For immediate release |
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Need for a stronger Internal Audit
(IA) function - IA needs more independence,
better quality and diversified skill
sets to meet stakeholder expectations.
Results
from a recently conducted joint Internal
Audit (IA) survey by KPMG and
Bombay Stock Exchange
Mumbai,
September 24, 2009: Globalisation
of Indian businesses, the financial
crisis, volatility of currency and
commodity markets and governance failures
have all combined to ensure that organisations
have to deal with a myriad of risks
that need to be effectively managed
to survive and gain a competitive
advantage. Boards are increasingly
looking at internal audit functions
as their partners in effective governance.
A recent poll on corporate governance
in India conducted by KPMG highlighted
that risk management and oversight
practices in Indian companies needs
improvement. This poll also highlighted
the need for more robust and independent
assurance processes. At the same time,
from an operational perspective, CEOs
expect their Internal Audit (IA) functions
to improve processes and help organizations
stay abreast of and respond to emerging
risks.
According
to Neville Dumasia, Executive Director
and Head, Governance, Risk and Compliance
Services of KPMG in India,
“Expectations from the IA function
have increased multifold to deliver
much more than providing assurance
on financial integrity and regulatory
compliance. IA today is expected to
lead the way in linking strategy,
risks, compliance and regulatory changes
with the C – level agenda. IA
functions that provide the greatest
value to audit committees and senior
managements are those with a clear
understanding of the value they can
offer and have a vision to enhance
that value.”
Against
this backdrop of ever increasing expectations
from IA, KPMG in India’s Governance
Risk and Compliance Services and Bombay
Stock Exchange (BSE) jointly
conducted a survey titled “The
Evolving face of Internal Audit in
India”, to explore
IA practices, trends, challenges and
developments in Indian companies.
The survey was an attempt to gather
thoughts from CEOs / managing directors,
independent directors, CFOs, Heads
of IA and others on how IA functions
of today are geared to meet these
challenges. The survey broadly covered
the following aspects relating to
IA:
•
Audit Committee and management expectations
of IA
• Risk Assessment and audit
planning
• Resourcing and competency
development
• IA communications, tools and
technology
• IA performance metrics and
quality assessments
“Globally
and in India, these are challenging
times for businesses. The collapse
/ bail outs of global financial institutions
are indicative of the need for strong
risk management and assurance functions.
A strong, skillful and Independent
IA function is fundamental to achieving
effective corporate governance. This
survey has been an attempt to assess
what challenges stakeholders are facing
and what are the possible approaches
to overcoming these challenges”
avers Neville.
Mr.
Madhu Kannan, Managing Director and
CEO Bombay Stock Exchange (BSE), India
said,” This survey
is an excellent example of the way
in which BSE is consistently in the
forefront of thought leadership in
the financial sector.”
He
also added,”An effective internal
audit function is a fundamental component
of good governance. With the expanded
role of internal audit now stretching
beyond its traditional focus on compliance
and financial audit, to encompass
an assessment of the organizations
effectiveness in achievement of its
objectives, internal audit has become
a management tool. The survey is important
in helping companies to understand
financial management, best practices
in internal control and internal audit.”
Some of the key findings from
the survey:
More
is expected of IA in the sphere of
fraud risk:
Boards and Audit committees in India
Inc expect more from their IA functions
in the sphere of fraud risk monitoring.
56 % of the survey respondents indicated
that IA has the primary responsibility
for fraud risk assessment and monitoring.
However, the survey reflects that
shortage of specialist skills, low
level of traditional skills and confidence
in the use of technology and analytics
and the relative lack of independence
for IA are factors impeding IA’s
effectiveness in this sphere.
IA
priorities are getting broad based
but its independence in Indian companies
needs to grow:
While the assessment of internal control
systems and reporting deficiencies
therein continues to top IA’s
priorities, its activities are becoming
more broad based to include risk assurance,
fraud risk and business process improvements
indicating that IA is moving up the
value chain. The survey reveals that
to enhance IA’s effectiveness,
it needs to work closely with the
business and be in a position to assess
and monitor what is changing both
internally and externally. This clearly
implies that IA needs to adopt a risk
centric approach.
At
the same time, boards and audit committees
have greater expectations from IA
in providing independent and objective
assurance. However, in less than 50%
of the companies covered in the survey,
IA Heads report to the audit committee
which is indicative of the relative
lack of independence for the IA function.
IA’s reporting relationship
and its communication with Boards
/ audit committees needs to improve
in order to give IA functions the
independence they require to meet
stakeholder expectations.
IA
needs to adopt a Risk Centric approach
to assurance:
Risk Management practices in India
Inc continues to evolve. The survey
revealed that although IA approach
to assurance is becoming risk based,
there is often a mis-alignment between
IA views on business risks and those
of the business. There is a need for
a holistic single view of risk with
risk ownership residing within the
business and IA providing robust assurance
on risk assessment and management
practices. There is still some way
to go in this area.
Talent
management in areas requiring specialized
skills continues to cause concerns:
IA staffing and skill sets are proficient
in general auditing and traditional
oversight areas such as financial
reporting and compliance. In areas
requiring specialist skills (M &
A, Fraud, IT etc), talent acquisition
and retention poses a significant
challenge. To overcome this challenge,
IA functions need to have within their
fold people who have the relevant
industry and business knowledge and
can relate to stakeholder needs. IA
functions need to have a good blend
of financial, accounting and technical
specialists. There is also a growing
need to rotate people from within
the businesses into IA and introduce
the concept of guest auditors which
would involve staff from business
units joining audit execution teams.
Practices
to assess IA performance and quality
lack consistency and need to be formalized:
A structured approach to measuring
and sustaining IA quality is lacking.
A significant majority (69%) do not
undertake an external quality assessment
of their IA function at periodic intervals.
This is an area where audit committees
need to improve oversight practices.
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About KPMG
KPMG is the global network of professional
services firms of KPMG International.
KPMG member firms provide audit, tax
and advisory services through industry
focused, talented professionals, who
deliver value for the benefit of their
clients and communities.
KPMG
in India has offices in Mumbai, Delhi,
Bangalore, Chennai, Hyderabad, Kolkata,
Pune and Kochi and services over 5,000
international and national clients.
The firms in India have access to
more than 3500 Indian and expatriate
professionals.
Log
on to www.in.kpmg.com
About
Bombay Stock Exchange (BSE)
Bombay
Stock Exchange is the oldest stock
Exchange in Asia and has played a
preeminent role in the development
of the Indian capital market. Earlier
an Association Of Persons (AOP), BSE
is now a corporatised and demutualised
entity, with two leading global Exchanges,
Deutsche Börse and Singapore
Exchange, as its strategic partners.
BSE
provides an efficient and transparent
market for trading in equity, debt
instruments and derivatives. It also
provides a host of other services
to capital market participants including
risk management, clearing, settlement,
market data services and training.
It has a global reach with customers
around the world and a nation-wide
presence. BSE systems and processes
are designed to safeguard market integrity,
support the growth of the market in
India, and stimulate innovation and
competition across all market segments.
For further information contact:
Subir
Moitra
Senior Manager - Marketing & Communications
KPMG
Mobile: +91 98111 99613
E-Mail: smoitra@kpmg.com
