The Global Practice of
Internal Auditing
As Business Officers:
what’s in it for you?
Brian G. Brown CIA, CMA, CFE
Director – Corporate Services, Agricore United (Winnipeg)
Canadian Representative on IIA Global Board of Directors
and North American Board, Chair – Canadian Advocacy Task Force
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Agenda
• What’s going on around the world?
• What is this profession that everyone is
talking about?
• What can internal auditing do for you?
• What’s happening in the public sector?
• What is the new Academic Relations
strategy?
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It is a great time to be an
internal auditor…
…globally and, particularly, in
Canada!!
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Internal Auditor named a
“Person of the Year”
“Last June, Cooper told the audit committee of WorldCom's
board that the company had been playing dirty with its
accounting practices.”
Time Magazine
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Global Developments
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Founding member of COSO
Contributor to King Report in South Africa
Ongoing communication with SEC/PCAOB
IFAC & INTOSAI alliances
Memorandum of agreement with ACCA
Junior Achievement
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Global Developments
• IIA Australia is an active member of the Australian Stock
Exchange’s Corporate Governance Council.
• IIA-Chinese Taiwan has been designated by the SEC as a
provider of governance education.
• IIA-France was appointed by the French SEC to be the lead
writer of the French control framework.
• IIA Philippines developed the SEC Circular for the Code of
Corporate Governance. The code, approved by the SEC,
contains various provisions regarding the importance of
internal auditing and the vital role of the CAE.
• IIA South Africa was a major coordinator and developer of the
King Report on Corporate Governance.
• The IIA has also commented on exposure drafts from the
Basel Committee and the OECD (Organization for Economic
Cooperation and Development.)
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Canadian Government –
“Policy on Internal Audit”
October 2005
Entrenches Internal Audit into the Governance
Structure of the Government…
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Additional $30 million funding
200 – 300 additional IA staff
Certification, professional development
Independent Audit Committees
Reporting relationships
Comptroller-General supervision
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Quotes…
Internal audit is the primary resource of the
audit committee in carrying out its duties and
responsibilities. With those responsibilities
increasing and continued pressure from the
SEC for financial reporting integrity, a
functioning partnership of the audit committee
and internal audit is vital.
-BellSouth Corporation
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Quotes…
An active and informed audit committee
provides the ultimate independent and
objective oversight of the corporate control
environment, including focus on emerging
trends and risks. Internal auditing is the
primary agent of the audit committee within
the company.
- Ford Motor Company
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From the Media…
“Internal Auditors are no longer stuck in the
financial compliance box, having…evolved into
a more business-oriented role.”
“Few careers (sic) are more sought-after than
internal auditors…”
“Internal auditors are rock stars now, this is
their day in the sun.”
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The Institute of Internal
Auditors (IIA)
Global Membership:
1990 – 39,000
2001 – 74,000
April 2005 – 100,000
June 2006 – 123,000
(160 countries)
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The Institute of Internal
Auditors (IIA)
Global Membership:
1990 – 39,000
Canadian Membership:
2001 – 74,000
2003 – 3,800
April 2005 – 100,000
April 2005 – 4,700
June 2006 – 123,000
(160 countries)
June 2006 – 5,400
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IIA Membership Educational Services
• 2300 Global Members (101 in Canada) – 80
countries
• 453 “Educators” (20 in Canada) – 20 countries
• 1033 “Student Members” (18 in Canada) – 7
countries
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Certification Statistics
(Global)
2001 – 35,732 Certified Internal Auditors (CIA)
March 2006 – 57,339 CIA’s
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Job Situation
Internal Auditors are one of the most sought-after
professions globally
Demand is currently far exceeding supply
Within Canada, particular challenges in Montreal, Ottawa,
Toronto, and Calgary
– April/May 2006 Canadian statistics:
Monster.ca: 75 - 100 job opportunities weekly
Workopolis: 170 – 200 job opportunities weekly
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The IIA in Canada
Major Change in Profile
Recent Announcement:
• Establish a Canadian Council (volunteer
oversight body)
• Hire an Executive Director
• Open an IIA Canada office
Target: July 2006
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Advocacy in Canada
Significant events in the last 18 months
• Canadian Federal Government Internal Audit initiative
• Securities Commissions (OSC, AMF, BCSC) – meetings,
correspondence
• The Directors College – IA on education program
• Institute of Corporate Directors – National, Chapter
relationships
• CICA Audit Committee Conference (September 2005)
• Certified Management Accountants (CMA) projects
• Certified General Accountants (CGA) discussions
• Several chapters initiate coordination with local
universities
• Speaker at CFO Summit (March 2006)
• Meeting with Canadian leaders of ACCA, initiate chapter
relationships
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Two current global programs
under development:
1.
