3 key trends for internal audit teams in Hong Kong
Hong Kong’s corporate governance laws underwent a major overhaul at the beginning of 2016, with companies listed on the Special Administrative Region’s (SAR’s) primary stock exchange specifically targeted for change.
The new rules now require boards to have a much more comprehensive approach to risk management, including assessing the level of risk they are willing to accept in order to achieve their goals. Crucially, the changes mean boards must ensure internal audit now provides independent appraisal of risk management functions.
This is expected to have a significant effect on investment and recruitment across internal audit departments in the SAR. A recent KPMG report highlighted a number of key trends set to emerge in the Hong Kong market.
1. 53% of businesses expect spending to increase
Growing demand on internal audit departments means more than half of businesses plan to increase their spending over the next three years, with 57 per cent having already boosted investment since 2014.
According to KPMG, there are various drivers for expanding internal audit budgets, including:
- Increased audit committee or board demand (51 per cent)
- The need to meet regulatory requirements (44 per cent)
- Higher demand among senior management (32 per cent)
- A desire to hire more internal audit specialists (30 per cent).
Overall, 14 per cent of organisations claimed their internal audit spending had increased substantially over the last three years.
2. Internal audit receiving strong support
A key factor in a high-performing internal audit functions is senior management buy-in, and Hong Kong companies are beginning to see the value of strengthening corporate governance teams.
Fifty-seven per cent of organisations in the KPMG survey said senior management provides strong support to audit teams to enable them to do their job effectively. A further 34 per cent claimed their business offered medium support, while just nine per cent indicated minimal backing for auditors.
However, nearly one-fifth of companies still don’t have an in-house internal audit department, with 16 per cent co-sourcing or outsourcing these tasks and three per cent having no audit function at all.
3. Internal audit still not seen as business advisers
Organisations are undeniably making progress in terms of developing their internal audit teams, but there is still some way to go before professionals within the function are seen as trusted business advisers.
Over 80 per cent of high-ranking audit employees believed their role was as a business adviser, yet just 16 per cent of the wider senior management team agreed. An even lower proportion (four per cent) of audit committee chairpersons saw auditors as key business advisers.
Most professionals considered the function as a compliance checker (76 per cent), as well as a company watchdog (73 per cent). Having business executives working alongside auditors could help to expand the skills and knowledge of these departments, highlighting them as valued commercial partners.
Strengthening internal audit teams
In addition to current trends within the market, KPMG also highlighted several ways in which Hong Kong businesses could improve their internal audit functions. These included:
- Embracing big data and analytics;
- Tackling digital threats early;
- Auditing company culture and behavioural controls; and
- Effectively assessing the internal audit function itself.
However, organisations will also need strong internal audit teams to facilitate the changes required to meet new corporate governance expectations.
If you’d like to discuss internal audit recruitment in Hong Kong or the wider Asia-Pacific region, please get in touch with one of our consultants today to learn more.
Our Market Reports combines our review of the prevailing conditions in the internal audit recruitment market together with the results of our latest employer survey.
Image: danielvfung via iStock