Deficiencies in Business and Financial ‘Acumen’ Compensable by Strong Bond with Stakeholders, IIA Finds
Successful function of Chief Audit Executives (CAEs) has largely become dependent on how strong the relationship is between them and all of the stakeholders rather than merely on financial and business ‘acumen’, said the report of the Institute of Internal Auditors (IIA).
Based on responses from a number of internal auditors and audit committee members to the white paper published by the IIA Audit Executive Center and Korn/Ferry International, CAEs can be successful in leading their organizations when they establish and keep strong relationships with key stakeholders.
The white paper is especially relevant at the advent of the post recession era where internal auditors are facing new battery of challenges to help businesses grow after their massive setbacks during the economic crisis. One of the challenges according to PwC’s seventh Global State of the Internal Audit Profession survey is the new regulation underway to be implemented by the Financial Reporting Council (FRC).
The financial regulator recently expressed its intent to propose major changes to improve how firms address going concern and liquidity risks matters.
“Traditionally, internal auditors have not been widely recognized as possessing these ‘soft skills,’” said IIA President and CEO Richard Chambers, co-author of the whitepaper.
He added that internal auditors play a vital role in “effectively navigating the often rough waters internal auditors must confront.”
The report comes on the back of the observation that the top stakeholders of the internal audit industry – such as the executive management and the audit committee of the board of directors – demand for an effective partnership with internal auditors in delivering advisory and consulting services.
According to the IIA, the management and the audit committee often have conflicting agendas, thus the requirement for a “broad range of communication skills and sensitivities.”
“CAEs are increasingly required to observe, absorb, probe and listen. They also recognize the need for developing even stronger ties to key audiences – from senior managers to audit committees,” said Charles Eldridge, co-author and Senior Client Partner in Korn/Ferry International’s Financial Officers Center of Expertise.
The white paper introduces six attributes that must be possessed by CAEs, namely positive intent, diplomacy, prescience, trustworthiness, leadership and empathy. These attributes are accordingly regarded as keys to the success of the internal audit function, aside from their similar importance to any leaders.
The IIA noted that the present audit committees require their heads to have confidence and invaluable leadership.
The IIA added that building strong relationships “is an ongoing, dynamic process that must be continually nurtured with commitment and energy.”
IIA’s white paper concluded that trust is equally important in every aspect of the internal audit function.