As Jason Pett, PWC, rightly says, "To keep up with business change, internal audit teams need a spectrum of talent. " The business world is changing ever more quickly with accompanying risks. Many companies continue to hire auditors to the same description and expectations they always have. Others genuinely consider what skills they actually need, and hire, and change, accordingly. What do you do?
Technology innovation is compelling business transformation in virtually every industry, and it’s happening at rapid speed. Wearable technologies are driving change in the health industries, new forms of digital payment in the financial industry and connected cars in the automobile industry. The list is endless. In fact, more than 80 percent of technology companies have gone through or are going through a business transformation in response to market challenges, and another 9 percent plan to do so in the next few years.
To continue to fuel industry disruption and stay competitive, companies are entering into new markets, forming joint ventures, entering new industries and so forth. This also amplifies their higher tolerance for risks and failures. Such dramatic industry evolution means that companies and their internal audit functions are inherently faced with new and more complex risks. Internal auditors can challenge the status quo by knowing how to address and monitor those risks specific to the tech sector.
PwC’s 2015 State of the Internal Audit Profession survey revealed that other industries prioritized their greatest concerns differently than technology companies, which ranked talent as the greatest area of concern. While talent is the top concern, emerging technology risks, data security and privacy and business change are also ranked as top opportunities by technology companies as they continue to drive change based on the rise of social media and digital and mobile channels.
As a company moves into new and uncharted territory, their internal audit function needs to evolve quickly. PwC identified four areas that are crucial for internal audit functions to remain relevant and valuable:
Focus on talent and business acumen
To keep up with business change, internal audit teams need a spectrum of talent. That spectrum includes broad and deep subject matter expertise that can support transformational initiatives. Internal audit functions that add significant value to technology companies have more-diversified skill sets than their peers—specifically, in business continuity, data privacy and specialized IT (cybersecurity, cloud and mobile).
Focus on the right risks at the right time
This is a primary mechanism by which internal audit can stay on point during rapid periods of business change. Typically, it means internal audit is involved proactively in transformational initiatives, enabling the audit team to provide relevant input well in advance of risk occurrence. PwC’s internal audit study revealed that technology companies are for the most in line with other industries in terms of level and timing of involvement.
Align with ERM and all lines of defense
Technology companies are more heavily involved in their overall enterprise risk management (ERM) programs. In fact, 40 percent of technology companies say that their internal audit departments are responsible for ERM and more than 80 percent have aligned their ERM programs across all lines of defense within their organization. At technology companies, the first line of defense typically is comprised of management functions responsible for business activities. The second line of defense is usually responsible for developing policy and framework and for monitoring, and the third line of defense consists of internal audit functions.
Harness the power of data analytics
Today’s technology companies thrive on making data the foundation of their business models and applying data analytics to their business initiatives, yet only 30 percent of internal audit functions at tech companies use technology and the power of data analytics. This emerging area cannot be ignored. Forward looking internal audit functions are thinking about how they can better use data to become not only more efficient but also far more effective. Most are experimenting with expanding the use of data, including its wider application across the audit life cycle.
As a function in disruption, technology sector internal audit has a lot at stake. To remain relevant now and into the future, internal audit must build a sustainable talent model, stay strategically aligned with the business as it evolves, and balance these responsibilities with a forward-looking vision crucial to the innovations in the technology industry.
For more information, check out PwC’s Technology Sector Internal Audit: A Function in Disruption report.