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An HLB Mann Judd partner says directors gain a competitive advantage by recognising the full potential of what internal auditors can bring to their business.
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Businesses must ‘embrace internal auditors as strategic partners’
15 April 2024
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Internal auditors, who traditionally play a “static” and “backwards looking” role for businesses, should be embraced as strategic partners who can identify opportunities and manage risks with their unique insights, according to HLB Mann Judd.
Melbourne-based risk and assurance partner Kapil Kukreja said boards that lacked internal auditors or underutilised them risked falling behind those who used them “to help achieve their strategic goals”.
“Many boards and senior management are increasingly recognising that they can use internal auditors to play a big role in the company’s ongoing success,” he said.
Unlike external audits, internal audits are not compulsory but are used by boards to ensure organisations comply with internal policies and procedures.
This meant that in the past, internal auditors were confined to performing a “static” form of “defence”, Kukreja said, focusing on operations and ensuring accurate and timely financial reporting.
“It was a fairly static role and largely backwards looking to ensure that processes were working correctly and to identify any areas that required fixing,” he said.
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Now, internal audit was increasingly becoming a “strategic partnership role”, with auditors seen as the experts who could bring about big gains for businesses.
The shift, he said, came about because leaders recognised they were well-positioned to take a holistic view of businesses “and how various processes work together”.
The expertise of internal auditors meant they could identify risks and opportunities based on businesses’ financial, operational and technological resources, making recommendations to help organisations achieve their goals.
“Their recommendations should act as a road map for the organisation addressing identifying gaps and adding value … organisations can no longer allow different departments and areas to operate as silos, concerned only with their own areas and responsibilities,” Kukreja said.
Internal auditors’ ability to oversee and manage risk would also be crucial for directors as ASIC ramped up scrutiny, he said. “Legal obligations of directors overseeing the affairs of a company have become more stringent,” Kukreja said.
Joe Longo, the corporate regulator’s chair, said last month there was an expectation for directors to stay on top of their responsibilities and regulatory developments in ESG and technology.
“Being a director isn’t meant to be easy,” Longo said at the Australian Institute of Company Directors Australian Governance Summit. “If it were, anyone could do it.”
“Good directors run successful, profitable businesses. That’s not going to happen unless every director takes an active stance of curiosity and starts asking the right questions – to understand their business,” he said.
For Kukreja, internal auditors could help directors stay “fully up to date on what is happening at a company, including its financial position and its risk management processes.”
“Those companies that aren’t working with their auditor, and other experts, in this way, risk being left behind as the pace of change in the business world continues to accelerate,” he said.
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