Unlocking Value Through Internal Audit.

• Author: Weingardt, Jenny

Fierce competition for new markets and highly speculative forays into e-commerce exemplify today's business environment, as many companies invest heavily in reengineering strategies to help unlock new sources of corporate wealth. Surprisingly, many of these organizations fail to include internal audit in those efforts.

Despite tremendous changes in the world of internal audit, many organizations continue to view it more as a function for internal control rather than as a tool for creating value. Yet, internal audit can play a key role in creating real corporate value by helping firms effectively institute change and mine untapped internal resources.

Firms with especially strong internal audit functions -- industry leaders that actively leverage their resources to achieve superior results -- display a consistent set of attributes, regardless of how they approach the function. These common characteristics include:

* Demonstrating leadership at executive and stakeholder levels.

* Constructively revisiting outdated perceptions and expectations of internal audit.

* Pinpointing and clarifying specific activities that derive value from the function.

* Aligning and focusing internal audit capabilities and processes.

* Continuously measuring and evaluating results.

While the primary focus of internal audit functions varies significantly from one organization to another, it's clear that the leading practitioners concentrate on activities known to add value, and their internal audit groups tend to excel at those activities.

Bridging the Expectation Gap

Internal audit is often viewed as a non-core business process. Research conducted by the Institute of Internal Auditors (IIA) confirms that there is an "expectation gap" between how stakeholders view the potential of internal audit and what most internal audit functions can actually deliver. To effectively address this gap, organizations need to take a fresh look at internal audit and agree on its ultimate value. However, agreement can be difficult for several reasons:

* Diversity among stakeholders. While executive management and the audit committee are certainly the function's most significant stakeholders, others commonly include a broad array of constituents, such as the board of directors, operating management, external auditors and regulators. For internal audit to create value, all stakeholders must work together to identify and prioritize expectations.

* Definition of "value." Everyone in an organization expects "value" from its business processes, yet because of the broad scope of internal audit activities, the...