In the evolving landscape of corporate governance, the role of internal audit has transcended mere regulatory compliance to become a pivotal value-added service for businesses and stakeholders alike. Increasingly, successful companies are establishing internal audit functions without the requirements of mandatory regulations, simultaneously elevating the expectations placed upon this critical element of corporate oversight. At its core, internal audit serves to enhance shareholder value by assisting management in protecting assets and the company’s reputation, as well as in achieving strategic goals and results.
A fundamental step towards ensuring the effectiveness of internal audit lies in auditors themselves challenging the status quo, consistently questioning the role of internal audit and the value it brings to the organization. An internal auditor who regularly poses such inquiries demonstrates a commitment to steering the function in the right direction.
While crafting a comprehensive annual audit plan to cover high-risk areas is essential, experience reveals that sustainable effectiveness necessitates a well-defined strategy. In the absence of a proper strategy, concerns may arise among various stakeholders. To meet the ever-growing expectations of companies, internal audit must formulate a strategy that aligns seamlessly with the broader business strategy, executing and monitoring it meticulously and adjusting when necessary.
The heart of a robust internal audit strategy comprises five key elements: people, quality, customers, processes, and tools.
The importance of cultivating a proficient team cannot be overstated. In our company, we have implemented a personalized development plan (PDP) for each auditor over the past four years. This plan encompasses the development of both hard/technical and soft skills, as well as tools. Obtaining and maintaining professional qualification certificates, effectively communicating audit results to stakeholders, and adapting to new tools and systems are integral aspects of these PDPs. Notably, the implementation of the PDP is a key performance indicator for auditors.
Amid ongoing discussions about the potential for artificial intelligence (AI) applications to replace auditors, it is prudent to acknowledge that AI will undoubtedly play a significant role in internal audit. However, it is crucial to recognize that these tools are not intended to replace auditors but rather to augment their capabilities. Auditors who acquire the requisite knowledge and skills to leverage AI applications will remain essential in ensuring the continued effectiveness of internal audit.
To deliver high-quality IA services, establishing clear “golden rules and principles,” developing methodologies and checklists, and incorporating best practices in Governance, Risk, and Compliance (GRC) is crucial. For the benchmarking it is highly recommended to refer to Gartner’s research.
Effective communication with customers and stakeholders is often underestimated but is pivotal for ensuring the relevance and impact of audit results. Timely and clear communication of the annual audit plan, observations, and monitoring results to all relevant stakeholders is essential for maximizing effectiveness. This communication should extend beyond the direct stakeholders, CEO, and the Audit Committee to include the entire relevant management team actively engaged in the company’s decision-making processes, such as the Board of Directors and Executive Board. Collecting feedback from management regarding the annual audit plan and subsequent audit engagements is not only important but also critical to refining and enhancing the Internal Audit function. Implementing an annual or semiannual questionnaire to systematically evaluate overall feedback on the quality of IA services from top management and the audit committee can significantly contribute to the continuous improvement of the IA function in a thorough and effective manner.
Utilizing proper software, data analytical tools, and AI applications is critical in organizing IA processes and enhancing the quality of observations and reports. Allocating adequate resources to equip the IA team with these tools is integral to the IA strategy.
In conclusion, this article stresses the pivotal role of IA strategy in delivering high-quality services for businesses. Future articles will delve deeper into each element of IA strategy, with feedback shaping the prioritization of topics. Encouraging experimentation and continual fine-tuning of IA strategy is advocated over waiting for an ideal strategy to emerge.
Hayk Karamyan
13.11.2023