THOUGHT LEADERSHIP | THE INFLUENCE OF ARTIFICIAL INTELLIGENCE ON THE FUTURE OF THE INTERNAL AUDITING PROFESSION IN SOUTH AFRICA: PART 2 of 2
This article is a continuation of a two part thought leadership series. The reader is referred to Part 1 for context, background, research methodology, sample of participants and key findings around the following three areas:
- Transforming to an automated internal audit approach.
- Understanding and appreciating the capabilities of AI.
- The possibility of AI conducting internal audit engagements.
This piece is presented in five sections. First, the future of the internal auditing profession in SA is discussed. Second, participants speculated on a fully digitised organisation. Next, the internal auditor of the future is outlined coupled with a proposed skill set. The research culminates with a conclusion and practical recommendations.
The future of the internal auditing profession in SA
All participants expressed the view that the profession will not be made redundant but rather internal audit will use AI as a tool or enabler to enhance, complement and facilitate internal audit processes in providing more meaningful insights in a more efficient, effective and economical manner. Participants did indicate that the competencies of an internal auditor will need to change.
Primary reasons why the profession cannot be displaced include: independence and objectivity as an overarching concern as well as professional scepticism, professional judgement and the decision-making ability of an internal auditor. However, certain tasks which are more routine and structured in their design could be performed by AI.
These structured tasks are generally performed by junior internal auditors during the internal audit testing phase and the profession could see a reduction in headcount at that level. The dilemma here is that junior auditors eventually transition into senior internal auditors and if junior internal auditors are to become redundant, the next generation of senior internal auditors cannot be developed and trained.
A fully digitised organisation
Participants speculated that if their organisations were fully digitised, i.e. an automated business and operating model, that AI, if programmed accurately, could test the control environment. This could transform the role that internal audit plays. In such an environment, internal audit would essentially be called in to review controls at the design stage which if concluded to be adequate, the system itself would then handle control effectiveness. Subsequent internal audit work would then include the review of system change controls. Participants did however highlight that the possibility of a completely automated control environment would be unlikely citing once again that the more structured or routine processes could be automated but not the more complex, ad hoc or unstructured processes.
The work conducted by internal audit lends itself to how the organisation operates as it is essentially a process that internal audit would be required to provide assurance on.
If the organisation is automated and data rich, internal auditing procedures would need to be aligned to those processes. Viewed differently, if control complexity is low to moderate on structured or routine processes, it possibly could be automated when juxtaposed to control complexity being high where internal audit is required to use professional judgement, professional scepticism and decision-making.
Based on the discussion above, the model in Figure 1 has been proposed. It points out independence and objectivity as the overarching principles which should be a requisite within any process being reviewed by internal audit. It then shows that structured processes are more easily and more likely to be automated. Moving from left to right, as processes become more ad hoc or unstructured, full automation is less likely and therefore some human intervention is required. On the far right, where professional judgement, professional scepticism and decision-making is required, human intervention is a necessity. This is also demonstrated by the darker green tab which transforms into a lighter hue as one moves from left to right and similarly the lighter red that transitions darker. The arrow at the bottom demonstrates the move from a straightforward process with low control complexity to one that is more sophisticated and/ or subjective.
The internal auditor of the future
Participants suggested that the skill set of the internal auditor will need to be transformed and evolve with internal audit transitioning from the traditional watchdog approach to a trusted advisor or business partner role whilst taking on a more forward-looking approach.
Participants were asked if they believe that the internal auditor of the future would be those individuals with IT expertise and experience. Some participants concurred with this view. The majority indicated that the value of internal audit lies in bringing together individuals from different backgrounds, expertise and experience to form an opinion on the control environment. It is this diversity and specialisation that enhance insights and perspectives and assist an organisation to ultimately achieve its objectives. Thus, multi-disciplinary teams are the way forward.
Adding to this, an appreciation of IT should be an integral part of any internal auditor. The terms “holistic auditor” or “integrated auditor” were used or alluded to by some participants.
