AuditNet: Internet Web Portal for Auditors!

1.1 Some of the most contentious issues for Chief Audit Executives [CAEs] [or Chief Internal Auditors] have long been the quality of human resources, their relationship with Management and the Board of Directors [BOD], work standards and the scope of work CAEs have to do. The Columbus Circle Governance conducted a survey among the CAEs attending the Asia Pacific Chief Auditor Summit 2006 [APCAS] to get their views on these issues. A total of 82 of the 156 international participants responded to the electronic survey.

1.2 Traditionally [internal] auditors have financial backgrounds that are mainly external audit based. Consequently their usefulness and effectiveness may be limited and may not be fully effective to cater for present day needs. Another limiting factor is that the education system that caters to accounting needs with audit being only a subject. Thus it is common for auditor to opt for accounting positions as a first choice where there are many opportunities for solid business experiences that can result in substantially higher financial rewards, status and advancement to line management positions including those reaching the highest level post in any organization.

2.1 Majority of the CAEs were of the view that present day auditors need to equip themselves with relevant knowledge and expertise that is relevant to the core activities of the organizations that they audit. They need to be business orientated and be quasi risk managers if they are to be relevant to current business environment. They were also of the view that the auditors need to have solid business experience. They should thus be able to contribute positively to their organizations by giving recommendations that are constructive, positive and aligned to business objectives to result in optimum level of efficiency and profitability.

2.2 The non-attendance of CAEs in Board of Directors’ and Management meetings was another contributory factor in the perception of the comparative low and unimportant status of the auditors and their role in the operations of the organizations. The lack of attendance may be attributed to the BOD/Management who felt that role of audit commences after decisions are made and the CAE’s participation would not be relevant to their scope of duties or function. The CAEs may also be deemed to be responsible for this perception by their own views that their attendance of the meetings might be viewed that they are a party to the decisions made at the BOD/Management meetings and such attendance may also compromise their independent status.

3.1 The survey showed that the CAEs were unanimous in their view that the auditors should be accorded recognition commensurate to their responsibilities and status and be allowed to attend the BOD/Management meetings. These objectives can be achieved by several methods including those listed below.

[a] It is a normal industry practice and regrettable, that BOD/Managements’ are of the view during ‘boom’ times that the Internal Auditors cannot be spared for training whereas during recession the Internal Audit Department is the first victim of cost cutting measures in the form of retrenchment. In both cases the IAD is neglected. The same BOD/Management continues and intensifies the need for training for its financial professionals in respect of ‘Tax’ aspects. It is perceived that knowledge of ‘tax’ aspects will result in substantial savings in the form of reduced tax liability. This perception is substantially correct as the relevant authorities regularly change the basis of ‘tax’ imposition and its computation structure. In addition, the change in laws pertaining to ‘tax’ aspects results in consequent changes in ‘Accounting Standards’. Consequently it is inevitable that the training in respect of ‘tax’ aspects is continuous. Further, as the commercial, industrial, manufacturing, construction, trading, and other industries are mainly ‘controlled’ by the accounting/financial professionals this aspect receives continues support for training and audit. Unfortunately, the same level of support is not provided to auditors involved in the construction industry.

[b] It is imperative that the BOD/Management and the CAEs change their mindset regarding functions, role and responsibilities of the auditors. The CAEs should also change their own mindset and equip themselves with the necessary knowledge and skills to take over the new role and the responsibilities that will go with it.

[c] It is the responsibility of the CAEs to change the mindset of the BOD/Management by convincing them of the benefits the organization will receive in the form of better audit reports in terms of quality and content that should contribute positively to the operations and other activities of the organizations. It should be emphasized that the soft skill, expertise and knowledge of workings of the organizations activities can be coupled with financial implications of the procedures and methodologies to provide cost efficient and cost effective improvement and solutions.

