On the Frontlines: Internal Auditing Is Back
Blogs Harold Silverman, CIA, CRMA, QIAL, CPA Mar 15, 2023
There are many things that I love about working at The IIA. I have the honor to lead our Executive Membership program, and I recently added the responsibility to lead our advocacy efforts for the profession in the corporate governance ecosystem. Both offer abundant opportunities to do great things.
Though, truly, what I look forward to the most is seeing the results of the annual North American Pulse of Internal Audit. The question that I was left to posit when I looked at the data from the 2023 Pulse, was, “Is it possible to say that something ‘is back,’ if in fact it never left?”
The pandemic had some negative impacts on the profession of internal auditing, as it did with many things in our lives. But when I look at the progress that internal audit has made in the past year, I am confident that internal auditing is back!
However, as any internal audit leader can tell you, internal auditing never left. I constantly hear stories from CAEs about how internal auditors played important roles in those uncertain times that began in early 2020 I hear how they were integral to the survival of many organizations. As last year’s Pulse demonstrated, the negative impacts of the pandemic were less substantial on internal audit functions than on their organizations. When I say that internal audit is back, I mean that I see many indications that we are on a positive trajectory as great, or greater, than before the pandemic.
To start with, the percentage of the 562 Pulse survey respondents who said that their budget had increased outpaced those who said it had decreased by more than 3-to-1 (38% vs 12%). This is the highest ratio in the 15-year history of the Pulse. Even more exciting, the budget increases cut across each major component of internal audit budgets. Budgets for internal and external staffing increased for 45% and 26% of functions respectively, compared with 33% and 18% respectively last year. Budgets for professional development increased for 21% of functions compared with only 8% last year. Most dramatic, travel budgets increased for 24% of functions compared with just 4% last year.
Pulse data also indicate many internal auditors are coming back to the office, if only part of the time. In the U.S., the percentage of respondents doing all work remotely dropped significantly from 24% to 10% year over year. This drop in fully remote work was more dramatic in Canada, which moved from 41% to just 6%. In both countries, the largest shift in remote work occurred in functions that have a roughly equal mix between remote and in-person work. When asked about expectations for the future, the majority of respondents (79% in the U.S. and 63% in Canada) said they expect remote work levels to stay about the same. However, the percentage expecting further decreases in remote work easily outpaced those expecting increases (14% vs 5% year over year in the U.S. and 24% vs 8% in Canada). Whether that is a positive trend, or a negative trend is something that I will leave to each reader to decide.
Another insight from the Pulse data is that the profession is broadening its consideration of risks. For the very first time, this year’s Pulse survey asked CAEs to indicate risks that are considered when conducting audit engagements in general. Not surprisingly, nine in 10 CAEs include fraud considerations when conducting audit engagements. What might be more eye-opening is that about 20% of CAEs consider sustainability when conducting audit engagements in general. I suspect that this is a significant increase from where it would have been one or two years ago.
Pulse data always provide fascinating insights into differences across organizations, and the nearly 50 pages of charts and graphs in this year’s Pulse delivers. While internal auditing is truly a global profession working under a common set of Standards, what we audit, how we audit, what additional responsibilities CAEs have beyond internal audit, and the challenges that they face, do greatly differ across sectors, industries, and function sizes. Thanks to the time taken by so many CAEs to complete the Pulse survey each year, we can do those comparisons.
As I stated in a similar blog a year ago, during my years as a CAE, the Pulse provided me with an abundance of metrics that allowed me to benchmark my function against similar functions. As a CAE, I reviewed the Pulse in detail each year to be able to answer the inevitable questions from stakeholders about how we compared to similar organizations. In my current role serving leaders in our profession, I always keep the Pulse on my desk as a quick reference to help CAEs benchmark themselves against their peers, and I encourage all audit leaders to do the same.