Business Leader Innovation & E ff ectiveness CA Himanshu - - PowerPoint PPT Presentation

CNK K & Assoc

• ciates

iates LLP

Internal Auditor as Business Leader –

Innovation & Effectiveness

CA Himanshu Kishnadwala June 15, 2018

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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

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Setting the Context

• Internal Audit demystified
• Overview of various practice areas open to a Chartered accountant
• What makes a good Internal Auditor?
• What makes an Internal Auditor a good Business leader?

An Internal Auditor

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What is Internal audit? INTERNAL AUDITING is an independent, objective, assurance and consulting activity that adds value to and improves an organization’s

• perations. 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 ???

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Objectives of Internal Audit

• Compliances –

external and internal

• Risks and controls
• Optimization of

resources, costs and processes

• Governance processes

and ethical practices

Add Value, Achieve Objectives

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What is Internal audit? INTERNAL AUDITING is an independent, objective, assurance and consulting activity that adds value to and improves an organization’s

• perations. 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 ??

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Objectives of Internal Audit

• Compliances –

external and internal

• Risks and controls
• Optimization of

resources, costs and processes

• Governance processes

and ethical practices

Add Value, Achieve Objectives

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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.

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Value addition – a different perspective To the entity being audited To the Firm To the auditor

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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

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Practice Areas – Overview

Assurance Statutory Audit Internal Audit : Controls assurance Compliance Direct & Indirect Tax, Allied Laws Internal Audit: Compliance testing and confirmation Advisory Business, process, transactions Internal Audit: Risk Advisory, Process Consulting, IT Systems Testing

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Focus / Scope of Practice Areas

CA’s are ready for Statutory audit and compliance related services. Their training focuses on regulatory assurance and compliances, scope of which is fixed.

Fixed Thali

CA ’ s are not ready for Internal audit and GRC services. Internal audit needs business understanding which is not covered as a part of training. The scope here is not standard.

A La Carte SA/ DT/ IDT

Internal Audit/ GRC

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Pillars that uphold Corporate governance

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Important difference between Internal / Statutory Auditor

Statutory Audit Internal Audit

Super Specialization Industry audits General Audit Multiple industry audits Industry Audits Single function /company audits

From Generalist to Specialist From narrow focus to a wide arena

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Making of an Internal Auditor

What does Internal Audit Teach a Chartered Accountant?

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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

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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

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Communicating with all Business Functions

• An

internal audit covers all business functions. To get the co-operation

• f

different functional teams, it is essential to speak their language

• Unable to connect with the key functional

heads inevitability leads to expectation gaps and even termination of engagement

• Internal

auditors

• ften

engage multi- disciplinary teams – medical professional for hospital audits, architects and engineers for real estate audits, etc.

In a Hospital, Dr. would be understood as ‘doctor’ and not as ‘Debit’

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Balancing : Between Assurance Role and Consulting Role

Internal Audit: Balance between independent assurance and advice for business growth

Organizational Value ▪ Not solely controls focused, efficiency focused also ▪ Identify potential improvements and advise on best practices ▪ Work with management to develop solutions ▪ Provide balanced reporting ▪ Risk focused Independent Assurance ▪ Historical perspective ▪ Focus on BS /Financial Reporting ▪ Reporting Control Compliance exceptions ▪ Solutions left to management

Demonstrate the ability to walk the talk

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• 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!

Trouble Shooting – Solving Problems, Finding Facts

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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

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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 ...

Integral Part of Key Business Processes

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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

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Understanding Impact of Technology

Rental Car Company Travel Agencies Traditional Banking Alarm Clock/ Cameras

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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.

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Integrating the Technical with the Innovative

To provide value addition through Internal Audit

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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

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Effective Writing and Fair Reporting

❑ Internal auditors learn to write brief, clear, concise reports – the business leaders do not have time for lengthy verbose reports ❑ Internal auditors are often given a small time window at Audit Committee meetings – they learn to bring out the important matters in the given time ❑ Unless reports get easily converted to action points, the reports will gather dust – hence, an internal auditor learns to write in a manner that will lead to positive change and time-bound action ❑ “Tell me what you have to say in 5 minutes or in 2 pages” – this is

• ften what an Internal Auditor has to deal with. If this is well

handled, the Internal Auditor gets invited to dedicated management meetings to discuss IA findings and recommendations

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Managing Costs through Planning, Innovation and Technology

• Internal Audit is a cost center for most organizations
• Managing the internal audit function under a tight budget forces an

internal auditor to be innovative, tech-savvy and resourceful

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Internal audit is facing many challenges. Some of these are: ❖Doing more with less ❖Minimising the impact of audit on the business while maximising the insights ❖Streamlining processes – planning, fieldwork, reporting ❖Getting the resourcing model right for your business ❖Using technology to better effect ❖Demonstrating the value added INNOVATION in the context of internal audit?

A

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Evolution of Internal Auditor

Assurance and Consulting for business development Implement-

• ation

support Strategy Consulting

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In Summary

• A good IA function should help achieve the organization’s objectives
• IA has evolved from a traditional auditing role to a more balanced

presence, incorporating a role as an internal consultant

• To succeed, IA requires to understand customer needs, right now and
• n an ongoing basis

Internal audit has moved from the back room to the boardroom and … Can move to the corner room also …

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Internal Auditor to Business Leader

Journey from CIA (Chief Internal Auditor to CEO)

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• Understanding Business
• Understanding organizational dynamics
• Communicating with all business functions
• Balancing
• Troubleshooting
• Providing practical solutions
• Participating in key business processes
• Driving technological innovation
• Softskills – effective speaking, writing, presenting
• Managing Costs

So, are these also not essential skills of a business leader? Internal Audit Learning...

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himanshu@cnkindia.com