Globalisation of businesses, economic crisis and volatility of currency & commodity markets, coupled with governance failures, have posed myriad risks to organisations. These risks need to be tackled effectively by companies to survive and gain a competitive edge. In this scenario, boards are increasingly looking at internal audit for effective governance.

A recent KPMG and BSE survey on corporate governance in India?The Evolving Face of Internal Audit in India?has highlighted that risk management and oversight practices in Indian companies need improvement. The poll also underlines the need for more robust and independent assurance processes. At the same time, CEOs expect their internal audit functions to improve processes and help organisations stay abreast of and respond to emerging risks.

?Globally, and especially in India, these are challenging times for businesses.

The collapse/bail-outs of global financial institutions are indicative of the need for strong risk management and assurance functions. A strong, skillful and independent audit function is fundamental to achieve effective corporate governance,? said Neville Dumasia, executive director and head, governance, risk and compliance services, KPMG India.

Managing director and CEO, Bombay Stock Exchange (BSE), Madhu Kannan, said, ?An effective internal audit function is a fundamental component of good governance. With the expanded role of internal audit stretching beyond its traditional focus on compliance and financial audit to encompass an assessment of the organisations effectiveness in achievement of its objectives, internal audit has become a management tool. The survey is important in helping companies to understand financial management, best practices in internal control and internal audit.?

?Expectations from the internal audit function have increased multifold to deliver much more than providing assurance on financial integrity and regulatory compliance. Today, internal audit is expected to lead the way in linking strategy, risks, compliance and regulatory changes with the C-level agenda. Internal audit functions that provide the greatest value to audit committees and senior managements are those with a clear understanding of the value they can offer and have a vision to enhance that value,? Neville added.

Key findings

• Boards and audit committees expect more from their internal audit functions in the sphere of fraud risk monitoring. Nearly 56% respondents say primary responsibility of internal audit is fraud risk assessment and monitoring. The survey reflects that shortage of specialist skills, low-level traditional skills, lesser confidence in using technology & analytics, and relative lack of independence for internal audit are factors impeding its effectiveness

• While the assessment of internal control systems and reporting deficiencies continue to top internal audit priorities, its activities are becoming broad based to include risk assurance, fraud risk and business process improvements, indicating that internal audit is moving up the value chain

• Boards and committees have greater expectations from internal audit in providing independent and objective assurance. In less than 50% companies, audit heads report to audit committee, which is indicative of lack of independence for internal audit

• Risk management practices in India Inc continue to evolve. The survey shows that although internal audit approach to assurance is becoming risk based, there is often a mis-alignment between internal audit views on business risks and those of the business

• Internal audit staffing and skill sets are proficient in general auditing and traditional oversight areas such as financial reporting and compliance. Areas that require specialist skills (M&A, fraud, IT, talent acquisition and retention) pose a significant challenge. To overcome this challenge, audit functions need to have people who have sound industry and business knowledge and can relate to stakeholder needs. Internal audit functions need to have a good blend of financial, accounting and technical specialists

• A structured approach to measure and sustain internal audit quality is lacking. A significant majority (69%) do not undertake an external quality assessment of their audit function at periodic intervals. Here, audit committees need to improve oversight practices