The Institute of Internal Auditors is repositioning to embrace areas like environmental, social and governance reporting and other issues.
“This past year we have spent almost all of our time really examining what our path forward is for IIA and the profession,” said IIA president and CEO Anthony Pugliese at the kickoff of the IIA’s General Audit Management Conference Monday in Las Vegas. “You’re going to see a lot of that come to light at this meeting and really span very broad topics. We’re looking at ways we can reimagine and transform IIA and the profession, looking at it from the inside out.”
The IIA plans to focus on promoting competency and learning in areas such as ESG, cyber, data analytics and more. “Competency and learning are key to IIA’s future and the success of our members,” said Pugliese. “We’re also changing our view of advocacy as a whole and the way we promote the interests of our members and the profession, to be a voice to make sure that as these topics come to light, that we’re there to represent our members, not just in North America but around the world, and make sure that we operate as one IIA in how we work on advocacy on many things.”
The institute recently updated its logo and branding to reflect the changes. “We want to prepare the profession for the future and make sure that we’re cognizant of the things we have to do now that are going to get us to where we need to be when we look back 10 or 20 years from now,” said Pugliese. “A lot of that has been put into motion.”
He talked with Bob Hirth, senior managing director with the consulting firm Protiviti and chairman emeritus of COSO (the Committee of Sponsoring Organizations of the Treadway Commission), and a founding member of the Sustainability Accounting Standards Board, which became part of the Value Reporting Foundation last year and is set to be consolidated in June into the International Sustainability Standards Board that will be overseen by the International Financial Reporting Standards Foundation. Hirth pointed out that ESG is not a new topic, but it has gained greater urgency.
“It’s always been important, but it’s become critical because we have 7 billion people living on the same rock and who knows where that’s going to go,” said Hirth. “When you think about all the ESG reporting, there’s just more information available, so the more information that’s around, the more people want. But really this got started and it really fits our profession well around risk and change.”
Investors are starting to look at other factors such as the environment and weather events. “Are there 14 facilities under sea level that we really didn’t look at before?” said Hirth. “What’s the company’s usage of raw materials? What’s the availability of those raw materials? Is there a forecast that the price of those raw materials might go up or down? What about their labor force? How is that product made? Was it made by a 12-year-old? In what kind of conditions? They look at all of those things.”
In particular, sovereign wealth funds and pension funds have shown interest in ESG issues. “If you’re an investment manager needing that money to continue to grow and be there in 60 years or 100 years, you think a little differently than waiting for next quarter’s results to come out and see how the stock’s changed,” said Hirth. “There’s been visible momentum in the investor community. ... If we think about the multitude of stakeholders who care, it’s more than just the investor. It includes us. People now care about these issues because they’re important. I think the long-term idea is that we can be better so won’t we try to be better?”
Pugliese visited the offices of the European Commission last September and came away with the impression that Europe was far ahead of the U.S. in taking into account ESG issues. “I quickly realized I should sit there and listen because I realized they have their act together and institutionalized across most of Europe,” he said. “It’s pretty amazing to watch it in action in how seriously it’s taken and how organizations take it seriously.”
He believes companies will need to leverage technology to keep up with demand from investors for ESG information. “They have access to data and they’re paying attention to what’s happening,” said Pugliese. “AI and data, and the awareness that’s being brought to how organizations practice, are tremendous. It’s amazing how much people are sharing and how people have become aware of things like who made this product. Where was it made? How old was the person who made it? Our access to information has changed. Organizations see it as a growth opportunity. So much money has been invested because it is a way of differentiating in the market. It’s not just a compliance thing. People are realizing it truly adds value to the bottom line with net zero and all these terms. ESG does create value. That’s what’s being seen around the world before and now.”
Internal innovation
The internal audit function is improving in other ways as well. Protiviti released its
At the conference, the audit technology company AuditBoard released AuditBoard Automation & Analytics, an automation and analytics system for internal audit and SOX teams. According to an AuditBoard survey of North American chief audit executives, 84% of internal audit teams now use data extraction and advanced analytics solutions in their programs, and nearly 30% of them increased their use of such tools during the COVID-19 pandemic.
Deloitte released the results of a separate survey on ESG on Monday (
“We certainly see there are a lot of points of view emerging and evolving in this whole ESG space focused on performance measurement and effective disclosure,” said Kristen Sullivan, a partner at Deloitte & Touche, and U.S. sustainability and ESG services leader and global audit and assurance climate services leader. “We thought it was a really important time to get a sense of the market around preparedness in the broadest sense. We clearly know the regulatory environment is evolving, but it has yet to be seen exactly how that will take shape. The standard-setting universe is evolving, and we wanted to just cast the net relatively broadly with a universe of executives to get a pulse through that lens of increasing disclosure expectations.”
Getting the right data for ESG is important. “It all comes down to data,” said Sullivan. “This whole busy, noisy ESG value chain is really challenging for companies to navigate. We’re seeing internal mobilization organizations within companies really put more of a defined infrastructure around understanding data availability and data quality. One of our key findings was that over half of the executives we surveyed really put that emphasis on the need for data, and enhanced transparency was the top priority as they know the accountability mechanisms are going to evolve.”
One of the accountability mechanisms may be new disclosures on climate risks that the Securities and Exchange Commission is expected to propose during an open meeting that’s scheduled next week, on March 21. Last year, the SEC solicited input on what kinds of climate disclosures should be required of public companies and received a vast amount of feedback.
“It’s our understanding that they’ll likely release the proposed rule on the 21st or soon thereafter, and then clearly, as the due process will follow, there’s a lot of speculation around what is the duration of the comment period that will be included as part of the rulemaking and the due process,” said Sullivan. “You think anywhere from 30 to 90 days and then the commission would need time to evaluate the feedback to the proposal and then proceed with a final rule. It has yet to be seen what is that runway between proposed rule to final rule, but it’s something that will certainly move quickly once we see the proposed rule.”
