IIA Presentation (for distribution) .pdf



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Global trends in
internal auditing
Francis Nicholson

Overview

1. The
profession

2. The
stakeholder
view

3. The
organizational
view

4. Resources

Data points

1. The profession

What does the profession stand for?

To enhance and protect
organizational value by providing
risk-based and objective
assurance, advice, and insight.

An overview of the profession

Volatile
landscape
Rise of
second line
of defense

Technology
risks

Internal
audit

Assurance/
advisory
balance

Regulatory
scrutiny

Culture
risks

Tightening
budget?

Stakeholder
expectation

Pressure
on talent

Main trends
Good
progress

Work
needed

More advisory
focused

Understanding
of strategy

From controls
to risk-based

Business
acumen

Wider spectrum
of risk

Align with
objectives

Five strategic risks for the profession

Not regarded
as a
profession

Not serving
stakeholders’
needs

Blurring lines
of defense

Not being
seen as
relevant

Becoming
regulators’
tool

The Global IIA in 2016
185,000+
members

200 000
180 000

170+
countries
/territories

109
international
affiliates

160 000
140 000

48k
74k

120 000

8k

100 000
80 000
60 000
40 000
20 000
0

15k

North America 74k
South America 14k
Europe 48k
Africa 15k

32k

14k

Middle East 8k
Asia/Pacific 32k

Members at large 2k

1980 1985 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

But…
Some estimate there may be 2,000,000 internal auditors in the world

IIA members 185,000

Discussion point

• What is the value of professional
membership and certifications in your
sector?
• Is The IIA relevant to you?

2. The Stakeholder
view

“enhance and protect organizational value”:
fraud, waste, inefficiency, corruption
Fined $50m

for
inadequate supervision
leading to data theft
“Underscores the need to put in place
strong controls and policies for
employee screening and the use of
confidential regulatory information”

Declared $2bn
in false profit
Over a period of seven years Toshiba
was found to have “cooked its books” to
overstate earnings

Endemic
corruption
Extensive material
weaknesses and
internal control failures

$18m scam
Nine oil and gas companies and 44
employees in NYC were charged with
fraud and corruption

Corruption >5% of global GDP ($2.6 trillion), bribes> $1 trillion (OECD)

Not just a private sector issue

• 20%-40% of development assistance lost through corruption
• Pervasive in tax collection across African countries
• Raising rule of law to global average would generate
another 28% in sub-Saharan African trade
• “About a quarter ($16 billion) of Kenya's budget cannot be
adequately accounted for”, Kenya’s auditor general
• “Corruption in South Africa costs R 30 billion (US$ 3.5
billion)” former head of the Special Investigating Unit
Sources: IMF and OECD

Where were the internal auditors?

What stakeholders want: raise the bar
Be relevant
• 64% want internal audit to have a
greater role in assessing and
evaluating strategic risk
Don’t ignore the obvious
• 86% want to see internal audit
focus more on the most significant
strategic risks
• Assurance is highly valued
Stay focused
• Be on the look out for new and
emerging risks
• 84% expect audit reports to focus
on root cause

What stakeholders want: raise the bar
Be helpful
• Advisory work is highly valuable
– if not at the expense of
assurance
Work across lines of defense
• Coordinate with risk
management and internal control
• Rely on objective assurance
Be a trusted adviser
• Build relationships with
management and the board
• Conformance with standards is
expected

Auditing at the speed of risk

And yet:
• 15% of CAEs “audit plan is
highly flexible…following the
changing risk profile”
• 43% of CAEs “audit plan is not
well-aligned with the
organization’s strategy”
If the rate of change on the outside
exceeds the rate of change on the inside,
the end is near. Jack Welch, GE

Conformance with the Standards

• Increasing, but
46% make partial
or no use of them
– Weakens the
profession
– Reduces the value
added
– Increases
ineffectiveness
– May add liability

What stakeholders also want

• Spend more time developing and
implementing policies

Discussion point

• Are your audit committees well informed
with reasonable expectations?
• Is there more The IIA could do to ensure
audit committees are knowledgeable?

3. The
organizational view

Becoming more visible
• 45% CAEs report
administratively to CEO
• 73% report functionally to
Audit Committee/Board
• 64% board members
“regular presence in
board meetings by CAE
was the best way to
address competing
demands”

Areas of greatest focus

Increasing time spent on:
• Risk management
assurance/effectiveness (43%)
• Strategic business risks (42%)
• IT (40%)
• Compliance/regulatory (35%)
• Corporate governance (31%)
Less time spent on:
• Financial risk and controls

Culture

• Not in the plan (62%) 72% do not audit
culture – why not?
• Lack of skills and
expertise (25%)
• Lack of support from
senior management
(23%)
• Someone else does it
(22%)
• Lack of time (21%)

Culture

28% do audit culture –
• Rated a high risk by
why?
internal audit (40%)
• Request by board or
audit committee (30%)
• Prompted by culture
related incident (29%)
• Request by
management (26%)
• Changes in culture
metrics (16%)

Discussion point

• Do you audit culture?
• Is it expected or valued?

4. Resourcing

Holding ground or growing?

• Budgets increasing (35%) or
remaining the same (56%)
• Staffing increasing (26%) or
remaining the same (68%)
• Pretty consistent by region
(greater growth in Africa)
• Pretty consistent by
profession

CAE’s competence in using the Standards

Uncertain times

Social
unrest

Political
uncertainty

Volatile oil
prices

Terrorist
attacks

Natural
disasters

Hacktivism

Global
warming

Disease

We are living in the future we dreamed of

Medical
advances

Hover
boards

Domestic
robots

Self-driving
cars

Renewable
energy

Agricultural
advances

Space
exploration

Scientific
knowledge

Supporting the profession
• The IIA will seize the opportunity by:
– Staying ahead of the curve
– Understanding the needs of the profession
– Putting our members first
– Delivering the tools, training, and services needed
– Collaborating with each other
– Advocating on behalf of the profession

Discussion point

• What are the biggest staffing issues in
your sector?
• How can The IIA provide better support?

Contact details

Francis Nicholson
Managing Director Global Advocacy
francis.nicholson@theiia.org


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