Internal Audit Functions Have Room for Improvement, Finds Report

by CFO Innovation Asia Staff, 25 July 2012

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compliance control internal audit KPMG risk risk management

With risk, control and compliance becoming increasingly important in today’s global marketplace, a new global survey of 695 chief audit executives (CAEs) and C-suite executives released by Ernst & Young reveals that 80% of organisations acknowledge that their internal audit function has room for improvement.

The "Future of Internal Audit is Now" report, highlights that 75% of respondents believe strong risk management has a positive impact on their long-term earnings performance and an equal percentage believe that their internal audit function has a positive impact on their overall risk management efforts.

The survey identifies that the key priorities of both CAEs and stakeholders have clearly shifted from compliance and financial controls to risk coverage and business relevance.

Future focus areas becoming more relevant to achieving business objectives cited by respondents include improving the risk assessment process and enhancing the ability to monitor emerging risks.

Additionally, reducing overall internal audit function costs without compromising risk coverage and identifying opportunities for cost savings in the business were also cited.

In order to focus on risks that matter, create value and help the organization achieve its objectives, internal audit functions need to align their strategy to that of the overarching organisational strategy.

However, 61% of respondents reported that they had no documented mandate that aligns internal audit to the organisational strategy.

“Internal audit can use the organisation’s overarching organisational strategy to identify the risks that matter most in the context of the organisation’s risk appetite," says Randall Miller, Ernst & Young Advisory Global Risk Leader. "Elements of the organisational strategy will vary by industry and are very specific to the business but to remain relevant, internal audit needs to use risk assessments based on the organisation’s strategic objectives.”

Improve the Risk Management Process

Internal audit risk assessments, regulatory requirements and enterprise risk assessments are the top three drivers of the audit plan, and internal audit is playing a more prominent role in organisational issues, such as major capital projects (49%), IT systems implementations (42%), mergers and acquisitions (37%) and material contracts (32%).

Technology also remains a key area of focus for internal audit functions, comprising 18% of the current audit plan.

Improving the risk assessment process is the number one priority of CAEs and stakeholders alike.

Identifying risks that are truly significant to the business is the first step to effective risk management and monitoring.

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