The changing strategic role of internal auditing with particular reference to Malta

Abstract

Revolutionary developments and rapid changes in the business world are forcing organisations to change their operations. Internal auditors therefore cannot continue to focus on internal policy compliance and detection of error and fraud. Their role has to shift to that of a management adviser charged with developing new processes and assisting management to better achieve organisational objectives. Internal auditors therefore need to change their role, focus and priorities. The aim of this dissertation is to delve into the current role and perspectives of internal audit departments and determine the extent to which they are actually embracing a strategic approach. The study also attempts to establish the readiness of companies with no internal audit departments to adopt this approach. The study is carried out through twenty interviews with companies employing over one hundred employees. Interviews are carried out with ten managers responsible for the internal audit department (internal auditors), in companies where such a department exists, and with another ten managers in companies not having an internal audit department. A case study is also included, focusing in more detail on these issues in a local group of companies. The study finds that: •!• Local internal audit departments are slowly moving towards this strategic approach. Most internal auditors have a good idea of the trends in internal auditing, however, their practices are somewhat restricted. The main limiting factor is considered to be management's support and management's awareness on the benefits that can be achieved through the internal audit function. Another associated factor is the limited resources available to the internal audit department. In the case of the particular group of companies assessed, this limitation has been overcome by identifying the company's strengths and weaknesses and by targeting areas which pose most risk. •!• The interviews with managers where no internal audit department exists indicate that their perceptions do not envisage a strategic role to internal auditing. They consider the detection of error and fraud and testing for compliance with policies and regulations as the main issues. They do not intend to place so much importance on the internal auditor's role of assisting management in achieving organisational objectives and of identifying and managing business risks. The study also includes a number of recommendations to improve the situation with respect to this increasingly important function.