The Hindu Business Line : `Internal audit is a risk management tool'

Ms Lalitha Gupte, Joint Managing Director, ICICI Bank; Mr R. Seshasayee (centre), Managing Director, Ashok Leyland, and Mr G.K. Raman, Wholetime Director, Sundaram Finance Group, at the 30th All India conference on internal audit in Chennai on Friday. — Bijoy Ghosh

Chennai , Feb. 10

INTERNAL audit function is much more than checking the numbers. It is evolving into a major tool for risk management, speakers said at the 30th All India Conference on Internal Audit, on the theme `Beyond assurance - Enhancing enterprise value', held here by the Madras Chapter of The Institute of Internal Auditors.

Mr R. Seshasayee, Managing Director, Ashok Leyland (who started his career as an internal auditor), took a quote from the US Defence Secretary, Mr David Rumsfeld, and adopted it to illustrate the role of internal auditors.

Mr Seshasayee recalled that answering a journalist's question, Mr Rumsfeld said when the US went to war with Iraq, it was confronted with four kinds of risks: known knowns, known unknowns, unknown known and unknown unknowns.

Internal auditors have a major role to play in the second and the third types of risks, Mr Seshasayee said. Known unknowns were risks whose nature was recognised but incidence and extent not known. Unknown knowns were risks known, but not internalised, like product liability risks.

He further observed that conventional methods of accounting had become obsolete. He gave two instances of business takeovers, in which the seller did not know how to value the company's brand (in one case) and an `idea' (in the other).

Noting that "tectonic shifts" were taking place in the global industry, Mr Seshasayee, who is expected to takeover as the national President of the Confederation of Indian Industry, said empirical data suggested that although globalisation led to a 2.5 per cent growth in world trade over the last one decade, some 100 million people had been added to the poverty bracket.

He said the problem was not so much as globalisation as the management of risks associated with it. In this context, he stressed the importance of internal auditors in risk management.

Speaking on the occasion, Ms Lalitha Gupte, Joint Managing Director, ICICI Bank, said an internal audit of risks was an integral part of any new initiative in the bank — be it introduction of a new product or entry into a new geography.