They say transparency and oversight are in vogue. Why wouldn’t they be? Haven’t you heard everyone talk of transparency and oversight as ‘the remedy’ for survival? Whether it is the unprecedented levels of regulation or market expectation, investors, stakeholders and customers are demanding a clear view into the state of the businesses.
While history is beleaguered with examples, good and bad, of what happens when you adhere to or violate the Transparency Rule, corporations are pondering which way to go. Perhaps after the WorldCom and Enron fiascos and Lehman Brothers and AIG to pick from recent times, corporations are not left with much choice. Transparency and oversight is the dictum - The ones who follow survive the ones who don’t, perish.
From conducting its business, establishing an ethical tone within its culture to certifying financial statements, corporations should be ready and capable of withstanding great scrutiny. Most notably, this calls for increased accountability on behalf of Audit Committees and corporate officers. This clearly means a greater role of internal audit.
Internal auditors undoubtedly play a critical role in overseeing a company’s financial reporting, internal controls, and shareholder reports. And today, more than ever before, they face pressure for greater integrity of financial information, greater clarity in reporting, and greater transparency in disclosure.
Certainly corporations are making strategic and systematic changes placing internal audit in a critical fulfillment role for financial compliance requirement, resulting in a significant increase in responsibility for monitoring and testing controls on a regular basis. More forward looking firms as well as those that are highly regulated or decentralized are embarking on a strategic definition of the internal audit function, supported by automated processes and leveraging the use of technology for analysis and exception management.
Corporations however are not looking at internal audit as just a tool to meet the compliance needs - they are no longer the whistle blowers of the company. Difficult economic conditions and heightened shareholder expectations have put pressure on executive management and audit committees to improve risk management and deliver greater value.
As a matter of fact, a study conducted by Institute of Internal Auditors says that more than 40 percent of internal auditors within the financial services sector felt that better risk management practices could have helped prevent their firm’s current financial situation.
Developing an overall risk management infrastructure, rather than a problem-solution approach can be a first step towards it. Corporations can leverage internal audit’s core competencies, going beyond traditional financial and compliance functions, to act as a powerful tool for risk management.
Internal auditors will need to work collaboratively with the chief risk officer’s to understand complex industry issues and with all stakeholders to realign audit coverage, and to focus a portion of their audit plan on management’s strategic initiative around risk management that are critical to stakeholder value. By doing so, internal audit will provide the overall assurance and risk management oversight that can help drive business success related to your strategic initiatives.