NEW YORK, Nov. 11, 2008 (GLOBE NEWSWIRE) -- According to a report released today from PricewaterhouseCoopers LLP (PwC), the time has come for organizations to take a second look at internal audit, an underutilized resource whose efforts have been focused for years on a small part of the overall risk picture. What is needed now is an internal audit function that delivers more strategic value while lowering its costs of operation. The paper, entitled "An Opportunity for Transformation: How Internal Audit Helps Contribute to Shareholder Value," takes the position that no other group within the organization has more potential to help companies manage risk than the internal audit department. The challenge for today's internal audit departments is to move from a financial-controls-centric mindset to a shareholder-value-centric mode of thinking.
"As credit markets tighten, commodity prices increase, and businesses hunker down to ride out the softening economy, no resource can go overlooked -- especially an internal audit function that has this much potential to help companies protect shareholder value," said Jim LaTorre, Managing Partner U.S. Internal Audit Services for PricewaterhouseCoopers. "The time for change is now."
According to PricewaterhouseCoopers, for internal audit to successfully help organizations evaluate the risks that impact shareholder value, the function must undergo both a value and cost transformation. PwC suggests that first, internal audit must do more of the higher-value work that comes from a focus on risks that can significantly impact shareholder value. Second, it must lower operational costs by driving radical levels of efficiency into its traditional work. With the right approach, both can be done simultaneously.
"As management's search for cost reduction becomes more inclusive and stakeholders demand improved risk management, internal audit needs to examine its role in the organization, retool its teams, and prepare for a new level of involvement in governance and risk as well as compliance," added LaTorre.
As a direct result of the Sarbanes-Oxley Act, internal audit often has become the central authority for assurance over financial controls. As companies strengthen those controls, however, pressures mount to reduce the overall cost of compliance. Internal audit organizations facing this kind of tension need to look hard at change -- or risk consequences that include flat or declining budgets and a diminished role within the company.
"In order to succeed, the traditional internal audit function will have to prepare for a whole new battlefield," said Dennis Bartolucci, Internal Audit Services partner with PwC. "In uncertain economic times, organizations pay close attention to every cost element -- certainly anything that has an expense budget attached to it. In other words, there is no more free pass for internal audit."
The PricewaterhouseCoopers approach to adding value is centered on risks that impact shareholder value, providing an anchor to identify and prioritize risk. PwC believes that internal audit must improve on its value-to-cost ratio and that the right way to do so is by adding value while simultaneously reducing cost. Changing the value side of the value/cost equation involves developing a new focus on risk -- what it means to the enterprise, how it promotes or reduces shareholder value, and what internal audit can do about it.
Transformation begins with an understanding of an organization's current operations, and a model that breaks the company's operational elements into separate categories that include strategy, organization, people, process and technology.
According to PwC, internal audit is poised to contribute more value to the organization than ever before. Its professionals need new skill sets and tools, but the fundamentals are there. As the report states, what remains is for management, audit committees and internal auditors to agree on a way forward.
"The profession is being revolutionized," added LaTorre. "A compliance-based approach is something of the past. This isn't about incremental change. It's about transformation."
"If the vision of a transformational audit is embraced at the top of the organization -- as select companies across industries are discovering -- the results can be profound," added Bartolucci.
For a complete copy of the report and for more information on PricewaterhouseCoopers Internal Audit Advisory Services, please visit www.pwc.com/internalaudit.
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