1. Internal Audit Strategy Survey Results & Discussion
dr. G. Sarens & dr. W. Swinkels RO

2. Internal Audit Strategy by Sarens & Swinkels
Introduction
There are many and disruptive changes in the environment of firms, for example:
Breaking up of companies
Creating new business
Merging of companies
Responsibility for outsourced parties
Major standardization projects
There are new challenges for internal audit functions, for example
Choices with respect to involvement and role in the area of sustainability reporting and integrated reporting
Choices regarding the use of (new) technologies (data mining, data analytics)
Choices on providing assurance versus consulting services
Choices on serving Management more than the Audit Committee
Choices on serving external stakeholder more than internal stakeholders
Choices on the new role of external auditors
Our assumption is that all these changes also requires Internal Audit functions to assess their strategy in a more explicit manner – is this already common?
11/18/2018
Internal Audit Strategy by Sarens & Swinkels

3. Internal Audit Strategy by Sarens & Swinkels
What is strategy about?
Kenneth Andrews presents a definition of strategy in his book, The Concept of Corporate Strategy (1980) which is translated to the Internal Audit function:
Strategy is about the pattern of decisions from an Internal Audit function that determines and reveals its objectives, purposes, or goals, produces the principal policies and plans for achieving those goals, and defines the range of activities to pursue, the kind of economic and human organization it is or intends to be, and the nature of the economic and non-economic contribution it intends to make to its stakeholder
11/18/2018
Internal Audit Strategy by Sarens & Swinkels

4. What does IA wants to achieve?
Internal audit is designed to add value …
What can be perceived as added value?
Recognition
Respect
Trust
How can this be related to internal audit’s strategy?
Performing research on possible correlation between strategy and context in relation to perceived added value of internal audit
11/18/2018
Internal Audit Strategy by Sarens & Swinkels

5. 1. Internal Audit Strategy 2. Internal / External Context Factors
Scope of Survey
1. Internal Audit Strategy
Who the ultimate boss of the IA function is
Balance between assurance and consulting
Type of audit activities
The position in risk management
The balance between findings (past) and recommendations (future)
Profile of staff
Use of external service providers
Collaboration with other assurance providers
The way to make an audit planning
The flexibility of the audit planning
The way of communicating
The standardization / flexibility / improvement of the audit methodology
Use of IT tools
2. Internal / External Context Factors
Degree of regulation of the industry
Legal obligation to report about the quality of the risk & internal control system
Degree of external supervision on the company
Complexity of the industry and company
Risk appetite of the company
Maturity of risk management
Strength of the board of directors (AC)
IA stakeholders expectations
Who determines the IA budget
Style and performance of the CEO/CFO
Performance of the company
Use of external auditor (Big 4 or not)
Intention to reduce external assurance cost
Existence of other internal assurance providers
Openness of the company for change
Fraud cases in the past
Stakeholders versus shareholder
Organizational culture
Transparency within the organization
3. Perceived Value
Recognitio n
Respect
Trust
Result is insight in best combinations of strategy, context and perceived value
11/18/2018
Internal Audit Strategy by Sarens & Swinkels

6. Survey Results – 8 dimensions
Based on factor analysis we identified 8 different dimensions that capture the internal and external context which is relevant for the strategy of internal audit functions:
External regulation and supervision
Transparency, openness for change and high performance
Maturity of risk management, internal control and strong audit committee
Internal and external complexity and change
Culture and management style focused on coaching, mentoring, strong values and beliefs
Dynamic, entrepreneurial and results focused culture and management style
Affiliative and participative culture and management style
Excellence and efficiency focused culture and management style
Note that dimensions 1 and 4 are strongly correlated
Note that dimensions 2, 5 and 7 are strongly correlated
Note that dimensions 3 and 4 are strongly correlated
Note that dimensions 3 and 8 are strongly correlated
11/18/2018
Internal Audit Strategy by Sarens & Swinkels

7. Survey Results – Significant relations
1. External regulation and supervision
2. Transparency, openness for change and high perf.
Focused on assurance
Using one uniform methodology for audits
Uniform structure and terminology in audit reports
Coordination with other internal assurance providers
Actively involves input of AC for the audit planning
Revision of the audit planning more than once a year
3. Maturity of risk management, IC and AC
4. Internal and external complexity and change
Audit committee is most important stakeholder of the IAF
Less confusion on the most important IAF stakeholder
Most audits are focused on assurance
Using one uniform methodology for audits
More use of audit software in audit assignments
More monitoring of the risk management function
More taking into account input from senior management in the audit planning
5. Coaching, mentoring, strong values and beliefs
6. Dynamic, entrepreneurial and results focused
No significant differences in IA strategy included
Revision of the audit planning more than once a year
7. Affiliative and participative focused
8. Excellence and efficiency focused
More active coordination with the external auditors
More active use of audit analytics and data mining tools in audit assignments
More focus on consulting and active involvement in design and implementation of risk management
More focus on recommendations in audit assignments
More taking into account the input from senior management in the audit planning
Less use of same structure and terminology in reports
11/18/2018
Internal Audit Strategy by Sarens & Swinkels

8. Internal Audit Strategy by Sarens & Swinkels
Discussion topics
Are you convinced that in a highly regulated and external supervised organization, the IAF’s value is higher when it is focussed on assurance with structured methodology and reports?
Do you think that in transparent, open for change and well performing organizations, the IAF’s perceived value is higher when the IAF actively coordinate with other internal assurance providers?
Has maturity of risk management and internal control an important impact on the IA strategy? Does it affect its focus on assurance versus consulting and having the Board or AC as primary stakeholder?
What is your thought with respect to stakeholders in organizations that focus strongly on excellence and efficiency; do you expect more interaction and collaboration with the IAF?
Do you think that the IAF where the audit committee is the most important stakeholder coordinate more with the external auditors than those IAF where the CEO/CFO is the most important stakeholder? With whom will they coordinate more?
11/18/2018
Internal Audit Strategy by Sarens & Swinkels

9. Internal Audit Strategy by Sarens & Swinkels
Implications
What are implications of the previous discussion for your own Internal Audit function:
Do you have clear sight on the perception of key stakeholders on IA added value or is there a perception gap?
what is your own perception on perceived added value?
what do stakeholders think is added value?
Do you have an explicit strategy?
Is the way of audit planning and resource allocation in line with your required strategy?
Are the IA activities in line with the state of the organization and/or context of the organization – this is not static
Does the way of communication and reporting match with your strategy
Do you have the right reporting lines?
Do you have sight on other internal assurance functions as part of a combined assurance perspective?
Does your teaming match with the perceived added value requirements?
How is innovation included in the IA strategy and methodology, for example by using new approaches and tools
11/18/2018
Internal Audit Strategy by Sarens & Swinkels