Many senior audit leaders and their teams are still in the early stages of, or have not yet begun, implementing next-generation tools and strategies into their internal audits, according to a new survey.
Global consulting firm Protiviti this month released its 2021 Next-Generation Internal Audit Survey. The survey polled nearly 900 global professionals in the first quarter of 2021, including chief audit executives (CAEs) and internal audit managers and directors.
The survey’s findings are particularly interesting in the current environment where many external auditors are increasing their focus on and investments in technology-based tools in performing audits. Meanwhile, disruptions to business caused by the COVID-19 pandemic have increased demand for internal audit to add value to organizations facing economic challenges.
The study asked respondents to rate their organization and internal audit department on their digital transformation, which was defined as using data and technology to support customer engagement, digitized products and services, better informed decision-making, and improved operational performance. Respondents also shared their digital maturity relating to governance, methodology, and enabling technologies.
Among key findings:
- Of those surveyed, 66 percent said they plan to increase their focus on innovation and transformation initiatives.
- Areas of next-gen internal audit capabilities that were identified as being at the lowest level of digital maturity were machine learning (ML) and artificial intelligence (AI), process mining, automation, and advanced analytics.
- Only 14 percent of those surveyed rated their internal audit department as a “digital leader.”
- Of those digital leader organizations, 72 percent reported having been prepared to shift to remote work at the beginning of the pandemic, compared to 51 percent of all other organizations.
Although many internal audit organizations are just getting started, progress is evident and transformation initiatives are a priority, according to Nichole Minice, managing director at Protiviti, who shared the results of the survey on a May 13 Webcast. The results indicated relatively higher digital maturity scores in the use of certain enabling technologies that are already in use, like advanced analytics and automation, compared to AI/ML and process mining.
Jon Bronson, also a managing director at Protiviti, anticipates more progress in the use of AI/ML in the next 12-18 months and recommends companies take advantage of free training and certification offered by providers of these technologies.
The survey asked for executives’ perspectives on the top 10 risks for 2021, and there were several that correlate to digital transformation. These included digital technologies that might require new skills and significant efforts to upskill/reskill existing employees (No. 4) and the risks of not being able to compete with firms and other competitors that were “born digital” (No. 10). These risks both also made the survey’s top 10 for 2030, along with the rapid speed of disruptive innovation outpacing the ability to compete.
Also of note in the survey results were trends in audit committee engagement with internal auditors. Audit committees have a higher level of interest in internal audit’s plans to undertake transformation or innovation activities, and internal auditors are sharing more information with audit committees, according to the findings. Minice noted board members are more sophisticated and ask more questions, expecting internal auditors to be problem solvers rather than problem finders.
“After a challenging 2020 that required many internal audit functions to reprioritize projects, it’s now time to refocus efforts on embracing the next generation of internal auditing as the new normal,” said Brian Christensen, Protiviti’s executive vice president, global internal audit, in a press release. “As many organizations shift into a hybrid work model, it’s critical that CAEs establish a clear roadmap to access and develop the skills needed for a next-gen audit function.”
The timing of the report mirrors a statement from the Public Company Accounting Oversight Board (PCAOB) on May 6 on its research project into data and technology. The PCAOB staff has been conducting research and outreach to assess whether additional regulations are needed to respond to the increased use of technology by preparers and technology-based tools by auditors. Existing PCAOB auditing standards do not specifically encourage auditors to use technology-based tools, indicate when they would be appropriate, or discuss the risks of using them.
The staff notes use of technology-based tools is not limited to only the larger audit firms and is influenced by their clients’ use of technology. Audit firms are developing their own tools, some of which are for use across multiple audits and industries, while others are industry-specific or customized for specific types of systems or transactions.
Auditors are using technology-based tools to respond to risks of material misstatement by increasing unpredictability to their audit procedures and using data and new tools to change the nature, timing, and extent of audit procedures. The PCAOB intends to continue its outreach and research to evaluate the increased use of technology in financial reporting and auditing to determine whether changes to auditing and quality control standards will be made.
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