A growing number of new chief audit executives are coming from outside the internal audit profession as organizations demand more diverse business skills to confront new strategic risks, according to a new report.

The latest Pulse of the Profession survey report, released Monday by the Institute of Internal Auditors’ Audit Executive Center, shows that 42 percent of CAEs in North America held positions outside of internal audit immediately prior to becoming CAE. This nontraditional career path has both risks and benefits for organizations.

The report noted that without internal audit experience, a CAE coming from other parts of the business may not have an aptitude for governance, risk and controls or an appreciation for the possibilities of internal audit. On the other hand, understanding the business is also vital, and can be significantly enhanced by having actually served in a hands-on role as a business executive.

CAEs interviewed for the survey indicated that audit executives who come from outside internal audit can provide new energy and perspective, deep business knowledge and perspective, and strong internal relationships. But respondents also acknowledged that a CAE’s lack of internal audit experience and inadequate aptitude for governance, risks and controls could present significant challenges.

Before becoming CAEs, 19 percent of the survey respondents held management position in accounting or finance, 9 percent held a management position in a professional service firm, 4 percent held a management position in operations, while 3 percent held a management position in compliance.

Of the chief audit executives who came from outside internal audit, 53 percent were in the manufacturing industry, 46 percent in educational services, 44 percent at insurance carriers, 42 percent in health services, 34 percent in financial services, and 28 percent in the energy industry, including oil and gas.

Forty-six percent of the nearly 370 CAEs who responded to this year’s survey rate strategic business risk as the top priority for executive management, while 28 percent consider it the top priority for audit committees. While business strategy remains a relatively small area (6 percent) of the overall audit plan, according to the survey, follow-up interviews with 24 CAEs reveal that internal audit’s approach to audit planning can bridge a perception of misalignment. Successful internal audit functions take into account stakeholder priorities and address them throughout their audit plan.

“Internal auditors must continuously assess the risks facing their organizations and align those assessments with stakeholders’ evolving expectations,” said IIA president and CEO Richard F. Chambers in a statement. “Our success as a profession is contingent upon not only securing the resources and talent needed to address key risk areas, but also gaining stakeholder trust that our contribution is focused on the right areas.”

As with the emerging CAE career path, competencies for internal auditors are also evolving. The survey showed that only 25 percent of CAEs in North America now recruit audit candidates with traditional accounting skills, while 43 percent recruit for business acumen, and 40 percent recruit for industry-specific knowledge. More than 80 percent of CAEs said they seek new employees with analytical and critical thinking skills. Communications is the second-most demanded competency, at 61 percent.

The study also found that board members are sensitive to risks involving technology, particularly cybersecurity. Sixty-four percent of those surveyed indicated board concerns about cybersecurity have increased or significantly increased in the past one to two years. Internal audit’s role in relation to information security involves ensuring that the processes and controls used in these efforts are working effectively.

Organizations continue to consider internal audit as a critical resource for assurance on risk management and internal controls. Forty-one percent of the CAEs surveyed predict an increase in internal audit budgets during 2014, while 26 percent project increased staffing. Since 2010, the annual survey has reported an optimistic forecast for internal auditing budgets and staffing year after year. Internal auditing continues to sustain pre-recession resource levels in most organizations, indicating continued support in terms of overall performance.

“Ultimately, the approach CAEs take when executing their role and managing the internal audit function depends on their understanding of, and alignment with, the expectations of their stakeholders,” said Chambers. “Whether you come from within the profession or not, self-preservation as a CAE begins with understanding the business, applying diversity of experiences, and effectively communicating with your stakeholders.”

A copy of the report can be downloaded here.

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