CNK K & Assoc ociates iates LLP Internal Auditor as Business Leader – Innovation & E ff ectiveness CA Himanshu Kishnadwala June 15, 2018
Why am I speaking today on this topic? • I am not a business leader • I am not a specialist Internal Auditor Then, why am I speaking on “Internal Auditor • as Business Leader”? Because… • I travel all over India and beyond • I have the opportunity of looking at our profession from micro / macro perspective And, because I am used to giving a “true and • fair” picture to the reader/audiences whenever called upon CNK 1
Setting the Context • Internal Audit demystified • Overview of various practice areas open to a Chartered accountant • What makes a good Internal Auditor? An Internal • What makes an Internal Auditor a good Business leader? Auditor CNK 2
What is Internal audit? INTERNAL AUDITING is an independent, objective, assurance and consulting activity that adds value to and improves an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes. (by Institute of Internal Auditors) … Do I see the first yawns at this post -lunch session ??? CNK 3
Objectives of Internal Audit • Compliances – • Risks and controls external and internal Add Value, Achieve Objectives • Optimization of • Governance processes resources, costs and and ethical practices processes CNK 4
What is Internal audit? INTERNAL AUDITING is an independent, objective, assurance and consulting activity that adds value to and improves an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes. … Do I see a few nods and smiles ?? CNK 5
Objectives of Internal Audit • Compliances – • Risks and controls external and internal Add Value, Achieve Objectives • Optimization of • Governance processes resources, costs and and ethical practices processes CNK 6
Value addition and Challenges • Value addition with reference to IA means the contribution made by Internal Audit to the entity’s ability to achieve or exceed its objectives. • The value addition may be quantifiable and tangible – like reduction in the wastages on the shop floor or better utilization of tax benefits; or it may be intangible in terms of prevention of frauds or improvement of the ethical climate in the organization. Challenges • While the value may be tangible or intangible, the cost is almost entirely tangible. • Unlike other areas of professional practice, IA is considered to be a business function, expected to operate on a cost-benefit rationale. Hence, rarely will one be asked to speak on value additions through statutory audit or tax practice … .but, with IA, this issue keeps coming up. CNK 7
Value addition – a different perspective To the auditor To the Firm To the entity being audited CNK 8
Unique Features of Internal Audit • Internal Audit, by its definition, combines assurance and consulting activity – this is in contrast to statutory audit, where the auditors are encouraged not to engage in advisory activities • Many of the areas of practice are governed by strict regulations, formats, rules, standards – and thus are consistent across practitioners • Many of the areas are the monopoly of or dominated by practicing chartered accountants (statutory audits, tax compliances) – in contrast Chartered Accountants have no such monopoly or dominance in internal Audit. Internal Audit can be an in-house or outsourced function, covers all areas of business and engages professionals from various disciplines CNK 9
Practice Areas – Overview Assurance Compliance Advisory Business, Direct & Indirect Statutory Audit process, Tax, Allied Laws transactions Internal Audit: Risk Advisory, Internal Audit: Internal Audit : Process Compliance Controls Consulting, testing and assurance confirmation IT Systems Testing CNK 10
Focus / Scope of Practice Areas Internal Audit/ SA/ DT/ IDT GRC CA ’ s are not ready for Internal CA ’ s are ready for Statutory audit audit and GRC services. and compliance related services. Internal audit needs business Their training focuses on regulatory understanding which is not covered assurance and compliances, scope of as a part of training. The scope here which is fixed. is not standard. Fixed Thali A La Carte CNK 11
Pillars that uphold Corporate governance CNK 12
Important difference between Internal / Statutory Auditor Statutory Audit Internal Audit Multiple industry audits Super Specialization Industry audits Industry Audits Single function /company General Audit audits From Generalist to Specialist From narrow focus to a wide arena CNK 13
Making of an Internal Auditor What does Internal Audit Teach a Chartered Accountant? CNK 14
Business Understanding • All internal audit starts with these questions: – What business are you in? – What are your business objectives and aspirations? – What are the risks, obstacles and concerns? An internal auditor cannot commence audit without a detailed understanding of the organization structure, the authority structure, the business plans, the competition, the compliance framework and the risks envisaged CNK 15
Understanding the Organizational Dynamics Internal auditors learn to understand the organizational structure – • the formal and the informal They also time their audit in a way that does not coincide with the • busy period of the auditee – no finance audit during financial closure time, no purchase audit during annual tendering period, audit the sales team during lean sales season and so forth.... Internal auditors also learn to hold on to their desks, their computers • and their timelines by building a position of relevance for the IA function - hence, diplomacy, communication, negotiation skills and fitting into an organization become important skills CNK 16
Communicating with all Business Functions • An internal audit covers all business functions. To get the co-operation of different functional teams, it is essential to speak their language In a Hospital, Dr. would be • Unable to connect with the key functional understood as ‘doctor’ and heads inevitability leads to expectation not as ‘Debit’ gaps and even termination of engagement • Internal auditors often engage multi- disciplinary teams – medical professional for hospital audits, architects and engineers for real estate audits, etc. CNK 17
Balancing : Between Assurance Role and Consulting Role Internal Audit: Balance between independent assurance and advice for business growth Organizational Value Independent Assurance ▪ Not solely controls focused, ▪ Historical perspective efficiency focused also ▪ Focus on BS /Financial Reporting ▪ Identify potential improvements ▪ Reporting Control Compliance and advise on best practices exceptions ▪ Work with management to ▪ Solutions left to management develop solutions ▪ Provide balanced reporting ▪ Risk focused Demonstrate the ability to walk the talk CNK 18
Trouble Shooting – Solving Problems, Finding Facts • Whenever there is a crisis, a regulatory change, a technological disruption, a doubt, a serious concern … .. Who is called upon to take up an investigation/audit immediately? • Invariably, it is the Internal Auditor! CNK 19
Providing Practical Solutions by Understanding the Real problem A good internal auditor will provide practical solutions & recommendations by understanding client’s business risks and processes CNK 20
Integral Part of Key Business Processes Today's Internal Auditor has occupied a center stage in management meetings due to the following: ❖ Change Management ❖ Technology Adoption ❖ Risk Management and Compliance Architecture ❖ Ethics and Governance Matters Internal Auditor thinks beyond Financials Aspects – Like a Business Leader ... CNK 21
Role of Internal Auditor in Technological Innovation A good internal auditor: ▪ Understands impact of external technological developments ▪ Provides early alerts ▪ Suggests preventive measures to cope with changing environment ▪ Converts technological threats into opportunities for business growth CNK 22
Understanding Impact of Technology Rental Car Company Travel Agencies Traditional Banking Alarm Clock/ Cameras CNK 23
The Hard Truth For Auditors: Soft Skills – A Key to Success The development required is not about adding another “ App ” to your technical toolkit. It requires investigating in yourself at a foundational level to expand beyond traditional analytical rational thinking. CNK 24
Integrating the Technical with the Innovative To provide value addition through Internal Audit CNK 25
Clarifying the Way Ahead We need something to help us clarify the complex way ahead. Being technically proficient will not be, and can never be enough. Need to build soft skills and ability to bring lateral learning to move with strength to step into the feet of Business Leaders CNK 26
Recommend
More recommend
