Internal Audit is not new; it has evolved a lot since the beginning. Earlier the scope of internal audit
was to audit the financial records
and identify frauds and corruption in an organization. However, today in the digital age, the role of internal audit
has changed. It covers a vast scope, such as governance, risk management, compliance, data verification, resource
conservation, and an overall analysis of the entire organization.
With rising technological advancement and fueling innovation, changes in internal audit is still a question to many.
Is it changing enough to adjust to innovative technology, or should the executive management carefully consider
the evolution of internal audit? In a world where changes are happening rapidly in almost everything,
each organization thinks of either adapting to the new technologies and growing or taking a risk and declining
the changes. The outbreak of the COVID-19 pandemic and the emergence of social unrest have left leaders
and directors exhausted from the intensity of their efforts to align their organizations with evolving market realities.
Several organizations also face alignment challenges as the complexities and risks faced by organizations change,
and so do the skill sets, focus, and capabilities needed by internal audits.
While there is no universal size for approaches to transform internal audits, the notion of the function’s
The digital future is no longer hypothetical.
In a time of spiraling cost structures, emerging competition, newer technologies, integrated global economies,
and changing financial instruments, internal audit has often failed to keep pace with the technology and
changes in the technological environment. This has resulted in internal audit services being replaced by outside service providers and consultants. While several auditors try to build a strong relationship with their audit committees, they still lack regular updates on their audit quality improvement program. There is a lack of management support to drive consistent internal audit operations, which has often affected the auditors taking key strategic initiatives.
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Current trends in Internal Auditing
While there are a lot of changes in the team and function of internal auditing, there have been very few changes
in the skill sets required for internal auditing. Some skill that still continues to exist includes excellent communication
skills, critical thinking skills, and industry-specific knowledge. Most of the internal auditing skills required
these days are less related to accounting and are focused on building relationships with clients, shareholders,
and customers, negotiation skills, presentation skills, conflict resolution, and the ability to handle high-level meetings.
Furthermore, in addition to these soft skills, several other skills are required to be an internal auditor, such as having
deeper knowledge about the industry and organizations, risk management, etc. These skills can be easily acquired by
additional training. Every organization these days is making it mandatory to recruit internal auditors with skills
other than just finance and accounting.
Thus, internal auditing plays a bigger role in adding value to the industry and organization by expanding
control focus and including performance focus. Internal auditing not only focuses on internal controls
but is also concerned with identifying threats, opportunities, and requirements. They also tend to understand
internal controls' risk, performance, and compliance impact on an organization.
Role changes of internal audit
There has been a considerable transformation in internal audit functions over the years. Every business needs to
adhere to the external and internal compliance requirements of auditing; the responsibility of auditors increases,
and they must work to synchronize the compliance requirements with the performance expectations.
Furthermore, the auditors must also consider governance guidelines to ensure the organization's better performance
to meet the business's objectives and address uncertainties. Considering the emerging and new risks to the enterprises, internal audit will have to adopt a long-term risk-based approach to auditing and transform itself into a Risk-based
Internal Audit (RBIA) function. Risk-Based Internal Auditing is an approach for internal auditing which
focuses on auditing based on the objectives of the business, rather than just testing internal controls.
A Risk-Based Internal Auditing focus asks auditors working for the organization to consider all the factors
that may affect its growth and hinder an organization from meeting its objectives.
This approach allows the internal auditor's team to align more closely with the management team and provides
more value to the organization's internal auditing. The traditional internal audit focused only on accounting
and financial controls.
How does technology help in Internal Auditing?
Most often, auditors have emphasized the importance of technology for internal audits. However, technology
has not been adequately used by organizations for managing internal audits. Earlier, productivity software
like the MS Office Suite was used for Internal audits; but today, mainstream technology has been utilized to
add value through automated control testing, automated work paper management, data mining and
analytics, risk-based audit planning, and scheduling, issue tracking, continuous risk monitoring,
knowledge management, graphical audit reporting, and improved audit execution and documentation.
Technological development has been used to develop consolidated risk management to support the organization
in obtaining the objectives, risk management, coordinating governance, and compliance activities.
These benefits of technology for internal audit help in obtaining a future with an internal audit function that is agile
and aligned with organizational objectives and flexible risk-based audit plans. The areas of internal audit
being impacted by the digital age include:
Process: Auditors must use a risk-based approach to develop a full proof plan for audit by keeping in mind
all kinds of processes and transactions that pose higher risks for the organization.
Rotational: Special projects, processes, and business units must be audited on a risk-based rotation basis,
to ensure that the critical aspects of business are audited frequently.
Systems: Internal audit systems must list out all the different systems such as IT resources, and assets,
then select the areas demanding focus -- particularly those related to compliance requirements, regulations
and laws, and higher risk.
Risk-based: There are several threats that might damage the reputation of the organization and
may cause the organization not to meet its objectives. Management should take the required controls
and actions to reduce these risks. The internal auditing team should focus on these controls and
actions for testing.
Future of Internal Auditing
As risk management is becoming an integral part of good governance, organizations are striving hard to identify
the vast scope of risks in an organization and find out ways to deal with them and mitigate the risks.
Implementing strict internal controls offer assurance to the organization to help in mitigating
the risk in an organization. Risk-based Internal Audit (RBIA) function focuses more on high-risk impact
areas instead of only checking internal controls. It is expected to be the right tool for the future.
RBIA helps in developing audit mechanisms by prioritizing issues, allocating resources more efficiently,
and focusing effort on audit areas that need it the most. It also focuses on the need to evaluate risk exposure
by taking inputs from the senior management team. Apart from this, the Risk-based Internal Audit also
focuses on auditing and improving risk management processes, integrity, testing the reliability,
safeguarding assets, the effectiveness of operational information, and sustaining compliance with rules, laws,
and contracts.
Conclusion
Internal audit has remarkably evolved and plays an important role in enhancing businesses by introducing
new approaches and best practices for risk detection and management. Owing to the changing risk landscape,
internal audit needs the best technology solutions, along with, an understanding of Risk-based
Internal Audit in order to play a critical role in today’s business environment.
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