the audit committee and the evolving role of the internal audit function dr claudelle von eck

The Audit Committee and the Evolving role of the Internal Audit function

Dr Claudelle von Eck

The IIA is the creator and custodian of the international Standards for the Professional Practice of Internal Auditing.

The Standards

Provides Moral Compass through the Code of Ethics

Navigating through a volatile environment

Internal audit uniquely positioned to be a trusted advisor to the leadership in the organisation

Lack of understanding of the role of internal audit

Governing bodies and senior management rely on Internal Auditing for objective assurance and insight on the

effectiveness and efficiency of governance, risk management and internal control processes.

VALUE PROPOSITION OF INTERNAL AUDITING FOR KEY STAKEHOLDERS

• Objectivity• Independence• Compliance with the IIA’s Code of Ethics• Providing independent objective assurance

and consulting• Compliance with the International Standards

for the Professional Practice of Internal Auditing

Key factors for Internal Audit to add value

•Lack of support from leadership•Findings not taken seriously•Recommendations not implemented•Too many instances where Audit Committees are not displaying enough strength

Death threats where internal auditors blow the whistle

Audit Committee Oversight

Ask the right questions

Ask the tough questions

Public interest?

Value of oversight

• Accountability – Complex systems vs primitive nature

• What gets measured gets done

What gets measured get done

If you don’t measure results, you can’t tell success from failure

If you can’t see success, you can’t reward it

If you can’t reward success, you are probably rewarding failure

If you can’t see success, you can’t learn from it

If you can’t recognise failure, you can’t correct it

If you can demonstrate results, you can win public support”

(Osborne L. Gaebler, 1992)

Changing focus of internal audit

2010

Operational audits

Auditing financial risks

Evaluating effectiveness of control systems

Next five years

Executive compensation assessments

Quality/ISO audits

Business viability assessments

Investigations of fraud and irregularities

Audits of compliance with regulatory code requirements

Social and sustainability audits

Due diligence reviews for corporate acquisitions/mergers etc

In camera meetings

Tone at the top

Management’s response to findings and recommendations

Internal audit’s independence (70% of internal auditors report intimidation/coercion to sweep

finding under the carpet – Where were the Audit Committees?)

Interpret what is not said in the audit reports and ask why

One-on-one between the Audit Committee Chair and the CAE

Strategy to protect internal audit

Combined Assurance

Internal Audit coordinates

Questions to ask the CAE

• CAE’s capacity

• IA Function’s capacity

• Adherence to Standards and IIA SA Career path standards?

• Budget adequate?

Questions to ask CAE• Is the audit plan risk based?

• Is the audit plan balanced with enough focus on strategic risks

• Does the audit plan have adequate focus on matters such as ethics, governance, assessing the risks related to reputation, customer service and environmental factors

• Seniority and reporting lines?

• Follow-ups being done?

Quality Assurance ReviewsKing III Chapter 3 : 3.7.3

The audit committee should ensure that the internal audit function is subject to an independent quality review as and when the committee determines it appropriate

Why are Quality Reviews important?

For the evolution of the Internal Audit Activity • Review of the current activity – Assess current internal

audit structure, methodologies and resources • Conformance with the IIA Standards• Benchmarking with Best Practice• Identify opportunities to improve internal audit

capabilities and processes• Clarify and validate management and shareholder

expectations of the department• Develop actionable strategic plans to align internal

audit with corporate goals

Governance is a Leadership issue

Let history judge us kindly

President Jacob Zuma‘ It can’t be business as usual’“We will not be able to blame apartheid if some villages still have no water, no electricity and no roads. We will not be able to blame anyone else if children still study under trees, if hospitals are falling apart, and if there are still thousands who live in abject poverty” (extract from Mail and Guardian –23 April 2010)

Thank you!claudelle@iiasa.org.za