Update on the current board issues: March 2015

Audit committee issues


PwC’s 2015 State of the Internal Audit Profession study

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As today’s companies drive new business strategies forward, internal audit should be evolving at a similar pace in order to maintain the relevance and value it brings, according to PwC’s 2015 State of the Internal Audit Profession study.

In this year’s study of more than 1,300 chief audit executives (CAEs), internal audit managers, members of senior management and board members, PwC reported that a talent gap and lack of business acumen are fueling a poor perception of internal audit's relevance and value – 65 percent of stakeholders who do not find value in their internal audit functions cite talent as a top barrier while 70 percent cite business acumen as a top barrier. As businesses look to the future, internal audit functions need to acquire diverse skill sets to address the most critical risks facing their companies, the study found.

The study also discusses the concept of True North – a set of ideals used to guide an organization from its current state to where it wants to be.

In this year’s research report PwC’s focuses on:

  • How internal audit functions must evolve to meet the needs of ever changing and often transforming businesses.
  • How Internal Audit skills and capabilities must advance in order to contribute value.
  • The growing importance of data analytics and strategies for advancing their use.
  • Collaboration of internal audit with other lines of defense to strengthen overall risk management

According to many who were interviewed for the study, internal audit must evolve to keep up with the needs of today’s businesses. This evolution requires a mindset change for many CAEs and their stakeholders – an update of their understanding of internal audit’s role.


UK FRC Survey: Positive response to new auditor report rules

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Nearly a year after the effective date of a UK’s Financial Reporting Council rule requiring expanded disclosures in audit reports, a recent FRC survey states that many UK external auditors have made radical changes that go beyond the FRC’s new requirements.

The requirements for auditors to describe assessed risks of material misstatement, materiality and the scope of the audit are beginning to make a process that had previously been described as a “black box” by investors more transparent, according to the FRC.

The FRC survey, Extended auditor’s reports: A review of experience in the first year, notes that auditors appear not only to have met the new requirements but in many cases to have gone further and reported more widely than required. The FRC states that the extent of innovation and the diversity of approaches adopted by different audit firms to be very encouraging.

“Confidence in UK audits underpins investor confidence in UK capital markets,” said Melanie McLaren, executive director, FRC’s Codes and Standards. “We wanted auditors to be more transparent and insightful in the way they report. The diversity of approaches adopted by different audit firms is to be embraced and we are excited to see how firms will continue to innovate and develop their ideas on how to report.”

The survey found innovation in the following areas:

  • Disclosing the materiality benchmark used
  • Disclosing the magnitude of unadjusted differences being reported to the Audit Committee
  • Reporting of detailed audit findings with respect to identified risks
  • Experimenting with detailed broader explanation of the audit scoping process
  • Improving presentation of auditor’s reports through the use of diagrams and graphs
  • Addressing going concern disclosures in auditor’s reports
  • Locating the auditor’s opinion at the beginning of the report rather than at the end
  • Moving generic descriptions of the scope of an audit to a website