Internal Audit in the New Business Environment

Internal audit orientation has recently shifted from S404 compliance to focus on operations and consulting.  Although still significant, internal audit has a more manageable S404 workload primarily due to renewed focus on key controls and improved testing and documentation efficiencies gained over time.  Reduced S404 compliance workload allows internal audit to focus on value-added activities including operational audits and risk assessment.

The CAEs noted that their companies are waiting on the SEC to provide a definitive timeline before investing substantial resources toward an IFRS convergence project.  The CAEs generally find merit in a global set of accounting standards and believe that US convergence to IFRS is likely to happen.  However, they are less certain regarding what type of standards will result a convergence or when.  Similarly, most of the CAEs are uncertain what role internal audit will play in an IFRS convergence project, but most anticipate involvement in some capacity.

The CAEs recognize that emerging environmental conservation societal trends have influenced many companies to develop CSR programs.  All of the sampled companies are performing CSR activities; however, none of the companies have a CSR program containing auditable metrics.  The CAEs suggest the market punishes socially irresponsible corporate behavior, but does not particularly reward socially responsible behavior.  Thus, several CAEs sense their companies are performing just enough CSR activity to avoid negative attention from customers, employees, and investors.  Internal audit has a limited role in these CSR programs primarily because they lack specific objectives and auditable performance metrics.

Increased scrutiny from investors and regulators resulting from accounting scandals in the early 2000s and the more recent recession has caused companies to formalize risk management practices.  Most of the sampled companies have begun developing an ERM program in the past several years.  For several companies, internal audit is directly involved in developing the ERM program by constructing risk metrics and monitoring procedures.

The opinions and insights provided in this article are presented to stimulate further discussion and research in areas surrounding internal audit orientation, IFRS convergence, CSR activities, and ERM programs.  Although the number of CAEs interviewed is relatively small (11) raising concerns about generalization of the responses, the responses presented are both insightful and thought-provoking.  The limited sample size made structured interviews possible, resulting in more detailed responses to specific questions.  The high variation of the scope and activity of internal audit departments in the sample made face-to-face interviews the appropriate technique to obtain reasonable and meaningful responses.  In summary, the detailed responses presented help bring awareness to the issues surrounding the selected business topics, and that management, regulators, investors, and the internal audit profession will be better equipped to position the internal audit function and their companies in the business community.

SUMBER : http://www.accountancy.com.pk/articles.asp?id=206