NEW YORK, Sept. 26, 2007 (PRIME NEWSWIRE) -- Internal auditor leaders must redefine the function's value proposition and adopt a risk-centric mindset if they aspire to be key players in assurance and risk management in their organization, according to a new report released today by PricewaterhouseCoopers LLP (PwC). "Internal Audit 2012" identifies major trends that will likely shape the world of internal audit over the next five years. The study, which was based on interview and survey data from Chief Audit Executives of Fortune 250 companies, found that the controls-focused approach that has dominated internal auditing is expected to diminish in relevance over the coming years.
The central finding of the study is that over the next five years, internal audit leaders must re-define the function's value proposition. Based on the study, PwC has determined that a "risk-centric" internal audit model would provide assurance on the effectiveness of risk management in addition to controls assurance. This additional level of assurance would help internal audit align itself more closely with the organization's maturing risk management capabilities.
The study also highlighted five trends that will have the greatest impact on the internal audit profession in the coming years -- globalization, changes in risk management, advances in technology, talent and organizational issues, and changing internal audit roles. By understanding these trends and their implications, internal audit leaders can help senior management identify and manage risk, thereby providing added value.
"The study points to opportunities for organizations and their internal audit function to move beyond basic controls coverage and become strategic players in assisting the organization to manage risk," said Dick Anderson, partner, PricewaterhouseCoopers. "However, the study also observed that failing to transition could detract from the stature achieved by internal audit in recent years in the eyes of senior management and audit committees."
If internal audit is to remain strong, its fundamental value proposition must shift.
According to the study, as other risk management functions assume new responsibilities in areas such as controls, internal audit could be perceived as being limited in its ability to deliver comparable value. Therefore, to meet the evolving needs of modern organizations and the rising expectations of senior management and audit committees, internal audit must move beyond the fundamentals of risk and controls to create a new internal audit value proposition that includes the provision of risk management assurance along with the traditional responsibility of assurance over controls.
"Organizations are seeking to design in greater cost efficiency in monitoring the effectiveness of internal controls as well as in the internal audit process overall," said Dennis Bartolucci, partner, PricewaterhouseCoopers.
The continuing migration toward a more risk-centric approach to internal audit is driven by the following five key trends which are likely to reshape internal audit by 2012:
Trend One: Globalization * Nearly seventy-five percent of survey respondents expect globalization to have a moderate to very strong impact on the roles and responsibilities of internal audit. * Seventy-seven percent of survey respondents believe that the wide-scale outsourcing of corporate or enterprise-wide functions or operations will have a moderate to very strong impact on internal audit roles and responsibilities. Trend Two: Changing Internal Audit Roles * Ninety percent of respondents anticipate that continuous auditing will produce additional responsibilities for internal audit over the next five years. * Eighteen percent of those surveyed expect to have somewhat more responsibility than today, while sixty-one percent expect neither more nor less responsibility, and twenty-one percent anticipate less responsibility in the coming years. Trend Three: Changes in Risk Management * More than half (fifty-one percent) of survey respondents expect that an annual audit planning process focusing on an annual risk assessment will be more important in 2012 than it is today. * A total of fifteen percent expect an annual risk assessment to be far more important, while thirty-six percent believe it will be somewhat more important. Trend Four: Talent and Organizational Issues * Nearly two-thirds of survey respondents expect the number of internal audit professionals to increase over the next five years, with the largest increase occurring in the technology area. * When asked where staff increases would likely occur, fifty percent of respondents indicated technology; forty-two percent said increases would be linked to regulatory developments; thirty-nine percent said globalization; and thirty-five percent indicated risk management. Trend Five: Technological Advancement * One hundred percent predict that their use of technology will increase over the next five years. * Over the next five years, ninety-five percent of respondents expect technology to have a significant impact on internal audit responsibilities, with sixty percent anticipating the impact to be either strong or very strong.
"In an environment characterized by a heightened focus on risk management, it is imperative that internal audit functions match the risk management initiatives of management," said Richard Chambers, managing director, PricewaterhouseCoopers. "Our 2012 research shows that audit committees and senior management expect internal audit functions to step up their performance in risk management or face being absorbed or pushed aside by other, potentially more effective, players."
Central to internal audit's strategic repositioning is the ability to adopt an all-inclusive, conceptual approach to audit, risk assessment, and risk management that extends well beyond a focus on financial controls.
"Internal audit must move quickly to redefine its fundamental value proposition in order to remain relevant to the organization," adds Dick Anderson.
To download a full copy of the report, entitled "Internal Audit 2012," visit www.pwc.com/internalaudit.
Methodology
To gain a broad base of input for this study, PricewaterhouseCoopers surveyed the chief audit executives (CAEs) of Fortune 250 companies about trends likely to affect internal auditors over the next five years and what they expect internal audit to look like in 2012. Surveys were sent to the chief audit executives of all Fortune 250 companies in the United States. In addition, surveys were sent to 25 thought leaders, including academics, within the global internal audit community to seek their input.
A total of 82 survey responses, 72 from CAEs and 10 from thought leaders were received. In-depth interviews with 19 individuals, who represented a cross-section of the survey population were conducted as well. All of this input has been incorporated in the report.
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