Internal audit rebounding in America

The internal audit function is gaining more people and funding, according to a new survey released Monday during an Institute of Internal Auditors conference in Las Vegas.

The survey, from the IIA's Internal Audit Foundation, polled a group of 448 chief audit executives and found they were almost three times as likely to have increased staff (26%) than to have decreased staff (9%). 

After dramatic cuts in staffing due to the COVID pandemic in 2020 and 2021, significantly more internal audit functions are now increasing their budgets (36%) rather than reducing them (13%).

"In today's evolving risk environment, it's crucial for organizations to allocate more resources to their internal audit functions," said IIA president and CEO Anthony Pugliese in a statement. "Internal audit teams need adequate support to provide objective assurance and help manage risks effectively. As businesses embrace advanced technology for competitive advantage, internal audit leaders play a vital role in ensuring companies understand and address risks through robust internal controls."

The survey found internal audit teams put a high priority on cybersecurity and IT audits, which together represent almost 20% of audit plans — higher than operational auditing (17%), compliance (14%) and financial reporting (14%).

The survey also asked about use of artificial intelligence. Over 40% of internal audit leaders are actively researching the future use of AI, with 15% actively using AI in their internal audit activities. As businesses start to bring AI into their operations, 11% of the survey respondents are auditing the use of AI in their organizations. The researchers expect those numbers to increase over the course of the next year as AI use quickly evolves.

A separate survey released Monday by research firm Gartner polled a different set of 112 chief audit executives and found 41% of the CAEs are using, or plan to use, generative AI this year. Some 12% of respondents said their department was already using GenAI models (such as OpenAI's ChatGPT and Google Bard). Another 29% of CAEs had not implemented the technology yet, but intended to do so over the next year, and a further 20% had plans to adopt it in more than a year.

Pugliese discussed some of those technology skills at the IIA's "Great Audit Minds" conference. "The demand and need is here right now as we upskill," he said. 

The IIA is seeing demand for skills like data analytics and cybersecurity as well as soft skills, regulatory compliance, and SEC financial reporting.

The IIA survey also found that internal audit functions led by millennials are more likely to perform some or all of their work outside of the office. Only 17% of millennial-led functions do most or all of their work in person, compared to 28% of functions led by Gen X and 34% of functions led by baby boomers.

This year's IIA survey found more gender parity for CAEs and directors in younger generations. Among baby boomer respondents, 33% were female and 67% were male; among Gen Xers, 48% were female and 52% were male; among millennials, 50% were female and 50% were male.

In terms of what topics they consider during audits in general, 89% of respondents cited fraud as a part of their considerations, followed by 80% who considered IT and 66% who noted cybersecurity. Governance or culture were considered by 65%, with 61% citing third-party relationships. Expense reduction was reported as a part of audit considerations by roughly half of all respondents.

If CAEs had access to additional funds beyond their current budgets, nearly half (49%) would prioritize increasing their in-house staff. Nearly one-third of respondents reported having hired a recent college graduate in the past year. Internal audit functions with more than 25 full-time employees are more likely to hire recent college graduates than smaller functions.

A Jefferson Wells survey for the IIA found 45% of hiring managers plan to recruit entry-level professionals to internal audit. "There's a willingness to bring people out of college into internal audit," said Pugliese. 

The IIA has been expanding its outreach to students in other countries, including seven universities in countries such as Saudi Arabia, Egypt and South Africa that are adding internal audit to their curriculum. 

The IIA is also rolling out an updated set of Global Internal Audit Standards that take effect next January. Pugliese noted that the organization has received 19,000 comments and has been translating the standards into 20 different languages.

The IIA has been expanding its work with other organizations. Institute chair Michael Levy noted that the IIA had a big win last year with the Public Company Accounting Oversight Board in convincing it to soften some of the language in the PCAOB's confirmation standard pertaining to internal auditors. The IIA has also strengthened its relationship with the National Association of Corporate Directors. It has been providing model legislation that can be adopted and is pushing for internal auditing to be required at companies that trade on stock exchanges like Nasdaq and the Toronto Stock Exchange. "Make sure that we are engaged in the standard-setting  process, but also the legislative process of what we do," said Levy.

Internal auditors have been facing some obstacles in state government. In Nebraska recently, a state agency tried unsuccessfully to replace the state's auditor with a CPA firm. Last year in Iowa, Republican lawmakers passed a bill to limit access to some public records by the state auditor, a Democrat.

The IIA has also been working on the future agenda outlined in its Vision 2025 initiative and polling members for its Vision 2035 project. 

"The profession has to shift from hindsight to foresight," said Pugliese. "We know we can't resist change," he added. "We don't want to be seen as resistors to change."