The Hindu Business Line : Focus on controls that treat risks

How is RBIA (risk-based internal audit) different from internal audit? “Although traditional internal audit concentrates on riskier areas of the organisation, its approach is based on its own assessment of risk… RBIA ensures that the audit resources are utilised towards assessing the management of the most significant risks,” explains Guide on Risk-based Internal Audit (www.icai.org).

Going beyond internal audit, RBIA may involve audit of new areas. And, even while the auditing techniques used may be the usual ones, RBIA may focus its tests on ensuring the effectiveness of controls that treat risks.

The Institute’s publication emphasises the need to understand the macroeconomics of the industry because many risks may be externally driven. Also, RBIA should ensure risk management documentation that links objectives, processes, risks, controls, and people.

Recommended addition to the serious audit professionals’ shelf.

Three ways to test the numbers

“Managers use numbers the way drunks use lamp posts: for support, not illumination,” bemoans Jo Owen in The Leadership Skills Handbook: 50 key skills from 1,000 leaders ( www.vivagroupindia.com ). He advises that for the leader, reviewing a spreadsheet is not about the numbers: it is about the assumptions that lie behind the numbers.

To help leaders test the numbers effectively, Owen lists three ways. One, know your key data inside out. You lead the business, so you should know the key numbers and ratios, the author urges.

“Do not get confused by the whole spreadsheet: look at the key numbers and ratios used and see if they fit with what you expected. If not, push hard to find out why.”

The second way is to play the ‘what if’ game, to test out the sensitivities such as prices, market share, market growth, costs, and interest rates. Owen exhorts leaders, therefore, to ask what assumptions have been made, and how the result would change if different assumptions were made on the sensitivities.

And lastly, find out who is presenting the numbers and why, because the credibility of the numbers is directly related to the credibility of the presenter. “A cautious profit projection from an executive with a great track record is worth far more than an exciting profit projection from an untested executive.”

Owen also warns leaders against executives who may use numbers like lawyers using facts — to selectively make a point. To see how far wrong this can go, he suggests a visit to www.countkostov.blogspot.com , which carries ‘profiles of some of the worst abuses of numbers by apparently trustworthy bodies like charities, government, research groups and scientists.’

Ready takeaways for the growing leader.

D. MURALI

BookPeek.blogspot.com

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