Government initiative – improve support
services for government auditors, quasigovernment (World Bank, UN), and other
public institutions
2.
Academic Relations initiative – improve postsecondary education for students of internal
auditing through direct relationships with
universities around the world
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What is this profession
that everyone is talking
about?
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What is Internal Auditing?
Internal auditing is an independent, objective
assurance and consulting activity designed to add
value and improve 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.
Adopted Jan/01
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Basis for the Profession
• Standards for the
Professional Practice of
Internal Auditing
• Code of Ethics
• Certified Internal Auditor
Designation
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Internal Audit Charter
Sample:
• “Established…to improve corporate activities as a
service to the organization and its shareholders”
• “To assist the Board and Management by
bringing a systematic, disciplined approach to
evaluate and improve the effectiveness of
control, risk management, and governance
processes”
• Independent, objective assurance and consulting
activity
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Internal Audit Charter
Sample:
• Reporting relationships defined to provide
independence and support
• Full, free, and unrestricted access
• Recommendations to improve activities
• Outline internal audit’s responsibilities
• Management responsibilities (operations,
training, controls, policies, etc)
• Compliance with IIA Standards
• Signed by CEO, CFO, Audit Comm. Chair,
Chairman of the Board
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Internal Audit Focus
• Internal audit is focused on internal
controls that assist the whole organization
in achieving its objectives;
• Controls that affect the quality and
accuracy of the published financial
statements usually represent only a small
portion of the internal audit scope;
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What can internal audit
do for you?
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Critical Success Factors
(from a board/organization perspective)
1.
Hire a top-notch Chief Auditor
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Experienced (in internal audit), qualified,
competent, charisma, courage, management
style, leadership, etc
Give Internal Audit something to do
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Scope, budget, support, profile, a seat at the
table, listen to them
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Internal Audit - Preferred Reporting
Structure
Functionally to Audit Committee
(2005 – 75%, 2002 – 55%)
Board of
Directors
Chief Executive
Officer
CFO
IT
HR
Audit
Committee
Operating
Divisions
Other
Committees
Internal
Audit
Administratively to
“most senior executive” (eg CEO)
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Independence –
structural guaranteed by reporting
relationship with Audit Committee
• Organizational
– Reporting relationship
– Ability to “talk to the right people”
– “Say what needs to be said” to the person
who needs to hear it
– Access to senior management & board
• Functional
– Not Responsible for audit area
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Objectivity - frame of mind
Relies upon the professionalism
of the internal auditor
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No bias
Not influenced by others
Open
“Say what needs to be said”
Perspective
Balance
Tone
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Staffing internal audit….
isn’t it just accounting?
Risk Manager
CGA
Trainer
CA
Credit
Real Estate
Computer Security Expert
Lawyer
CMA
Financial Analyst
Fraud Examiner
Programmer
Engineer
Retail
Banker
Operations
Geologist
Human Resources
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What do Internal Auditors
Do?
