expectations from internal auditing’s stakeholders are resulting in revisions to internal audit strategies. The audit committee is now relying more heavily on internal auditing to keep stakeholders informed of ERM strategies and changes in the audit plan. Internal auditing is also being asked to play a more strategic role in the oversight and governance of the organization, as governance is another area receiving an increased focus by audit committees. And as normal benchmarks failed executives and risk management experts in predicting the scope of the meltdown, internal auditors can take a leading role by working with management and other risk management groups to brainstorm emerging risks.
- A more strategic focus on risk and risk management is developing. Risk and risk management were recurrent themes that permeated virtually every topic area in the roundtable discussions. CAEs are being asked to take the lead in ensuring that risk management processes are working effectively across the organization, allowing internal auditing to play a key role as strategic partners and champions of risk management. Additionally, the focus of ERM is increasingly transitioning from a tactical level to a strategic level. Participants indicated that the transition presents opportunities and challenges for internal auditors and risk managers alike.
- Major shifts in the focus of internal auditing’s coverage are already taking place. Roundtable participants confirmed they are proactively shifting the focus of their audit plan in recognition of their organization’s changing risk profile. Some of this shift is directly related to actions the organization is taking to streamline for economic reasons. A second area of shifting risk profiles is the increased risk presented by areas such as credit and liquidity and exposure to third parties in financial distress.
- CAEs have been undertaking various initiatives within internal auditing to do more with less. Roundtable participants see a continuing need for internal auditing to become even more cost conscious. Keeping an eye on risks and audit coverage while focusing on efficiencies and operational effectiveness to drive down costs remains a key focus for CAEs.
Despite the pressures and challenges of the current economic crisis, the roundtable discussions point to unprecedented opportunities for internal auditing to expand its focus in several strategic areas. Assessing the effectiveness of risk management will become an increasingly vital role for internal auditing, and the declining economy signals a new era in the strategic and systemic approach to assessing risk. Connecting the organization’s business strategies with identified risks will be a priority. Internal auditors also have the task of assisting stakeholders as they respond to these economic challenges. The roundtable participants recognize this opportunity and are using it to further enhance the stature and credibility of their internal audit functions.
“This is an excellent opportunity for internal audit functions in the United States and around the world to step up and be more proactive with senior management and audit committees,” said Joe Steakley, senior vice president of internal auditing and enterprise risk management at Hospital Corporation of America, who was a participant in the roundtable discussion. “During these challenging economic times, stakeholder expectations continue to increase and challenge us. In response, our internal audit function facilitates a robust risk management activity to proactively identify emerging risks, and we oversee many aspects of our company’s anti-fraud program – including the use of sophisticated technology for continuous monitoring.”
To supplement the roundtable participants’ views, The IIA conducted a pre-roundtable survey through its Global Audit Information Network (GAIN) survey to get perspectives on the cause and effects of the financial meltdown, as well views of how companies are adapting. The survey resulted in responses from 364 internal auditors in the United States, 117 of which work in the financial services sector, and 34 that work for Fortune 100 companies. The results showed a high degree of correlation between the survey and the concerns of the roundtable participants, and helped guide the roundtable discussions, as well.
The Institute of Internal Auditors (IIA) is internationally recognized as a trustworthy guidance-setting body. Serving members in 165 countries, The IIA is the internal audit profession's global voice, chief advocate, recognized authority, acknowledged leader, and principal educator.
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