SANCHIA TEMKIN
INTERNAL audits should become part of a company’s driving and support strategies, according to a new Ernst & Young global study of more than 100 industry analysts from more than 20 disciplines.
However, to do this organisations need to break out of the compliance cocoon and evolve into a fully fledged leadership role that delivers real value to the business. In the current economic climate, the biggest risk for most companies is not a failure to meet compliance requirements, but a failure to meet strategic targets.
The study also assessed last year’s top 10 business risks . In it, the analysts ranked the aftershocks of the credit crunch and the deepening global recession as the most important business risks , displacing regulation and compliance from the top spot.
The implications of this new business risk are far-reaching for internal auditing, to the point where leading organisations have already begun the process of repositioning the function.
“Traditional internal auditing is now outdated and in the past 10 years we have seen considerable stagnation in the profession,” said Stephen Helberg, head of corporate assurance at Rio Tinto.
“Organisations and shareholders now demand that internal audits deliver tangible value while also ensuring compliance.”
Jonathan Blackmore, a lead director in risk advisory services at Ernst & Young, said the King 3 report on corporate governance had brought the issue of internal audit to the fore.
“One of the biggest challenges in corporate SA is the role of internal audits in providing assurance to the board on the effectiveness of the company’s systems of internal control and risk management,” he said.
A further challenge for companies was ensuring that they had the right skills and competencies for internal audits, he said.
The King 3 report recommends that internal audits give an annual written assessment on the effectiveness of the i nternal controls’ system.
This would prove to a real challenge for internal auditors, Blackmore said.
In 2008, Ernst & Young’s global internal audit survey of 348 companies in various industries showed that internal audit functions were being retooled to shift them from compliance to business improvement.
As early as 2007, Helberg began innovating Rio Tinto’s internal audit function.
temkins@bdfm.co.za