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How can Agile methods add value to internal audit?

The ‘Agile’ approach is hardly a new concept. The Agile Manifesto, which outlines the key principles behind the methodology, was published in 2001 to streamline software development processes.

 

Nearly two decades on, Agile techniques have spread to other industries and business functions as departments look to streamline their own projects. Internal audit is no exception, and a growing number of organisations are implementing Agile methods to boost performance.

But how does Agile auditing work? Which businesses are leading the way? And what benefits, if any, are these companies experiencing after becoming Agile?

Understanding Agile methods

Seventeen pioneering software developers wrote the Agile Manifesto, which sets out four main priorities:

  1. Individuals and interactions over processes and tools;
  2. Working software over comprehensive documentation;
  3. Customer collaboration over contract negotiation; and
  4. Responding to change over following a plan.

The developers argued that while there is value in the items on the right, they valued the ideas on the left more. Over the years, the manifesto has developed into various techniques, disciplines and processes designed to make teams more flexible to evolving challenges.

 

Nevertheless, the core principles have remained largely the same. For example, Deloitte’s own Internal Audit Agile Manifesto is outlined in the Tweet below:

 

 

But how do these principles work in practice? Let’s examine what Agile methods firms are using in an effort to improve their audit departments.

Why is Agile auditing becoming more popular?

Traditional auditing can usually be broken down into three broad stages:

  1. Planning;
  2. Fieldwork; and
  3. Wrap-up and reporting.

Auditors commonly complete each individual stage before moving onto the next one. For example, the annual audit plan is created first. Once the plan is in place, fieldwork for each audit programme is conducted and completed before the final report is written and delivered after all the findings are in.

 

However, many businesses feel this approach locks them into a long-term, inflexible plan that fails to adapt to emerging risks within a reasonable timeframe. Only 44 per cent of organisations said their internal audit department provided significant value last year, according to PwC. This had dropped from 54 per cent in 2016, indicating stakeholder expectations are rising.

Applying Agile to auditing

Agile methods can modernise the three main phases of auditing through several key techniques:

Planning: Replace audit plans with ‘backlogs’

Agile teams typically use a backlog system in conjunction with an audit plan. The backlog contains work items that must be completed and is regularly prioritised based on the most prominent risks. Crucially, items can be removed or added to the backlog as the threat landscape evolves. This enables auditors to tackle pressing problems as they emerge, while still having a single authoritative source of projects.

 

Internal auditors and stakeholders must agree on the parameters of an item in the backlog before it can proceed to production. This means establishing what will be tested or reviewed, as well as the goal and expected value from the exercise. The term ‘definition of ready’ (DoR) is commonly used in Agile teams to discuss the minimum information and resources required before tasks can start.

Fieldwork: Introducing ‘sprints’

Once an item is ready, the tasks associated with that action are divided into sprints. A sprint is a time period in which a particular process or deliverable must be completed. Sprints are traditionally one to two weeks in software development, but they can last up to four weeks or longer in other Agile systems.

 

Auditors can divide fieldwork up into separate tasks, enabling multiple individuals or teams to begin completing jobs to succinct deadlines simultaneously. These accelerated delivery cycles mean less time is spent on documentation and more effort goes towards providing assurance and confirming hypotheses.

Reporting: Move to iterative reports

Agile auditing emphasises ongoing communication and stakeholder engagement rather than relying on a single final report once all tasks are completed. In some cases, auditors will produce a brief report after each sprint to identify important findings and relay the results back to key people.

 

Many businesses also implement daily stand-up meetings, which are usually between five and 15 minutes long, to discuss progress and obstacles. Stakeholders are therefore kept abreast of developments earlier and more frequently than in historical audit processes. Final reports may sometimes simply be a summary of prior report meetings, with themes, insights and other findings having already been established beforehand.

 

 

 

 

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What are the benefits of Agile auditing?

PwC statistics suggest Agile projects are 28 per cent more successful than traditional methods. A quantitative analysis of over 1,000 Agile projects found these frameworks have a positive impact on both efficiency levels and overall stakeholder satisfaction when measured against organisational goals.

According to Deloitte, internal audit teams that implement Agile methods enjoy numerous benefits, such as:

  • Clearer outcomes;
  • Increased engagement;
  • Less documentation;
  • Empowered teams;
  • Accelerated delivery cycles;
  • Enhanced planning; and
  • More valuable insights.

Several companies are already leading the charge when it comes to Agile auditing processes. For example, Barclays began piloting Agile audits in 2015 using Scrum – a popular Agile framework that utilises sprints and daily stand-up meetings.

 

By 2018, Barclays had committed to becoming a 100 per cent Agile internal audit function, having seen greater engagement among audit teams and a 10-20 per cent reduction on time spent per audit.

Are there pitfalls to Agile auditing?

Early anecdotal evidence is positive for Agile auditing. However, there are still significant challenges with these methods and there isn’t enough independent research currently available to confirm Agile auditing always produces results.

 

Barclays and other early adopters have identified several hurdles that organisations must overcome to ensure their Agile audits have the best chance of success:

  • Changing mindsets: Agile auditing overhauls existing processes, which often creates tension among teams resistant to change.
  • Accessing support: Third-party coaching and development may be required to embed Agile methods into auditing functions effectively.
  • Preventing burnout: Agile audits can be intensive, which may lead to negativity and burnout if not properly managed.
  • Apply Agile appropriately: Not all audits are suitable for the Agile approach. Businesses may need a hybrid framework to handle unique tasks rather than shoe-horn every project through an Agile system.

Can my organisation benefit from Agile auditing?

Only time will tell if Agile auditing is here to stay, but early indications suggest these methods could transform how auditors are perceived within their business.

 

Nearly nine out of 10 (88 per cent) stakeholders with Agile audit functions claimed they provide significant value to the organisation, PwC research shows. This means they are central to helping the company anticipate and respond to risks.

 

However, one key element of Agile methodologies is ensuring buy-in at every level of the organisation, from senior management to auditors on the front line. Businesses must also find auditors with the right skills, experience and mindset to adopt these practices and make them work.

 

Is your organisation ready for an Agile future? Please contact me on 020 7936 2601 or via email at ib@barclaysimpson.com to discuss your internal audit recruitment needs.

Our Market Reports combine our review of the prevailing conditions in the internal audit recruitment market with the results of our latest employer survey.

Image credit: Tierney via Adobe Stock.