Audit Committee Bulletin: October 2013

Internal audit's response to globalization

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An organization's internal audit function must adapt and evolve — and that's especially true for multinational companies.4

For example, recruiting and managing internal audit staff across a variety of cultures and far-flung locations can be difficult and expensive. International operations must also comply with multiple regulatory regimes.

Additionally, the heightened focus on risk has broadened the potential depth and scope of internal audit, especially in the rapidly changing areas of IT risk and compliance risk.

Audit committees can play an important role in making sure the function keeps pace.

Internal audit response

Internal audit functions are responding to these challenges in a variety of ways:

  • Rethinking staff bases — some are creating regional audit hubs or centralizing audit management
  • Finding creative ways to develop their staff, such as making better use of secondments, training and outsourcing some activities
  • Developing a strong profile and relationships of trust with the audit committee and senior executives
  • Using data analytics to understand the risks and to direct audit efforts to where they can make the biggest difference

Working with internal audit

As internal auditors look for ways to evolve their role, audit committees are also focusing on their activities. Their concerns include the quality of the reports and information they receive, the capacity and performance of internal audit, and the function’s ability to add value while remaining independent from management.

A relationship of trust between the head of internal audit and the audit committee chair is key. Good communication, especially in the lead up to committee meetings, helps to create an atmosphere in which the head of internal audit can raise concerns frankly and quickly. An executive session of the audit committee, attended only by committee members and internal auditors, can also be helpful.
Other actions audit committees have taken to help develop their internal audit functions include:

  • Stressing the need for meaningful, clear and digestible reports
  • Reviewing the performance and capabilities of internal audit on a regular basis
  • Supporting the head of internal audit as much as possible
  • Encouraging good relationships between internal and external audit, so they can learn from each other and coordinate efforts

Every audit committee needs an effective, independent internal audit function to perform its role well. Changes in the business environment are creating significant challenges for audit functions. Audit committees need to understand these dynamics, so they can ensure their audit functions respond appropriately.

Questions for the audit committee



4. Views expressed in this article are of participants at the ACLS, March 2013. The ACLS is a joint meeting of the North American and European audit committee leadership networks. The networks are led and organized by Tapestry Networks and supported by EY as part of its continuing commitment to board effectiveness and good governance.