[d] Another weakness where mindset needs to be changed was the line of reporting where in most cases the audit reports were submitted to the Audit Committee [AC] through the Management. This was considered to be unsatisfactory as it compromised the independent status of the CAE that could adversely affect the content of the audit report. The CAEs voiced the view that the reporting should be done directly to the AC to ensure the independent status. This weakness can only be cleared by convincing the members of the AC to play a proactive role by ensuring that direct reporting procedure should be provided for in the Audit Charter of the organization. Consequently the terms of employment and remuneration packages should be under the jurisdiction of the AC and should not be subject to scrutiny of management.

[e] It was the unanimous view of the CAEs that the auditors possessed financial skills but needed to upgrade their soft skills. In addition they were of the view that ‘technical skills are a big training need’. Technical skills referred to the operational aspects that have financial & legal implications of the organizations. The organizations include those whose core activities were in the field of Manufacturing, Trading, Plantations, Shipping & Transport, Construction [Infrastructure & Buildings], Services of Technical Professionals, IT & Communications, Procurement of Services & Materials, Human Resources, etc.

[f] The major problems faced by the CAEs in acquiring the relevant training for their auditors can be summarized as follows:

[i] Lack of financial & moral support from the BOD/AC/Management and in-house resources;

[ii] Lack of available training facilities & reading material that are relevant to the industry and local environment; and

[iii] Lack of interest among the auditors to equip themselves with the required skills.

These problems can be solved by the CAEs themselves who are holding the leadership posts in the various industries and have the relevant skills. The methods would be as follows:

[i] CAEs should convince the BOD through the AC for the need of the relevant training and justify their request by initially demonstrating the benefits of the technical skills and knowledge by actual audit of selected operations.

[ii] The most effective method of filling the void of absence of trainers with the relevant expertise would be CAEs who are employed in the various industries. Consultancy firms and companies who are involved in the training industry should take the opportunity to invite these experienced and knowledgeable CAEs and others with specialized knowledge and expertise and able to provide the relevant technical skills to provide the required training. The main problem is not the lack of trainers but the lack of interest among CAEs to invite outside training experts to conduct in-house training for their auditors. Another problem is the lack of support by CAEs for their auditors to attend public training seminars organized Consultancy firms and companies who organize such training seminars resulting in the fixed seminars being cancelled due to lack of participation by sufficient number of auditors causing the organizers incurring losses and waste of effort thereby losing interest in organizing such training seminars.

[iii] The solution for the last problem lies in the hands of the auditors who should show their commitment to make audit as their chosen career. However, this is only possible only if the CAEs and the BOD/AC/Management provide the necessary incentives in the form of attractive remuneration packages and opportunities for career advancement to reach the highest level of position in the organizations.

[iv] The absence of reading material that is relevant to local needs is a major problem. The internet is a great source of information, reading materials, procedures, manuals, worksheets, etc. that can be down loaded. Unfortunately all the material is mainly USA, UK, EU or other developed countries based. The solution lies in the hands of the auditors who should download these and modify them to suit the local environment The modified material can then be imparted to the auditors and thus fill this void.

4.1 The CAEs and their Internal Audit professional organizations should stop just voicing their concerns about lack of management support, career advancement opportunities and training materials/facilities and commence taking positive steps.

4.2 The regulatory authorities such as Bursa, Securities Commission, Registrar of Companies and other relevant regulatory authorities & enforcement agencies have done their part by mandating pubic listed companies to have Internal Auditor.

Others will assist only if we Internal [and External] Auditors take the necessary steps to help ourselves. The ball is now at the feet of the Internal Auditors and we should act.

[The ‘Chief Auditor Survey by Columbus Circle Governance’ was conducted during the Asia Pacific Chief Auditor Summit 2006 held in Kuala Lumpur, Malaysia and was published under the title of ‘Chief Auditor – Insights’.

Tel. No. [H] 603-79808549 [H/P] 019-2927178

E-mail: gursharan38@gmail.com, sharwant38@yahoo.com