• Assess and provide assurance regarding the
quality of internal controls, risk
management, and governance processes
• Audits of a variety of form and style
• Analyses, research, discussion
• I.T. performance, security assessments
• Reporting to managers/executives
• Help improve the effectiveness and
efficiency of processes and operations
• Investigate fraud situations
• Provide a resource for skills (be careful)
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Two clients…..different
but overlapping services
Audit Committee
• Assurance regarding
internal controls &
risk management
• Identification of
material issues
• Assistance with
governance matters
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Two clients…..different
but overlapping services
Audit Committee
Management
• Assurance regarding
internal controls &
risk management
• Identification of
material issues
• Assistance with
governance matters
• Feedback on
operations
• Recommendations to
improve controls,
processes, systems
• Participation in major
projects
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Why is Internal Audit able to
effectively provide these services?
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Skills and experience plus independent
reporting structure, objective frame of
mind….combined with in depth knowledge:
business
With enough
organization
resources and
people
scope, this
combination is
systems
powerful!
control environment
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Roles in current
governance activities
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“Project audits”
Control Environment (tone at the top)
Ethics/fraud awareness
Information technology controls
Assist/review financial controls documentation
Advise on financial control testing (management’s)
Help the board/senior management understand new
regulations/guidance in the context of your
organization
• Help the audit committee understand and fulfill its
role
And….
• Maintain a balanced scope of audits
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Assessing your
internal audit services
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Competence/qualifications of Chief Auditor
Scope of work, resources available ($$, people, skills)
Knowledge – organization, industry, issues, etc
Identification of significant issues
Respect within the organization
Healthy tension with senior management
Healthy tension with external auditor
Reliable assurance - minimal surprises after audits
Quality Assessment reviews
Response to audit committee requests
Get to know your Internal Audit staff…….
….they are your “eyes and ears”
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What’s happening in the
public sector?
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Canadian Government
“Rivals the most innovative
public-sector practices worldwide”
New Audit Policy Entrenches Internal Audit into the
Governance Structure of the Government…
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Additional $30 million funding
200 – 300 additional IA staff
Creation of Chief Audit Executive in each dept/agency
Independent reporting relationships
Certification, IIA Standards
Ongoing professional development
Best-practice audit methodologies
Independent Audit Committees
Comptroller-General supervision
www.theiia.org
New/Expanded services for
government auditors
• Annual government auditors conference
• Focused training at lower cost in more
convenient locations
• Government audit resources available
• Quarterly newsletter
• Development of position papers
• Increased role for government auditors in IIA
leadership, including financial assistance if
required
• Advocacy efforts
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What is the new Academic
Relations strategy?
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Current Situation
No Canadian university offers an “Internal Audit”
education program
- generally, brief coverage under “other forms of audit”
Primary and Secondary School programs contain
no introduction to internal auditing
Demand for internal auditors is growing
(including university graduates)
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Current Situation
Outside Canada
• Currently 30 schools participating in “Internal
Audit Education Partnership” program (USA,
South Africa, England, France, etc)
• Examples: LSU – 150 grads/year, U of Pretoria
(SA) – 100 grads/year
• Employers looking for more
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Academic Relations Strategy
Rolling out in 2006
“Internal Audit Education Partnership” (Global)
• Three levels of participation
• Curriculum built around CIA CBOK
• IIA to supply education resources
• Coordination of symposia, summits, colloquia
by the IIA
• Funding support
• Quality Assurance
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Academic Relations Strategy
To Participate:
• Hire an Internal Audit educator
• Hire grad/teaching assistants
• Promote Internal Audit program
• Create new education material
• Enhance student involvement in IIA
chapters/affiliates
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IAEP Benefits
For Schools:
• Meet growing demand
• Eminence opportunity
• Research opportunities
• Sponsorship
• Flexible Internal Audit Curriculum
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IAEP Benefits
For Students:
• Employment opportunities
• Internship opportunities
• Research opportunities
• Quality education in topical area
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Final Thoughts….
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Four Pillars of Good Governance
Board of Directors
• Senior Management
• External Auditors
• Internal Auditors
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Each independent, knowledgeable,
competent, trustworthy, forthright;
Strong interaction (teamwork,
communication) between each;
Common objectives.
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Questions?
Comments?
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