Increase Internal Audit's Value by Focusing on Leadership, Says PwC

Firm outlines five characteristics of very effective internal audit leaders that help achieve stakeholder alignment and better performance

Mar 08, 2016, 08:00 ET from PwC US

NEW YORK, March 8, 2016 /PRNewswire/ -- As companies face more risks than ever, they're looking to their internal audit functions to deliver value by educating stakeholders on emerging risks and leading risk management practices that would improve the business. According to a new report by PwC US of over 1,600 chief audit executives (CAEs), senior management and board members, internal audit functions that have very effective leadership perform better and add greater value to their businesses.

More than half of the stakeholders who participated in PwC's 2016 State of the Internal Audit Profession study revealed that they now believe internal audit is contributing significant value – up six points from 2015. The study also highlights that 62 percent of stakeholders expect more value from internal audit with 55 percent expecting internal audit to be a more proactive trusted advisor within the next five years.

"We're seeing a close correlation between strong leadership and internal audit's ability to add value and deliver high performance," said Jason Pett, PwC's internal audit solutions leader. "To continue fostering internal audit functions to become trusted advisors within their organizations, stakeholders should promote strong internal audit leadership, while audit executives work to elevate the performance and perceptions of their respective functions."

PwC's report outlines five actionable characteristics that are consistently exhibited by the most effective internal audit leaders:

1.       Create and follow through on a vision
Very effective internal audit leaders possess a strong vision that aligns with both a company's strategic direction and stakeholders' expectations. These very effective leaders translate their visions into strategic plans and also invest in capabilities in support of their vision. The internal audit profession is evolving and very effective leaders are innovating processes by increasingly investing in data analytics and technological tools.

2.      Source and retain the right talent
PwC's study highlighted that CAEs identified talent shortages as the most significant barrier to increasing their contributions as leaders, and as business transformation continues to evolve, additional new skills are needed. To be a very effective internal audit leader, they must exhibit two talent behaviors that stand out from the pack: a focus on mentorship and talent development, and an ability to source the right talent when needed.

PwC's report showed that those very effective leaders have a "no hierarchy in the room" policy, which facilitates staff development through open discussion and working as a team to solve problems. The study also showed that the majority of very effective internal audit leaders – 73 percent - use co-sourcing as a part of their talent strategies.

3.      Empower the internal audit function
Empowerment by stakeholders is a clear factor in the organizational position of very effective internal audit leaders. According to PwC's report, 78 percent of very effective leaders are vice presidents or hold senior positions in their organization. Stakeholders also shared they are gravitating toward more senior leadership talent to fill the CAE role, and acknowledged their responsibility to empower the CAE by setting a culture that supports the importance of a strong control environment.

4.      Demonstrate executive presence
Nine out of 10 very effective internal audit leaders excel in demonstrating executive presence, bringing bold perspectives and thinking broadly about the company, according to PwC's report. Internal audit leaders must inform, educate and influence stakeholders as well as earn their trust, but they face a difficult communication challenge where internal audit functions have to communicate with a variety of internal and external stakeholders who each have different expectations of the function.

5.      Partner with the business in meaningful ways
Partnering with the business in meaningful ways sets certain internal audit leaders apart. PwC says internal auditors should be able to stand out in three specific behaviors to become a very effective  leader: 1) develop relationships built on trust, 2) build partnerships across the lines of defense to play greater roles in coordinating risk management across functions and 3) use those connections to raise their level of engagement across the organization, taking on leadership roles in working with management, compliance, legal, and other assurance functions to develop an integrated assurance strategy.

Several very effective leaders have even intentionally renamed internal audit (e.g., as audit services) to brand the function as a collaborative one that partners with the business.

"It's through close alignment with various stakeholders and owning internal audit's role as a leadership function within the organization that can allow internal audit to help their companies keep up with the changing business and risk landscape. But all this can't be said and done without a clear vision, supported by a strategic plan and enabled with top talent," continued Pett.

To download a full copy of the report, please visit http://www.pwc.com/us/2016internalauditstudy.

About PwC's Risk Assurance practice
PwC understands that significant risk is rarely confined to discrete areas within an organization. Rather, most significant risks have a wide-ranging impact across the organization. As a result, PwC's Risk Assurance practice has developed a holistic approach to risk that helps to protect business, facilitate strategic decision making and enhance efficiency. This approach is complemented by the extensive risk and controls technical knowledge and sector-specific experience of its Risk Assurance professionals. The end result is a risk solution tailored to the unique needs of the organization.

About PwC US
At PwC, our purpose is to build trust in society and solve important problems. We're a network of firms in 157 countries with more than 208,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com.

© 2016 PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

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