Reporting Lines, Priorities, and Resources Shift for Internal Auditors
IIA survey reveals internal audit positioned for a more strategic, value-added role
ALTAMONTE SPRINGS, Fla. Mar. 18, 2013 – Results of the Pulse of the Profession survey, a semi-annual assessment of the state of the internal audit profession in North America, was released today by The Institute of Internal Auditors’ (The IIA’s) Audit Executive Center. The report titled, “2013: Time to Seize the Opportunity,” clearly shows a growing number of internal audit functions are reporting to levels within the organization that enhance their independence, and an increased emphasis is being placed on assurance over risk management effectiveness and strategic risk. At the same time, there appears to be an opportunity for improving organizational ethics.
“Despite the continued slow pace of economic recovery and a flurry of regulatory activity, most internal audit functions indicate they are well positioned and adequately resourced to add value to their organization,” said IIA President and CEO Richard Chambers, CIA, CRMA, CGAP, CCSA.
Among the survey’s most significant findings, 70 percent of participating chief audit executives (CAEs) overall and 75 percent of Fortune 500 participants indicate their organization’s CAE currently reports administratively to the CEO or the CFO, with an elevating shift from the CFO to the CEO. As expected, the majority of CAEs also report functionally to the full board or its audit committee.
“When Sarbanes-Oxley was enacted about 10 years ago, only around 20 percent of CAEs reported administratively to their organization’s CEO. Now about a third have that direct reporting line, and I believe the percentage will continue to grow in the coming years,” said Chambers. “The higher up in the organization a CAE reports, the more objective that individual can be in overseeing audits of tough areas of responsibility and the more independent the internal audit function becomes in the eyes of stakeholders. It enhances the credibility of the CAE and the internal audit function across the rest of the organization.”
Findings also reveal opportunities remain to strengthen the ethical tone of leadership at many organizations. Nineteen percent of all and 32 percent of Fortune 500 respondents report that one or more senior officers of their organization have been dismissed for ethical/conduct lapses. Only a slim majority of respondent organizations conduct ethics training for new hires and, discouragingly, one-fifth train existing employees less frequently than once a year.
“CAEs have to be an integral part of the conscience of the organization,” said Doug Anderson, CIA, CRMA, finance director and former CAE at Dow Chemical. “When they see that their organization’s values are not being lived up to systematically, they have to become vocal participants in trying to rectify that. They have to be champions. It cannot be a spectator sport.”
According to the survey, many CAEs are positioned with staff and budget resources in 2013 better than in any other year of the recent post financial-crisis era – particularly in larger companies. The CAEs of 27 percent of respondent Fortune 500 companies increased their staff sizes going into 2013, as compared with 22 percent in a similar survey last year.
The Pulse of the Profession states the CAE rotation model adopted by many organizations may create independence and objectivity risks the audit committee should consider and, if needed, address. Potential safeguards can mitigate these risks, including the audit committee being engaged in the selection and evaluation of the CAE, among others.
“Without appropriate safeguards, I fear that over the coming decade, the cumulative effect of the risks arising from the rotation model will create substantial challenges for individual companies and cumulatively for our profession,” added Chambers.
Additional key findings include:
- The focus of audits largely aligns with the risks now facing organizations, with attention to compliance, operational, technology, and financial risks. Additionally, there’s an increased focus on strategic risk and risk management assurance as compared to The IIA’s November 2012 Pulse of the Profession study.
- The staff skills most sought by CAEs correspond to shifts in their audit plan focus. The most sought skill, with 77 percent of all respondents and 76 percent of Fortune 500 respondents indicating its importance is analytical/critical thinking, followed closely by the ability to communicate well and data analytics, recognizing the diverse skill sets needed to be successful in today’s internal audit profession.
“It is very reassuring that CAEs are heeding the call to up their game. Audit committees have come to expect, if not flat out demand, that internal audit evaluate the organization’s strategic risk exposures as well as provide assurance on overall risk management effectiveness. For internal audit, the time is now to seize the opportunities that are afforded,” concluded Chambers.
To download a copy of The IIA’s Audit Executive Center’s report, “The Pulse of Profession 2013: Time to Seize the Opportunity,” please visit www.theiia.org/cae/news-releases/.
About The IIA
Established in 1941, The IIA serves more than 180,000 members in 190 countries and is the internal audit profession's global voice, chief advocate, and principal educator. The Institute develops and maintains the International Professional Practices Framework for internal auditing, comprising the International Standards for the Professional Practice of Internal Auditing, and certifies professionals through the globally recognized Certified Internal Auditor. Visit www.theiia.org for more information.