Many Internal Audit Leaders Don’t Fully Use Professional Standards

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Despite the growing attention to internal audit, a new report indicates a significant lack of conformance with and usage of professional standards.

The Institute of Internal Auditors’ (IIA) International Standards for the Professional Practice of Internal Auditing represent minimum requirements expected of all internal audit functions. The standards are considered the bedrock for effective performance, and conformance with them is expected for all certified internal auditors.

But according to the report, Looking to the Future for Internal Audit Standards from the IIA Research Foundation, almost half (46 percent) of the chief audit executives (CAEs) surveyed indicated they don’t use all of the standards and fewer than that conform with them.

However, the percentage of CAEs who reported using all of the standards has increased compared to 2010 (54 percent in 2015 vs. 46 percent in 2010).

“An underlying objective of the standards is to ensure that internal audit is effective, of high value, and of high and consistent quality,” the report states. “Nonconformance undermines this objective, and significant levels of nonconformance are detrimental to the image and reputation of the internal audit profession,” the report states.

What’s more, just as many professions require practitioners to meet standards, all internal audit practitioners should expect to eventually face conformance with the standards, according to the report.

“A decision not to use professional standards may add flexibility to internal audit practices, but that flexibility does not come without a price,” the report states. “Some people believe internal auditing will not be viewed as a true profession until internal auditors not only have mandatory rules, but also begin to follow these rules consistently. Failure to use professional standards may have unintended consequences, such as increased risk of audit failure or inefficient use of resources.”

Here are other key takeaways from the report:

  • Auditors in one- to three-person departments use the standards at a rate of 6 percent to 18 percent less that the global average. Small departments also cited lack of board support, lack of perceived benefit compared to cost, and the impact of government regulations or standards.
  • Audit committees help push usage. About 60 percent of CAEs at companies with audit committees or their equivalent use all of the standards, 32 percent use some, and 8 percent don’t use them at all.
  • Newer audit departments use the standards less. Forty-nine percent of departments that are less than 10 years old use them, while 63 percent of departments more than 29 years old use them.
  • The majority (64 percent) of certified auditors use all of the standards, compared to 54 percent of uncertified auditors.
  • Full conformance is lowest for Standard 1300, Quality Assurance and Improvement Program, among CAE organizations, IIA members and nonmembers, and those with or without internal audit-related certifications.
  • Lack of perceived benefit compared to cost was the key reason for nonconformance at private companies.
  • At public companies, those in the financial sector, and nonprofits, the top reason for nonconformance was inadequate internal audit staff size. Auditors at public companies also cited the impact of government regulations or standards.
  • Private and public companies in the financial sector use the standards the most.
  • Worldwide, use of the standards is highest in North America (73 percent), Europe (67 percent), and Sub-Saharan Africa (64 percent) – possibly because of how the profession is viewed. In South Asia, 22 percent of CAEs said they use the standards, followed by 16 percent in Latin America and the Caribbean, and 19 percent in East Asia and the Pacific.
Terry Sheridan
Columnist
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