Internal audit is extending its traditional role as an assurance provider into playing a more proactive role as trusted advisor, according to a new report by PricewaterhouseCoopers.
PwC’s 2015 State of the Internal Audit Profession study found that only 11 percent of chief audit executives characterize their current internal audit functions as providing value-added services and proactive advice to the business. Sixty percent of CAEs and just over 45 percent of stakeholders expect internal audit to extend its traditional assurance provider role into a more proactive trusted advisor role within the next five years.
“Our survey shows that nearly 70 percent of companies have gone through or are going through a business transformation in response to market changes,” said PwC internal audit services leader Jason Pett. “As companies undergo significant change to their operations and models, internal audit functions should be at the forefront of where the company is going, not where it’s been. As companies evolve and transform, senior management and boards are looking for internal audit functions to be actively involved in business imperatives and offer proactive perspectives on all business risks.”
PwC’s report highlights four key areas that enable internal audit to contribute to their organizations’ strategic and transformational initiatives:
Focus on the Right Risks at the Right Time
Internal audit functions considered by stakeholders to be contributing significant value are involved in transformational initiatives up to twice as frequently as their peer functions and are providing a proactive perspective on risk. PwC also noted that strong support from management and the Audit Committee enables internal audit to engage early on and provide proactive views.
Develop Talent with Relevant Skills and Business Acumen
According to the survey, a talent gap and lack of business acumen are fueling a poor perception of internal audit’s relevance and value, with 65 percent of stakeholders who do not find value in their internal audit functions citing talent as a top barrier and 70 percent citing business acumen as a top barrier. As businesses look to the future, internal audit functions need to acquire diverse skill sets to address the most critical risks facing their companies. According to PwC’s report, companies are often turning to third parties to close the talent gap.
Strengthen Alignment with Enterprise Risk Management and Other Lines of Defense
PwC’s survey reported that 87 percent of functions considered by stakeholders to be adding significant value are aligned with their organization’s risk management programs versus only 21 percent of lesser valued functions.
Effective risk management strategies require internal audit, ERM and other lines of defense to develop a common risk framework that is well understood by stakeholders and leverages the work performed across the lines. PwC’s recent article series, Achieving Excellent Risk Management, provides advice on how to develop enterprise risk management capabilities to support business decision-making.
Harness the Power of Data
Advancements in technology are allowing internal audit functions to leverage data that can help respond better to risks, increase efficiency, and enhance monitoring activities. However, according to PwC’s study, advances can be made to use data more effectively. Only 48 percent use analytics for scoping decisions and 43 percent use it to drive their risk assessment.
PwC’s study found the need for internal audit to expand its use of data analytics across the audit life cycle and leverage more advanced analytics and visualization tools to provide valuable business insights.
“For internal audit functions to remain relevant and valuable to their businesses, they should shift their mindset to keep up with the changing business and risk landscape,” said Pett. “Now is the time for internal audit functions to accelerate their evolution from where they are to where they should be—defining their True North. To truly stay on course, internal audit functions should develop their own strategic plan that is aligned to the broader business imperatives. The strategic plan is focused on the right risks, outlines strategies to define and close talent gaps, is aligned with other lines of defense and leverages the use of data throughout the internal audit life cycle.”
For a copy of the report, visit www.pwc.com/us/2015internalauditstudy.
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