Internal Auditor, the New Age Value Creator for Businesses

Mumbai, May 14 There is a paradigm shift in the roles and responsibilities of Internal auditors due to extreme changes in the external environment, dwelled experts at the National Conference on –Internal Auditor, the new age value creator for businesses - in Mumbai on Friday & Saturday, May 13&14. The conference was organized by Internal Audit Standards Board, Institute of Chartered Accountants of India (ICAI) and hosted by Western India Regional Council (WIRC) of ICAI.

The disruption in external environment have been on account of full-fledged adoption of digital systems across finance, education,healthcare, manufacturing. There is also a focused shift into a fossil-fuel based economy to a renewable economy.

Finance is being disrupted like never before. Decentralised finances like block chain, without the need for intermediaries and brokers, has become a reality. Similarly, AI and RPA are disrupting financial services, education, healthcare and manufacturing.

CA Charanjot Singh Nanda, Chairman, Internal Audit Standards Board of ICAI, said, Internal Audit driven by innovation and automation has emerged as the biggest Sunrise area.

According to him, there is a need for the Internal Auditors to promote themselves as value creators where they help organisations to navigate through the rapidly changing business landscape. An Internal Auditor needs to build credibility with all constituents of his business, the CEO, CFO, the Audit committee, the Boards. He needs to focus very much on critical risks and align value proposition with stake holder expectations. Internal Audit as a profession should move from a compliance and controls-based player to becoming a value driven strategic player for the organisation. The expectations from audit committee in areas of expectation Risk Management, Internal control system and governance should be merged suitably.

There is also need to make CAs more digitally savvy. "Digital Accounting & Assurance Board of ICAI has taken an initiative that by this year-end we will be conducting courses for Chartered Accountants who are not technologically savvy. We will have courses for them on Information system, Automation, forensic accounting and fraud detection (FAFD)," said Mar Nanda.

According to CA Murtuza Onali Kachwala, Chairman, WIRC of ICAI, with RPA and robotics catching in, in next 2-5 years, the accounting will not be done by an accountant but by robots. "Even major accounting softwares will have features to scan the invoice and automatic invoice entry will be done using the OCR or RPA".

Today with the growing regulatory and compliance requirement, Internal Audit services are in huge demand across the corporate world. Compliances are growing for keeping a risk control matrix, a risk register, an enterprise risk management frame work and fraud risk assessment. Most Boards in this country today seek a complete compliance report every quarter from the CEO or CFO, said CA Kachwala.

"Internal auditor needs to change with the changing times. These disruptions are risks, which are also opportunities," said CA Shailesh Haribhakti, past Chairman of WIRC of ICAI. According to him, so far Internal Auditors have dealt deeply with systems and processes internal to an organization. Time has come now to switch out and focus entire energies on the external world. For example, Organisations are creating data oceans. By the next 5 years or so, that data will be put on the balance sheet of an entity as an asset. "It is critically important for tomorrow's Internal Auditor to organize these dataoceans and make them available as a source of energy for the organization. The Internal Auditors need to bring in the outside in and become the connect with the inside out," he said.

Post pandemic work from anywhere becoming the new norm. Also there has been a rise in cyber and ransomware attacks with organisations adopting digital. This is going to be a new area of opportunity for Internal Auditors.

CA Haribhakti told six capital inputs are critical today. These are Finance capital, environmental capital, human capital, relationship capital, innovation capital, and physical capital. Of these, physical capital is critical as half of the physical assets of the world could get stranded. For example, if you do an energy transition from coal to renewables what would happen to all those coal-based power plants, or ships that run on coal. How do you re-engineer all the automobiles of the world which have become stranded assets. The Internal Auditors has to consider these aspects. According to him, the future of all financial reporting will be integrated reporting, with the integration of all six capitals.