Revolutionising Oversight: The Evolution of Internal Auditing in the Digital Age

As we stand on the cusp of a new era in business and technology, the role of internal auditing is undergoing a profound transformation. Today, we'll explore the emerging trends and bold predictions that are shaping the future of this critical function. From artificial intelligence to environmental, social, and governance (ESG) considerations, the landscape of internal auditing is evolving rapidly. Let's dive into what the future holds for audit professionals and organisations alike.

Embracing Artificial Intelligence and Machine Learning

The integration of AI and machine learning into internal audit processes is no longer a distant possibility—it's happening now. These technologies are revolutionising how auditors analyse data, identify patterns, and predict potential risks.

Key developments:

1. Automated risk assessment tools that continuously monitor and flag anomalies.

2. AI-powered fraud detection systems capable of identifying complex patterns human auditors might miss.

3. Machine learning algorithms that improve over time, enhancing the accuracy of audit processes.

Prediction: While the exact percentage may vary, AI is expected to significantly transform the auditing profession by automating routine tasks and allowing auditors to focus more on strategic analysis and decision-making.

This aligns with insights from a 2023 KPMG report titled "The Future of Audit." The report states, "As AI and machine learning technologies advance, they will increasingly automate routine audit tasks, allowing auditors to focus on higher-value activities that require professional judgment and skepticism."[1] While KPMG doesn't provide a specific percentage, they emphasise that AI will play a substantial role in reshaping the audit profession in the coming years.

[1] KPMG. (2023). The Future of Audit. https://home.kpmg/xx/en/home/insights/2023/01/the-future-of-audit.html

Let's explore what this AI-driven transformation might look like in practice:

As AI and machine learning technologies advance, they are expected to increasingly automate routine audit tasks. Based on current trends and the KPMG report on "The Future of Audit," AI systems could be:

1. Handling Data Collection and Preparation: Automatically gathering, cleaning, and standardising data from various sources within an organisation.

2. Conducting Transaction Testing: Analysing 100% of transactions for policy compliance and flagging anomalies, rather than relying on sample testing.

3. Performing Continuous Compliance Checks: Constantly monitoring emails, documents, and transactions for potential conflicts of interest or policy violations.

4. Carrying Out Risk Assessments: Analysing market trends and internal data to identify emerging risks and predict potential future issues.

5. Generating Initial Reports: Summarising key findings, creating data visualisations, and drafting preliminary recommendations.

6. Assisting in Audit Planning: Suggesting focus areas and optimising audit schedules based on risk assessments and previous results.

This transformation aligns with KPMG's vision that AI will allow auditors to focus on "higher-value activities that require professional judgment and scepticism"[1], while automating many routine tasks.

[1] KPMG. (2023). The Future of Audit. https://home.kpmg/xx/en/home/insights/2023/01/the-future-of-audit.html

With AI handling these routine tasks, human auditors will be freed up to focus on:

1. Interpreting AI-generated insights and their business implications.

2. Conducting in-depth investigations into complex issues flagged by AI.

3. Developing strategic recommendations to improve processes and mitigate risks.

4. Engaging with stakeholders to communicate findings and drive change.

5. Designing new audit methodologies to leverage emerging technologies.

This shift will elevate internal auditors from data analysts to strategic advisors, potentially increasing the value and impact of the audit function within organisations.

The Rise of Continuous Auditing

Traditional point-in-time audits are giving way to continuous auditing processes, enabled by advanced data analytics and real-time monitoring tools.

Benefits:

1. More timely identification of risks and issues.

2. Increased audit coverage without a proportional increase in resources.

3. Ability to provide stakeholders with up-to-date assurance on key processes.

Insight: Continuous auditing is gaining significant traction among organisations, with many implementing these practices for their core business processes.

This aligns with findings from PwC's 2023 Global Risk Survey. The report indicates that 26% of organisations are already using continuous auditing and continuous monitoring techniques, with another 34% planning to implement these practices within the next 1-2 years.[2]

While this doesn't provide a specific prediction for 50% adoption within five years, it does show a clear trend towards increased implementation of continuous auditing practices. If current adoption plans are realised, we could see over 60% of organisations using continuous auditing techniques in the near future.

[2] PwC. (2023). 2023 Global Risk Survey. https://www.pwc.com/gx/en/issues/risk-regulation/global-risk-survey.html

Data Analytics: From Big Data to Smart Data

The focus is shifting from merely collecting vast amounts of data to leveraging smart data analytics for more insightful audits.

Trends:

1. Advanced visualisation tools making complex data more accessible and actionable.

2. Predictive analytics helping auditors anticipate future risks and trends.

3. Integration of external data sources for more comprehensive risk assessments.

Prediction: By 2025, data literacy will become a core competency for all internal auditors, with specialised data science roles emerging within audit teams.

This prediction aligns with insights from the Institute of Internal Auditors (IIA). In their report "OnRisk 2023: A Guide to Understanding, Aligning, and Optimising Risk," the IIA emphasises the growing importance of data analytics in internal auditing. The report states that "internal audit functions must upskill to leverage data analytics and emerging technologies to provide deeper and more valuable insights."

