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​​Fact or Myth: Internal Auditors Are All Accountants

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Last week, I found myself once again in front of accounting students at one of the nation's top universities. I was joined by The IIA's chairman of the board, Naohiro​ Mouri. We were there to create awareness about internal audit opportunities for soon-to-be accounting graduates. But we had to walk a delicate line when encouraging these students to pursue a career in internal auditing. We talked to them about the amazing opportunities in internal auditing, but we had to admit that they likely would not be dependent upon the accounting skills they are learning in college.

Six years ago, I wrote here that one of the most common myths about internal auditing was that all internal auditors came from an accounting background. At that time, internal audit plans and schedules were devoting more resources to operational issues. Compliance reviews were on the upswing, technology risks were growing exponentially, and many internal audit departments were starting to offer new consulting services. As a result, experts predicted that, within a few years, most internal auditors would come from nonaccounting backgrounds.

Since then, our profession has indeed become more diverse, and today most of our audits focus on nonfinancial issues. According to The IIA Audit Executive Center's 2018 Pulse of Internal Audit survey, less than a quarter of internal audit efforts are allocated to financial-related risks. So, does that mean internal auditors aren't accountants anymore? The answer is not as straightforward as it may seem.

While it's true that much of our work is not directly related to accounting, most internal auditors do have accounting experience. In fact, The IIA's Benchmarking Report indicates that as many of us hold credentials in public accounting as hold the Certified Internal Auditor (CIA) designation.

The high proportion of internal auditors with accounting skills results, in part, from our hiring practices. The Pulse survey indicates that chief audit executives (CAEs) predominantly look for candidates with accounting and finance degrees (rated "extremely" or "very desirable" by 76 percent of CAEs). In contrast, less than half found other types of business degrees to be extremely or very desirable. For some internal audit departments, and for many government audit functions, an accounting degree or the equivalent is an absolute requirement.

It seems that most CAEs want to hire accountants, but that doesn't mean they are looking for "bean counters." When asked to name the skills they were recruiting for, their top three choices were: analytical/critical thinking, communication, and business acumen. Accounting and finance knowledge barely made it into the top 10.

There's no doubt that many accountants make ideal internal auditors. Accounting graduates are trained in analytical thinking and in business, so accounting schools are a logical place to look for talent. But the Pulse survey points out that, when seeking analytical/critical thinking, communication, and business acumen competencies, "there is no reason to assume candidates with accounting or finance degrees have a substantial advantage over operational and technical backgrounds."

In today's job market, tunnel-vision hiring can be costly. Internal audit departments need to have people with the right competencies to swiftly and decisively respond to new or emerging risks. But finding the right people isn't easy. More than 90 percent of CAEs report difficulty in recruiting experienced personnel, and 60 percent express difficulty recruiting entry-level staff.

The great majority of CAEs say they have skills gaps — gaps that can make it challenging to provide needed audit services. In the Pulse survey, more than a quarter of CAEs reported they were extremely or somewhat likely to exclude areas from the audit plan because of gaps. More than half said they were extremely or somewhat likely to perform work only to the extent of internal competencies. And about a third stated they were extremely or somewhat likely to delay work until external competencies could be developed.

That's a skills gap we can't afford. Yet, antiquated personnel policies sometimes restrict our hiring decisions by ruling out well-qualified applicants. In the U.S. federal government, for example, to be classified as an auditor, one must have "a degree in a related field such as business administration, finance, or public administration that included or was supplemented by 24 semester hours in accounting." That requirement ensures that almost all government auditors are accounting graduates.  Yet, much of the audit work done in government focuses on risks other than financial. The same situation is prevalent in the corporate sector.

The consequences for internal audit functions that overload on accounting expertise to the exclusion of expertise in other critical risks can be significant. Internal audits might be canceled or delayed, or scopes narrowed because of the expertise deficit. Audit departments might lack the agility to respond quickly to new or emerging issues simply because of staffing limitations. Unaudited controls will inevitably break down, leading to the equally inevitable question, "Where were the internal auditors?"

We need to ensure that our internal audit functions can competently provide a diverse range of services. To do that, we need a diverse range of skills. Some of those skills are accounting and finance-related; others are not. The challenge is to ensure we have sufficiently competent workers to address all of our organizations' significant risks. It's not an easy job.

What are your thoughts on skills vs. expectations?

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