It was stressed by other participants that internal auditors need not be specialists in multiple disciplines but should have an appreciation or basic understanding of other disciplines within the environment which they operate. In addition, deep industry experience and a thorough understanding of the organisation is what participants strongly viewed as key. This would allow internal auditors to better contextualise the work that they conduct.
Skillset for the internal auditor of the future
The skills matrix in Table 1 below is a synthesis of skills proposed by CAEs for internal auditors to adapt, remain relevant and continue to add value. The view was that to be a well-rounded professional one needs to possess both technical and soft skills. The matrix has thus been split into technical and soft skills:
The interviews touched on whether formal education, CIA board examinations and training institutions are adequately preparing the internal auditor of the future and if industry experts are in conversation with these institutions on adding these skills to their curricula and programmes. The general view is that not enough is being done to equip and upskill internal auditors for the future.
In the context of the fourth industrial revolution and based on the research findings, internal audit like many other professions will see significant change. This change is still in its infancy and has not yet made a meaningful impact. As such, internal auditors do not yet fully understand and appreciate the capabilities that AI brings. It is however topical, gathering interest and industry players are aware of it.
Four primary reasons why the profession cannot be displaced or made redundant include: independence and objectivity as an overarching concern as well as professional scepticism, professional judgement and the decision-making ability of an internal auditor which AI cannot replicate.
In the foreseeable future, AI is going to influence the internal auditing profession and internal auditors need to be agile and embrace disruptive technologies and change, which may imply that internal audit needs to first disrupt itself. This is based on the premise that the profession has seen many transformations from largely manual processes to efficient, sophisticated automated processes.
New ways of working through innovation and collaboration need to be sought by leveraging the capabilities that technology brings with the aim of providing more meaningful insights to recipients of internal audit deliverables.
This will cement the legitimacy of the internal audit function as a value-add and a key participant and trusted adviser central to the achievement of organisational objectives.
The following practical recommendations are proposed:
- Internal auditors need to gain a deeper understanding of AI and how it can be used to facilitate the audit process, enhance efficiencies and bolster audit outcomes.
- Internal auditors need to stay close to the organisations they serve and move together with their organisations as and when emerging or disruptive technologies are implemented. This includes being involved in digital conversations.
- Continuous auditing methodologies should be implemented owing to the rapid pace that technology and business landscapes are evolving.
- Internal auditors need to leverage the collective intelligence within their organisations in gaining a broader view of risks. This includes collaboration by considering the use of multidisciplinary teams and other subject matter experts.
- When using AI technologies, independence and objectivity should be pivotal.
- Internal audit methodologies should be updated to incorporate the use of AI.
- Internal auditors need to reflect on their competencies and engage in lifelong learning over and above CPD requirements and ensure the content is current and relevant.
This thought leadership piece was adapted from a research article submitted to the Faculty of Commerce, Law and Management, University of the Witwatersrand, in partial fulfilment of the requirements for the degree of Master of Business Administration (Protocol number: WBS/BA0407882V/993). Images by Gerd Altmann and kalhh from Pixabay.
About the researcher and supervisor
Shuaib Jooman is the Governance Lead at GRIPP Advisory operating out of the Johannesburg office. He has, and continues to deliver, internal audit, risk, compliance, governance and board advisory engagements across various industries including financial services, logistics, FMCG, retail, hospitality, gaming, manufacturing and media. He has consulted both locally and internationally in both the private and public sectors. The inspiration behind his research stems from his internal audit experiences and how the profession has transformed over the years and continues to evolve as the lines are being blurred between human and machine.
Professor Yaeesh Yasseen is the Head of the Accounting Division in the School of Accountancy at the University of the Witwatersrand, Johannesburg. His research area extends to the creation of value added knowledge that fosters integrated thinking in both the accountancy profession as well as its stakeholders.
Researcher: Shuaib Jooman | Supervisor: Professor Yaeesh Yasseen