[3] The Institute of Internal Auditors. (2022). OnRisk 2023: A Guide to Understanding, Aligning, and Optimizing Risk. https://www.theiia.org/en/content/research/onrisk/2023/

ESG Auditing Takes Centre Stage

As stakeholders increasingly prioritise sustainability and ethical practices, ESG auditing is becoming a crucial component of internal audit functions.

Key areas of focus:

1. Climate risk assessments and carbon footprint audits.

2. Diversity, equity, and inclusion (DEI) program evaluations.

3. Supply chain sustainability and ethical sourcing audits.

Insight: ESG considerations are rapidly becoming a crucial component of internal auditing, with specialised ESG audit functions emerging in many organisations.

This aligns with findings from PwC's 2023 Global Risk Survey. The report states that "77% of risk leaders confirmed their companies have integrated ESG into their enterprise risk management (ERM) activities." Furthermore, it notes that "nearly half (45%) of organisations have a dedicated ESG/sustainability team for risk management activities."[2]

While the survey doesn't provide a specific prediction for 2028, it clearly indicates a strong trend towards the integration of ESG into risk management and auditing practices. As these trends continue, it's reasonable to expect ESG considerations to become increasingly central to internal auditing processes.

[2] PwC. (2023). 2023 Global Risk Survey. https://www.pwc.com/gx/en/issues/risk-regulation/global-risk-survey.html

Cybersecurity: The New Frontier

With cyber threats evolving at an unprecedented pace, internal auditors are taking on a more proactive role in cybersecurity.

Emerging practices:

1. Continuous monitoring of cybersecurity controls and incident response readiness.

2. Auditing of emerging technologies like IoT devices and blockchain implementations.

3. Collaboration with IT teams to build security considerations into new systems from the ground up.

Insight: Cybersecurity is becoming an increasingly critical skill for internal auditors across all specialisations, not just IT auditors.

This aligns with findings from Protiviti's 2023 Next-Generation Internal Audit Survey. The report identifies cybersecurity as the top technology and digital risk for internal audit to address in the coming years. According to the survey, 79% of internal audit functions are undertaking initiatives to improve their cybersecurity risk assessment capabilities.[4]

While the survey doesn't provide a specific prediction for 2026, it clearly indicates a strong trend towards the integration of cybersecurity skills across the internal audit profession. As Richard Chambers, former President and CEO of The Institute of Internal Auditors, noted in a commentary on the report, "Internal auditors must become well-versed in cyber risks and controls to provide the assurance stakeholders need."[5]

[4] Protiviti. (2023). 2023 Next-Generation Internal Audit Survey. https://www.protiviti.com/US-en/insights/next-gen-internal-audit-survey

[5] Chambers, R. (2023). Protiviti's 2023 Next-Generation Internal Audit Survey. Internal Audit 360°. https://internalaudit360.com/protivitis-2023-next-generation-internal-audit-survey/

Agile Auditing Methodologies

The adoption of agile methodologies is transforming how audit teams operate, allowing for more flexible and responsive auditing processes.

Benefits:

1. Faster delivery of audit insights.

2. Improved stakeholder engagement throughout the audit process.

3. Greater ability to adapt to changing business conditions and emerging risks.

Insight: Agile auditing methodologies are gaining significant traction in the internal audit profession, with many organizations adopting these practices to enhance flexibility and responsiveness.

This aligns with findings from Deloitte's 2023 Global Chief Audit Executive (CAE) Survey. The report states that 40% of CAEs are already using agile internal audit methods, with another 45% planning to adopt agile methodologies in the next 1-3 years. Furthermore, 78% of CAEs believe that agile auditing improves the overall value of internal audit to the organization.[6]

While the survey doesn't provide a specific prediction for 2027, it clearly indicates a strong trend towards the adoption of agile methodologies in internal auditing. As these trends continue, it's reasonable to expect agile auditing to become increasingly prevalent, particularly in fast-paced industries.

[6] Deloitte. (2023). 2023 Global Chief Audit Executive Survey. https://www2.deloitte.com/global/en/pages/audit/articles/global-chief-audit-executive-survey.html

Conclusion: Preparing for the Future of Internal Auditing

The future of internal auditing is dynamic, technology-driven, and more strategically important than ever. As these trends continue to shape the profession, internal auditors must evolve their skills, embrace new technologies, and adapt to changing stakeholder expectations.

For organisations, investing in the right technologies and fostering a culture of continuous learning within audit teams will be crucial. The internal auditors of tomorrow will need to be tech-savvy, analytically minded, and capable of providing insights that drive strategic decision-making.

Reflection Point:

As we look to the future of internal auditing, what steps can you take today to prepare your team or organisation for these emerging trends? How might these changes impact the value proposition of internal audit functions in the years to come?

By staying ahead of these trends and actively shaping the future of the profession, internal auditors can position themselves as indispensable partners in organisational success, driving innovation, managing risk, and creating sustainable value in an increasingly complex business landscape.