Career focus: internal audit

If you want to test yourself in one of the most challenging roles an accountant can have, look at the world of internal audit, where the rewards are as high as the expectations

All organisations face risks. For example, health and safety risks, reputational risks stemming from bad publicity, risks of supplier failure, risks associated with wider market issues like the recession, IT risks and financial risks.

What often separates a successful company from a less successful one is whether it manages those risks effectively. If it does so more effectively than competitors and as effectively as stakeholders (such as shareholders, customers, regulators, the local community and employees) demand, a company – whatever its size – will put itself in a very strong position.

The profession of internal audit is fundamentally concerned with evaluating an organisation’s management of risk.

‘Over the past few years the internal audit function has made significant strides and is now more aligned to the core of a business’s operations. Internal auditors typically work in one of five areas: IT and systems audit, corporate governance business, risk management, process and advice, or regulatory compliance,’ says Nigel Bond from recruitment company Hays.

‘Internal auditors carry out tests, analyse systems and evaluate the processes which are in place to manage risks across all parts of the organisation and across all management functions,’ adds Phil Gray, communications director at the Institute of Internal Auditors. ‘This enables them to provide assurance reports to management (executive management, audit committees and boards) that all key risks are being managed effectively and to highlight where they are not being managed effectively.’

‘With a responsibility for such vital operations, internal audit is at the heart of ensuring the survival and prosperity of any organisation,’ says Guy Emmerson, associate director at Badenoch & Clark.

Worldwide profession

The practice of internal audit has existed for over 60 years. It is a worldwide profession, with practitioners in over 165 countries. As organisations and the world they operate in become more complex and fast changing, particularly in the wake of the financial crisis and recession, so internal audit is gaining a steadily higher profile in the public, private and not-for-profit sectors for the evaluations it provides on how well the key risks within an organisation are being managed.

It’s fair to say that over the past two years companies have faced some incredibly testing challenges.

‘The devastating effects of the financial crisis have seen more emphasis on financial reporting and control,’ says Emmerson. ‘Firms who have suffered are certainly going to great lengths to keep the wolf from the door by seeking the best in field for internal audit roles.’

This has had a positive effect on the internal audit jobs market, but has raised the bar in terms of candidate suitability.

With more emphasis on transparency and communication within the financial arena, candidates must be able to show that they excel not just technically, but also commercially and with advanced communication skills.

But of course, internal audit has not been immune to the swathe of redundancies many companies have had to make recently. That said, corporate governance recruitment specialists Barclay Simpson’s 2010 Internal Audit Market Report states that: ‘Through our market analysis we can see that internal auditing, if not in absolute, then in relative terms has had a good recession. A peak to trough economic contraction of 6% has seemingly resulted in a 1% loss in the number of people working in internal auditing. On this basis there is very little evidence that in response to the recession companies have resorted to general cuts in the numbers of internal auditors they employ.’

The report also points out that the Big Four, which might have been expected to make significant redundancies, have substantially retained their staff.

‘Redundancies have come from corporate failures where employers quite simply have ceased to exist. If you worked in internal audit for Woolworths in 2008, you were not still working for them in 2009. They have also come from the closure of operating divisions and what can always be expected in economic slowdowns; companies use a recession as a cover to remove underperforming employees and replace expensive staff with cheaper ones.’

The analysis concludes: ‘There is every likelihood that the total number of internal auditors employed will begin to rise by the early months of 2010.’

Young profession

So what type of individual should consider a role in internal audit?

‘The internal audit profession is a relatively young profession (average age late 30s to early 40s),’ says Gray. ‘Many of our members have worked in the finance function before discovering internal audit. Many are qualified accountants, who then choose to specialise in internal audit – 500 of our members are ACCA qualified, for example.’

‘A role in internal audit will suit candidates with a thirst for challenge and variety, as they will be expected to tackle a wide range of issues every day,’ says Emmerson. ‘Those with a passion for seeing tasks through to the end will find internal audit rewarding since professionals are exposed daily to the tangible effects of their work on their organisation. The challenge for internal auditors is to ensure that they build strong relationships with the managers that they work with across the organisation so that they can positively and constructively support them to identify weaknesses and foster an atmosphere of constant improvement on the management of risks,’ says Gray.

At the same time, internal auditors need to be able to remain objective and willing to speak up if there are areas of weakness in how important risks are being managed. ‘They need to be seen and act as a “critical friend” – someone whose judgment and advice you trust and respect enough to respond to positively. This can be a difficult balance to maintain at times,’ he adds.

‘Communication is really at the heart of internal audit,’ agrees Emmerson. ‘From day one employees are interacting with executives at the very top of the organisation, advising them on complex, strategic issues. A combination of interpreting technical information and presenting it concisely and comprehensively to all levels of an organisation make this capacity to communicate absolutely vital.’

‘It provides real opportunities to reach the highest levels of the finance profession. A career in internal audit could lead to positions such as operational group financial controller or financial director,’ says Bond. ‘Therefore, if your ultimate goal is to progress into a line management role you will not find a better route.’

"The devastating effects of the financial crisis have seen more emphasis on financial reporting and control. Firms who have suffered are certainly going to great lengths to keep the wolf from the door by seeking the best in field for internal audit roles"

Guy Emmerson - associate director at Badenoch & Clark