Thomson Reuters Survey Highlights Changing Nature of Internal Audit
(Thomson Reuters ONE) -
The annual survey finds the role of internal audit is shifting as organisations
play regulatory catch-up
LONDON, 19 July, 2013 - Internal audit practitioners globally are bearing the
brunt of a quickly changing regulatory landscape, particularly in financial
services, according to a new survey by Thomson Reuters. As organisations
continue to play catch-up with a shifting regulatory environment the focus of
internal audit practitioners' roles is changing dramatically, and resources
being stretched, as the function is asked to take increasing responsibility for
company-wide corporate governance and reporting to the Board.
Thomson Reuters Accelus surveyed more than 1,100 internal audit practitioners
across Europe, the Americas, Australia, Asia, Africa and the Middle East to
canvass their views on the state of internal audit and the greatest challenges
for the year ahead. Respondents represented firms from a wide set of industries
including financial services, manufacturing, government, education, life
sciences, energy and other highly-regulated industries.
Key findings from the report include:
* 26% of organisations nominated fraud and corruption as one of their top
three areas for time and resources, compared with only 16% of organisations
stating this last year. Legal and regulatory risk occupied the same spot as
last year, although fewer organisations nominated it.
* 61% of organisations' audit committees only reported to the board on a
quarterly basis whilst 12% weren't sure how often they reported to the board
and 2% only reported on an annual basis.
* 7% fewer internal auditors said that they spoke to the compliance function
on a weekly basis than in 2012 highlighting the need for more effective
cross-function communication.
* 50% of auditors thought that the risk management tools they currently used
either provided them with no satisfaction or left them very dissatisfied
when used to conduct risk assessments.
"Changes driven by the financial crisis and implemented in the first instance by
the financial services sector will, in time, permeate all sectors and set the
standard for risk governance and the expected role and remit of the internal
audit function," said Mark Schlageter, managing director, Governance, Risk &
Compliance, Thomson Reuters. "To meet increased expectations of both internal
and external stakeholders, internal audit practitioners need the ability to tap
greater resources as well as garner the clear support of their company right
through to Board level to truly achieve success in this changing operational
environment."
Regulatory Impact on Internal Audit
Historically, the focus of internal audit has been on process-level risk
assessment and assurance. While this continues to be a trend in 2013 the depth
of the internal audit function is changing and its parameters are widening. The
recent spate of financial scandals involving banks conducting fraudulent
activities has created a much more risk-averse operational environment resulting
in greater regulatory oversight as well as an increased need for risk-based
assurances to be provided to the Board and senior management.
As a result, internal audit practitioners are placing greater emphasis on areas
such as fraud and corruption with 26% of organisations saying it fell into their
top three areas where internal audit's time and resources are dedicated,
compared with only 16% last year. Additionally, there has been a shift in focus
towards 'softer' skill sets such as monitoring activity which rose from 8% in
2012 to 18% in 2013 and highlights that certain activities, once the domain of
other functions within an organisation, are now being handled by internal audit.
As well as having major implications for resourcing the internal audit function,
this shift has meant that less time is being spent on other areas such as IT
security and risk, which dropped considerably, from 54% in 2012 to 42% this
year. Resource constraints also mean that priorities for the internal audit
function are not always able to be met. Strategic level risk management, for
example, came near the bottom of internal auditors top three concerns (nominated
by only 9% of firms); however, when asked what the top priorities should be for
internal audit 36% nominated the activity.
Reporting to the Board
The Basel Committee on Banking Supervision's revised supervisory guidance has
said that a bank's board of directors should support the internal audit function
in effectively discharging its duties, thus ensuring it is up to date and gives
due weight to matters of note.
While this is the case, the Thomson Reuters survey found that in 61% of
organisations, the audit committee only reported to the board on a quarterly
basis. This highlights the need for internal audit to improve its understanding
of regulation and proactively engage senior management to identify and manage
issues, rather than merely conducting a box-ticking exercise. In addition,
internal audit needs to develop improved channels of communication with the
board, helping to ensure an efficient internal control system is in place to
prevent risk and reputational damage.
Notably, one of the top three areas that internal auditors believe they will
spend more time on in the coming year than previously includes reporting to
senior management. This may indicate that internal auditors are reporting more
to the audit committee, even though the audit committee has not increased its
level of engagement with the full board.
Separately, insufficient skilled resources was expected to be the second largest
challenge for organisations over the coming year, which further highlights that
internal auditors are feeling pressure in terms of resources and may be unable
to fulfill all of their duties, such as reporting to the board on a regular
basis.
Communication with other Risk and Control Functions
Risk management is an area that has experienced significant change in the wake
of the financial crisis. Companies increasingly need more coherent and
consistent risk reporting with input from internal audit, risk and compliance
functions alike to ensure adequate coverage of all relevant risks.
The survey results were therefore surprising in that half of all internal audit
practitioners surveyed were of the view that their organisation has a risk
management function that is immature, in development or non-existent.
Respondents' poor opinions could be attributed to organisations using
inappropriate risk management tools, such as well-established IT packages that
are core to a company's corporate culture, instead of bespoke IT audit packages
which will require staff training.
By working with other functions more regularly, internal audit practitioners can
increase their knowledge base, maximise resources and help to present the board
with a more complete picture around risk management. The interaction of internal
audit with risk management functions however was found to be in decline with
just 18% of respondents interacting on a weekly basis compared to 32% in 2012.
Similarly, fewer internal auditors said that they spoke to the compliance
function on a weekly basis than was the case in 2012.
A full copy of the report can be downloaded at:
http://info.accelus.thomsonreuters.com/internalauditsurveyreport2013
Thomson Reuters
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Exchanges. For more information, go to thomsonreuters.com.
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Source: Thomson Reuters Corporation via Thomson Reuters ONE
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Datum: 19.07.2013 - 10:01 Uhr
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News-ID 280003
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