Posts Tagged ‘KPMG

20
Mar
14

Critical Thinking and Internal Audit: A KPMG Study

A recent research paper from KPMG, “Transforming Internal Audit Through Critical Thinking” caught my attention as I have been exploring about the relevance of analytical and critical thinking skills for internal auditors (for some time now). I recommend a read of the full report and have selected a few important points from the report for brief sharing here:

 

Critical thinking is defined as an open-minded approach to analyzing a situation or task for the development of supportable conclusions and conveying the assessed results in a logical manner.

 Organizations want internal audits that are insightful, forward looking, and go beyond preserving value to creating value on a departmental, divisional, or organization-wide level.

 Critical thinking as a core approach for internal audit establishes a strategic partner within the business, focused on achieving balance between risk management and business performance.

 Critical Thinking vs. Thinking Critically — In many instances, the term “critical” takes on negative connotations such as stubborn, judgmental, or opinionated; therefore, it is imperative that internal audit functions do not desire a critical “result”, but rather apply a critical “approach” to thinking that is holistic, skeptical, analytical, and evaluative to develop well-rounded conclusions.

 Critical thinking audit results must create measurable value to an organization, through highly effective data analytics, and cost-benefit considerations. The audits need to be geared toward identifying revenue opportunities, cost recovery, discovering cost avoidance opportunities, measuring hours of efficiency opportunity and direct redeployed monetary savings, quantified or untapped growth opportunity, or determinable risk reduction.

 In order to create value to the organization, internal audit must apply a critical thinking approach to internal audit, a level beyond operational auditing and this should result in opening more doors for internal audit to sit on steering committees, task forces, and other strategic initiatives.

 Some of the traits which serve as the basis for enabling critical thinking in audits – open mindedness; situational analysis; providing context; brainstorming; constructive questioning; detail orientation; being resourceful, agile, and able to quickly react in creative ways to develop a solution.

 Internal audit must develop deep organizational and business understanding to apply judgment, and challenge the business on a broad range of topics. In addition, internal audit must invest the time to understand the business strategy and transformational changes occurring throughout the organization.

 Internal audit must be characterized by a culture of challenge, probing, and continuous improvement. Internal auditors must remain solution focused; investigative in scenarios or solutions for issue resolution; and persistent in having a seat at the table for the key discussions.

 Key benefits to critical thinking in audits are –strategic alignment, critical thinking scope, and quantifying value drivers. With critical thinking being embedded in it, internal audit is viewed as a business advisor rather than the policy enforcer.

 A critical thinking audit should bear the hallmarks like (i) audit results will be set and measured in creating value for the organization; (ii) audit results will be limited to the key tangible findings that the business should address as a matter of priority; (iii) minor issues are reported outside of the final report to the business leaders; (iv) The business actually makes meaningful improvements due to internal audit findings.

 

The paper by KPMG is both exciting and practical. It shares valuable insights on the subject of ‘critical thinking’. Ahh! I feel it’s time for us to think to critically about developing ‘critical thinking skill’ in every member of our audit team.

 

Reference:

 “Transforming Internal Audit Through Critical Thinking”, © KPMG LLP, 2014.

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