Internal audit's role in strategic transactions

Role of IA during divestitures

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There are four key areas where IA can play a crucial role in an organization’s divestiture life cycle.

Divestitures life cycle

IA can help to mitigate the risk of deal value leakage throughout the separation life cycle.

1. Strategy

Divestitures life cycle

IA should have visibility to the proposed divestiture changes and the separation timing and should help management identify, assess and prioritize potential risks to the control environment.

IA will need to check that there is clear ownership of risks by management and that strong governance over roles and responsibilities of various stakeholders is in place.

2. Due diligence

Divestitures life cycle

In the divestiture process, IA can not only assess the valuation process, but also can provide important insights on the risks and the internal control environment related to strategic (governance and reputation), financial (credit and operational), operations (customer, supply chain and IT) and compliance (SOX readiness).

3. Deal approval and close

Divestitures life cycle

During divestitures, the IA department should identify if there are any changes to the control environment and assess the effectiveness of “interim” controls put in place to mitigate risks.

IA should also monitor the operation of high-risk controls during the transition period.

4. Separation

Divestitures life cycle

IA can assess and monitor separation project management, which can include areas of HR, finance, systems and operations.

IA can also identify value leakages during the time of separation.