‘Internal audit is crucial to assessing impact of corporate culture’

KR Srivats New Delhi | Updated on January 20, 2018 Published on February 22, 2016

Richard Chambers

Internal audit’s mandate is much broader than external audit’s, says Richard Chambers of Institute of Internal Auditors

It’s an idea whose time has come. Requiring an internal audit team to assess the impact of culture on an organisation’s performance would be useful and desirable even in developing countries, feels Richard Chambers, President and Chief Executive Officer of The Institute of Internal Auditors (IIA), a global professional association for internal auditors. A leading voice in internal audit, Chambers, who has served this profession for over four decades, spoke to BusinessLine during his India visit this past week. Edited excerpts:

Regulators around the world are saying that the impact of culture on an organisation’s performance needs to be audited. Your views?

We are not going to have much choice in financial services. Global regulators are saying that you have to audit culture, and we do expect to see internal audit of culture, especially in financial services.

Should internal audit assess impact of culture?

I do believe we have an obligation to assess what impact culture is having on performance of an organisation. I am not convinced yet that looking at culture or undertaking enterprise-wide audit of culture is impractical. I would rather suggest we should be looking at culture in every audit that we do.

Is there a case to apply this in developing countries too?

Unfortunately, every organisation has a culture – whether it’s good, bad or healthy. I would take the view that internal audit’s ability to assess the culture is more important in developing countries where you don’t have a legacy of corporate history. Don’t get me wrong, no company is immune from a toxic culture. It would trouble me to think that internal audit somehow should not look at corporate culture in developing economies.

I do believe resistance could be greater there. If you don’t have a legacy of anyone scrutinising the culture of your organisation, you are most likely to resist it.

So, what should be done?

Get internal audit to audit culture. I know it would be onerous and challenging to get internal audit to do it. But it should be done.

Should managements be in the picture?

Managements need to be in the conversation too. I wouldn’t limit observations of internal audit on culture to the audit committee alone.

Should India look at statutory backing to strengthen the profession of internal audit?

Not having a statutory backing for internal audit is not uncommon. There is no such backing in the developed world. We don’t exist because the law says we have to. We exist because of the value we bring and the role we play in the system of internal control, corporate governance and risk management in companies.

What can Indian policymakers do to strengthen the profession of internal audit?

There has to be a clear and an unequivocal recognition that internal audit has a critical and different role than external auditors and accountants. The mission and mandate of internal audit is very broad and does not limit itself to financial risks. The mistake people continue to make is to equate internal audit and external audit. We are not in the same business anymore.

Internal audit now has to address the full portfolio of risks an organisation faces – financial risks, operational risks, IT risks, compliance risks, fraud risks and reputation risks.

I still believe that statutory audit and internal audit are apples and oranges.

While not getting deep into internal audit, the recent Indian company law does recognise implicitly that internal audit is separate and distinct from the work of external auditor. It’s the right approach.

Published on February 22, 2016

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