Evolving risk, limited resourcing creates challenges for internal audits
Skill shortages, higher standards and high-profile governance failures are increasing the difficulty of performing internal audits, a recent survey reveals.
Approximately four in five internal auditors are finding internal audits have become more difficult in the past two years with the profession dealing with skills shortages, higher expectations from the public in terms of organisations and changes in the work environment.
A survey of internal auditors by the Institute of Internal Auditors Australia (IAA) indicated 83 per cent said it had become more difficult. This was an increase from the 2022 survey when this figure was 73 per cent.
“Some respondents cited high profile governance failures and the rapidly evolving nature of risk faced by organisations. It was also noted that society is expecting a higher standard of performance from large organisations,” the Pulse of the Profession Survey stated.
Respondents also suggested there are more scope areas to think about and fewer resources with which to deliver.
Others saw an increasing demand to deliver more impactful reviews in shorter timeframes.
A shortage of skilled internal auditor resources contributed the most to the increasing difficulty of conducting internal audits, according to the respondents.
A rapid advancement in technology has driven demand for skills in particular areas, IAA Australia chief executive Peter Jones told Accounting Times.
As AI platforms such as Chat GPT continue to advance, Mr Jones said this is one area where auditors will need to learn new skills.
Mr Jones said while AI should be used with caution, as more information is presented to internal auditors, it is likely businesses will increasingly rely on AI going forward.
“I think the big challenge for internal auditors will be to analyse that objectively, not with an AI hat on but to question what's there, to challenge it, and to make their own objective assessment about whether it make sense and whether it can be relied upon or not,” he said.
Data analytics is another area where there is strong demand for skills.
“As large organisations become more adept at collecting data and analysing it, they will be able to identify areas that can assist internal auditors in preparing reports,” said Mr Jones.
Respondents indicated the quality of data currently within their organisation limits the extent to which data analytics can be used.
The survey indicated the most common use of analytical techniques is for the selection of samples.
“While these techniques are useful for sampling, their greater value comes in search for exceptional conditions: that is looking for data points that are too frequently or too infrequently observed when the rest of the data seems to have a structure,” IAA stated in the survey.
Two thirds of respondents also listed remote working as a factor increasing the difficulty of internal audits.
Internal auditors felt being able to communicate in person and have a conversation can give useful insights data alone can’t provide.
Audit interference
The survey for this year also indicated a small increase in the proportion of auditors reporting threats to their independence.
Auditors were asked about being sanctioned or pressured in relation to internal audit findings. One in five of the auditors surveyed reported their independence had been compromised.
This was a slight increase from 12 per cent in 2022.
“Although the change here could be due to a smaller sample size, it is an important reminder that that the governing body and the audit committee must protect internal auditors from undue interference. Internal auditors must present their conclusions without fear of retribution from organisational management,” said Mr Jones.
Retribution experienced by respondents ranged from simply being ignored to activities that may well be in breach of workplace laws.
An increased ESG focus
A large majority of respondents stated auditing ESG risk is becoming an increasingly important aspect of their role.
“About 40 per cent of respondents reported that their internal audit function is already involved in review of ESG matters,” said Mr Jones.
“Amongst those who report that internal audit does not currently have ESG matters on its program, around 10 per cent report they are likely to move into this area soon.”
Sustainability, health and safety, and internal controls and assurance were ranked as the top ESG matters.
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