QUESTIONS on Culture: Several audit committee FAQs can help guide practitioners when assessing culture.

Author:Hughes, Peter

Among organization's valuable than the culture that permeates it from top to bottom. In the words of management consultant and author Peter Drucker, "Culture eats strategy for breakfast," meaning that even a great strategic plan will likely fail if the organization's mindset and workforce don't align with it.

The word culture, as it applies to organizations, refers to the attitudes and workplace behaviors that drive customer and employee relations, the quality of goods and services, and profitability. Recognition of business culture as a legitimate balance sheet line item under U.S. generally accepted accounting principles underscores that effective culture is a bottom-line essential, not a fuzzy nice-to-have. In fact, a business' culture may carry a book value--in the form of goodwill--higher than any other asset on the balance sheet.

Culture impacts nearly every aspect of an organization, including morale, productivity, and achievement of goals, making it an essential area for internal audit to examine. An FAQ on culture, assembled from years of questions received from audit committees and stakeholders, can serve as a primer on the topic and help guide internal auditors planning to conduct a cultural assessment.

1 How is culture formed?

An organization's expressed desire to create an employee- and customer-centric, sustainable enterprise represents nothing more than a wish unless actively supported by the incentives, policies and procedures, and goals established by management. Some of the factors that shape a culture for good or bad include:

>> Employee workloads.

>> Spans of authority.

>> Management style.

>> Ethics policies.

>> Organizational values.

>> Relevance and frequency of training.

>> Recruitment and retention practices.

>> Criteria for employee advancement.

>> Compensation plans.

>> Personnel policies, including work-hour flexibility and remote-work options.

>> Quality controls over products and services.

>> Return policies and product warranties.

An organization's culture is impossible to conceal because it can be observed almost everywhere. It shows, for example, in the level of respect and teamwork among staff members and in the physical work environment. Culture is quantifiable through productivity metrics and by examining compliance with both the letter and spirit of rules and regulations. Moreover, culture is evident in employee turnover rates, and it is undeniably reflected in the organization's success with retaining repeat customers and garnering their recommendations.

Culture is profoundly important to an organization's well-being and competitive...

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