KPMG reveals key areas of added value for internal audit
The challenges facing internal audit departments are set to increase in 2017, as both political and economic uncertainty create new problems for the risk management and compliance tasks that auditors oversee.
In fact, ‘uncertainty’ was recently ranked as the biggest hurdle for UK employers. More than one-third (36 per cent) of businesses in a Recruitment and Employment Confederation survey ranked this as their greatest ongoing concern.
A recent KPMG report examining current audit committee priorities highlighted various areas where internal auditors are now expanding their responsibilities in order to support businesses battling new risks.
The big four firm’s research noted four key challenges for internal auditors in today’s commercial climate.
1. Risk management
Over 40 per cent of audit committees surveyed said their risk management programme and processes require ‘substantial work’ to prepare organisations for modern market volatility. Legal and regulatory risks – as well as cyber security – were specifically highlighted as problems.
Auditors can add value by expanding their audit plan in relation to important areas of operational risk, as well as improving talent within the audit function and maximising flexibility to adapt to changing circumstances.
2. Company culture
KPMG noted that approximately one-quarter of respondents believed the tone at the top of their organisation needed work, with short-termism a particular issue with many businesses.
Last year, we commented on how internal auditors can drive company culture for their businesses. Meanwhile, KPMG recommended focusing on the alignment of short- and long-term goals.
3. Succession planning
A mere 11 per cent of audit committees are satisfied with their CFO succession planning, with many arguing that finance departments don’t focus enough on developing talent and skills.
Respondents were keen to focus more time and resources on the finance organisation in order to handle increasing demands, including financial reporting and controls, risk management and M&A analysis.
4. Financial reporting issues
There are two major accounting changes on the horizon, according to KPMG, and few audit committees believe their firms have clear implementation plans in place.
The International Accounting Standards Board and the Financial Accounting Standards Board have worked on implementing both a new leasing standard and a revenue recognition standard. While these standards won’t affect all businesses, audit committees feel more emphasis should be placed on them and non-GAAP financial measures.
Tackling the skills shortage
Audit committees claimed that the effectiveness of internal audit departments hinges on a number of factors.
Nearly 40 per cent said a better understanding of the business and risks was crucial, while 31 per cent cited the importance of additional expertise, especially across cyber security and technology.
These findings correspond with Barclay Simpson’s research into internal audit departments, which revealed that more than half of organisations feel under-resourced within the function. Nearly three-quarters confirmed they were finding it difficult to recruit people with the right skills and experience.
Clearly, as demands increase on internal audit departments over the coming year, organisations will need to strengthen their recruitment practices if they want to attract and recruit talented people to take on key responsibilities.
Our Market Reports combine our review of the prevailing conditions in the internal audit recruitment market together with the results of our latest employer survey.
Image: Michail_Petrov-96 via iStock