02
Apr
13

Can Internal Auditors be ‘Outliers’?

Throughout my career in internal auditing, I have been repeatedly shot with a peculiar complaint from my audit clients of diverse sectors: “Internal auditors do not understand the business”. Being part of not-for-profit sector, now I hear “Internal Auditors do not understand what transformational development is all about”. The shift from traditional financial audit approach to integrated audit approach has added fuel to this fire. As a result, the buy-in for audit observations gets tough/ almost impossible.

In recent ‘Global Pulse of the Internal Audit Profession’ survey conducted by ‘The IIA’s Audit Executive Center’ in 2012, ‘business acumen’ is one of the five most sought-after internal auditor skills by global recruiters and CAEs. Peter Marriott, Chair of the Audit and Risk Committee in Australian Stock Exchange states, “Findings from internal audits should be commercial, strategic and make business sense. Good internal auditors can join the dots and express their intuition…….” Added to that, Keith Tandowsky, Vice President of Internal Audit in Clorox says, “It is critical that every audit observation is clear about the business impact. The difficulty, from a leadership standpoint, is to develop less experienced staff members’ business acumen.”

So, it is important that internal audit professionals understand the business. In other words, it is compulsory for the internal auditors to understand the fundamentals of the business of organizations and the industries in which they operate. The clause 2 of Standard on Internal Audit (SIA) 15 issued by the Institute of Chartered Accountants of India, “Knowledge of the entity and its environment” rightly stipulates that —

“In performing an internal audit engagement, the internal auditor should obtain knowledge of the economy, the entity’s business and its operating environment, including its regulatory environment and the industry in which it operates, sufficient to enable him to review the key risks and entity-wide processes, systems, procedures and controls………… Such knowledge is used by the internal auditor in reviewing the key operational, strategic and control risks”

In my view, this is easily said than done. Business acumen cannot be acquired overnight. On the other end, the renowned author, ‘Malcolm Gladwell’ in his book “Outliers” asserts that —

“The idea that excellence at performing a complex task requires a critical minimum level of practice surfaces again and again in studies of expertise. In fact, researchers have settled on what they believe is the magic number for true expertise: ten thousand hours. ‘The emerging picture from such studies is that ten thousand hours of practice is required to achieve the level of mastery associated with being a world-class expert—in anything…………… Ten thousand hours is the magic number of greatness.’ ”

But, it is obvious that we as internal audit professionals cannot afford 10,000 hours to develop business acumen or become audit specialists. So how does one develop his business acumen and increase his understanding of the business over which he audits? I do not have a comprehensive or direct answer to this. But let me give a try. I believe that we can develop business acumen through a multi-pronged approach:

  • Develop a passion for learning. In future, internal auditors will be agile, flexible, resilient, empathetic and diverse learners
  • Pursue formal training and development programs / certifications related to the business
  • Volunteer to be part of rotational assignments, stretch projects. Variety in assignments should welcomed and rightly used to learn new business operations/ processes
  • Indulge in self-guided learning
  • Essentially, be conversant with the business documents of the organization (like Strategic directives, business plan, Standard operating procedures (SOP), management policy manuals, procedure manuals, purchase policy, human resource policy, information technology manuals and procedures, media guidelines, marketing strategy, etc).
  • Be a voracious reader of books, reports, journals of your business and industry. It can be a plain ‘vanilla’ reading at times but we will gather a ‘treasure trove’ of information about the business and the emerging risks impending on the industry
  • Get to know the legislation and regulations that significantly affect the organization and its industry
  • If given a chance, take a short sabbatical/ secondment to be part of the operations or other functions in the organization. Such hands-on-experience will prove to be handy in understanding the business

Success in life is all about being intentional and focused. The same will apply to the profession of internal audit too. Acquiring business acumen will not be either an overnight affair or a 10000 hour marathon. With our intentional commitment and dedication to learn, we can be on our path to mastery. We can acquire the organization and risk knowledge in the form of end-to-end process understanding. We can walk in the shoes of the business people we audit. We can be the real value adders. We can be the subject matter experts. We can be the insight generators. We can be the trusted advisers. We can be the ‘outliers’.

Question: Are there better ways of developing business acumen? Please share them by leaving a comment to this post. I welcome your thoughts.

References:

 [1] Standard on Internal Audit (SIA) 15, “Knowledge of the entity and its environment”, The Institute of Chartered Accountants of India, 2009.

[2] “Outliers: The Story of Success” by ‘Malcolm Gladwell’, Little Brown and Company, 2008.

[3] “Succeeding as a 21st Century Internal Auditor: 7 Attributes of Highly Effective Internal Auditors” by ‘Richard Chambers’ and ‘Paul McDonald’, IIA and Robert Half, 2013.

[4] “Reaching greater heights: Are you prepared for the journey? – 2013 State of the internal audit profession study”, PricewaterhouseCoopers, 2013.

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