31
Oct
13

YUMMY or YUCKY?

A thing of beauty is a joy forever,” wrote the English poet John Keats. Conversely, managing internal audit function may not be a joy forever (with the little knowledge from my personal experience!!!). At times, it becomes indispensable to develop a thick skin to overcome the resistance to internal audit function. In this professional journey, many auditors put forth the below question in different forms to me:

“Can the internal auditor function work independently?”

As we know, the IIA’s Attribute Standard 1100 “Independence and Objectivity” stipulates that — “The internal audit activity must be independent and internal auditors must be objective in performing their work.”

There can be great debates and discussions over this. But before arriving at a conclusion, let us prod to find out what can be done to uphold the independence of internal audit function in every organization.

I acknowledge that being an internal auditor is a tough (and unpopular) job when there is no proper support from various stakeholders. Killing the messengers — getting the heads chopped off — do happen everywhere. However, all is not gloomy as we tend to think. There is a ray of hope beyond this doom. If and only if internal auditors are able to ‘stand up and speak truth with knack and candor’. In order to make this a reality, I believe we can try the following:

  • First and foremost, it is important not to go on defensive to avoid the trouble. As auditors, it is comfortable to generate boring and predictable reports which will make the management yawn. (It will neither threaten the survival of internal audit function nor create a sour relationship with management.)
  • Secondly, it is essential for internal audit function to avoid engaging in negative tactics like trying to shield itself under the Audit Committee by treating the senior management as the ‘baddie’ or intimidating to trumpet to external stakeholders (like media, regulator, statutory auditors, etc) even when it is unwarranted.
  • Though I agree that certain dose of legal protection to the profession of internal audit is desirable, it will alone not make the internal audit completely independent. To be really independent, it is crucial to develop an atmosphere of mutual respect. Without sensationalizing or exaggerating the issues, internal auditors must learn to strike the balance by arriving at measured judgements.
  • Internal auditors must focus on things that matter. Materiality counts. Going overboard, auditors fall into trap of diluting their report (like water) with too much information rather making it concentrated (like sulphuric acid). It is imperative to prune lumbering and lengthy reports into concise and crisp ones with ruthless editing.
  • As internal auditors, we can easily lose the big picture when we are not intentional about it. We need to be creative and innovative by donning the ‘six thinking hats’ (as suggested by E.D. Bono) whenever necessary. There is a great synergy when we are able to combine impartiality with empathy.
  • Internal audit function must understand which of the stakeholders really call the shots. It is good to know the culture of the organization and be aware of (without getting involved in) office politics. We need to convey the message to the right people in the right form. Auditors can be nice but it is also important to stand our ground. In other words, we can be gentle but we must also learn to be assertive.
  • As July 2012 research report from EY suggests, internal audit function must be run like a business. It must hold itself accountable for operating excellence, continuous improvement and tracking impact. It must evaluate successes and monitor Key Performance Indicators (KPIs) defined on its value scorecard.

I have given some of my thoughts here. Though it is not comprehensive, I feel that these could be a starting point in helping us achieve the objective of independence. As we began with the poetic words, let me try to conclude in metaphoric words:

“Internal audit function is like chicken. Chicken is either YUMMY or YUCKY depending on how we cook it. Similarly internal audit internal audit function is either INDEPENDENT or DEPENDENT depending on how we build and maintain it.”

Now when someone asks you — “Can the internal auditor function work independently?”, you can confidently give the answer —

“It depends.”

 

 

Question: There could several other ways to promote independence of internal audit function. Please share them by leaving a comment to this post. I welcome your thoughts.

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2 Responses to “YUMMY or YUCKY?”


  1. November 1, 2013 at 12:38 pm

    liked your analogy of water and sulphuric acid… I believe, the crux of the matter is to know for sure what are the objectives of the organization and how IA function is helping the management to achieve that. Though it would be a bitter pill to swallow, but when the management later understands and ‘acknowledges’ the benefit – the support is bound to come.

    • 2 Uma Maheswaran
      November 1, 2013 at 1:43 pm

      Agreed Abhilash! I too believe that the key to success lies in balancing. That’s the thin tight rope which the auditor has to manage carefully. Thanks for your thoughts.


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