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EY and Forbes Insights: Internal auditors, from assurance specialists to strategic advisers

Date: 09/02/2013
Source: EY
Expanding the role of internal audit involves challenges regarding resources  As regulators, business people demand more from internal audit. Also, external auditors rely increasingly more on the work of internal auditors, while shareholders ask a greater degree of assurance regarding financial control mechanisms. In their turn, regulatory bodies also analyze the degree of compliance of companies operating in an ever-changing environment. To meet these increasingly larger expectations, internal audit should turn away from the original compliance function to a business strategy function.

More than 500 chief audit executives and audit committee members underscored the need for the internal audit function to adopt a more prominent role within organizations, according to the new survey developed by EY and Forbes Insights. While only 28% of survey respondents said that internal audit currently plays a truly strategic role, 54% indicated that being a strategic advisor will become their primary mandate, signaling a radical shift in focus.

The study, Global Internal Audit Survey: Matching Internal Audit talent to business needs, cited market volatility, financial instability and rapid technological change, coupled with consumer and regulatory demand for increased visibility of a company’s operations, as the main factors putting pressure on internal audit to broaden its scope and move beyond its traditional compliance focus.

“The clear message from the survey is that internal audit functions need to stop thinking about themselves as simple compliance specialists and start taking on a much larger, more strategic role within the organization,” said Brian Schwartz, Internal Audit leader, Ernst & Young. “Internal audit is increasingly being asked by the management team and the board to provide broader business insights and better anticipate traditional and emerging risks, even as they maintain their focus on non-negotiable compliance activities.”

This shift may also necessitate that companies rebalance their assurance and advisory audits. 96% of survey respondents said that advisory comprises at least some portion of their audit plan. Finding the right balance between the assurance and advisory audits will be critically important as organizations’ risk tolerances and strategic goals change.

Key findings from the survey:
• Skills shortage: The shift toward a more strategic internal audit focus will require new skills and competencies, but many organizations may not be ready. The top five skills most often found to be lacking are data analytics, business strategy, deep industry experience, risk management, and fraud prevention and detection.
• Emerging markets: With an increasing portion of revenue originating from emerging markets, new regulatory, cultural, tax and talent risks are emerging. Companies will need to deploy additional resources to address these evolving risks.
• Training gaps: critical thinking, application of business knowledge and the ability to articulate business insights – are becoming as important as purely technical auditing skills. But only 51% of respondents indicated that they have well-defined competency and training requirements for their auditors by level.
• Growing internal audit budgets: chief audit executives need additional budget and resources. In the last year, only 28% of respondents have seen their budgets increase, but nearly 39% expect to see an increase in the next 24 months. Moreover, while 30% of respondents have seen the size of their audit functions increase in the last year; 37% expect to see an increase in the next 24 months.
• Quality of talent: For those who have had budget increases, it is becoming easier to recruit more experienced candidates: 45% of respondents indicated that they require candidates to have more than two years of experience at another organization within the same industry.
• Top risks: The top five primary risks that respondents said their organizations are tracking include economic stability (54%), cyber security (52%), major shifts in technology (48%) strategic transactions in global locations (44%) and data privacy regulations (39%).
• Outsourcing and co-sourcing: 82% of organizations that EY surveyed either co-source or outsource a portion of their IA capabilities. This represents an increase of 14% from EY’s 2012 survey and 49% from the 2010 survey.

“As corporate leaders demand a greater measure of strategy and insight from their internal audit functions, chief audit executives will need to move quickly to close competency gaps and ensure that they have the right people in the right place, at the right time,” added Ruxandra Biliuº, Senior Advisor, Risk & Internal Audit at EY Romania and President of the Institute of Internal Auditors, Romania.

More than 500 chief audit executives and audit committee members from 20 industries participated in the EY/Forbes Insights survey, which was conducted in May 2013. The majority of the respondents were from organizations with global revenues of $250 million or more.

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About EY Romania
EY is one of the world's leading professional services firms with approximately 167,000 employees in 700 offices across 140 countries, and revenues of approximately $24.4 billion in 2012. Our network is the most integrated at global level and its vast resources allow us to help our clients benefit from every opportunity. In Romania, EY has been a leader on the professional services market since its set up in 1992. Our over 450 employees in Romania and Moldova provide seamless assurance, tax, transactions, and advisory services to clients ranging from multinationals to local companies. Our offices are based in Bucharest, Cluj-Napoca, Timisoara, Iasi and Chisinau. From 1 July 2013, Ernst & Young becomes EY, the logo has been modified in response to this change and the company's new tagline becomes "Building a better working world". The new visual identity reflects the new strategy of EY, Vision 2020. For more information, please visit www.ey.com.

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