While Internal audit and compliance have different objectives, they can gain much from working more closely together



July 6, 2016

If it seems like the lines between internal audit and compliance are beginning to blur a little, it's because they are. Many companies are leveraging both functions to do more to assess risks and asking them to weigh in on all the things that could go wrong at a company from regulatory violations to strategic blunders. They are also calling on both functions to do a better job of communicating with each other and coordinating their activities.

In this podcast, Joseph McCafferty, head of audit content at MIS Training Institute, talks with Michael Volkov, CEO of law firm The Volkov Law Group and author of the Corruption, Crime, & Compliance blog, about the convergence of internal audit and compliance.

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Here are some things fraud hunters should never forget about the Madoff Ponzi scheme

By Joseph McCafferty

June 29, 2016

Corporate frauds are cyclical, meaning that they tend to come in waves, particularly when the markets perform poorly or a recession hits. (That is, when the scandals themselves aren't the actual cause of the recession as we saw in the financial crisis of 2008.)

These fraud waves have a pattern to them that is now familiar to most observers of Corporate America: A series of very similar frauds and schemes crop up devastating investors, employees, and pensioners and damaging the financial system itself. The judicial/enforcement system struggles to hold anyone responsible, managing a few scapegoats or forcing big companies to write checks they can cut without even having to check their account balances at the bank. Next, politicians and regulators hoot and holler and pass a series of laws to ensure that, “something like this never happens again.” About a decade or less passes and the process starts all over again. Lather, rinse, repeat.

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 A conversation with Tom O’Reilly, director of internal audit at Analog Devices

Interview By Joseph McCafferty

June 22, 2016

It’s an exciting time to be an internal auditor, according to Tom O’Reilly, Director of Internal Audit at Analog Devices. While many organizations are experiencing increased pressure to manage costs and are using new technology to change the way they do business, those trends are particularly magnified within internal audit shops. Internal audit must adapt, says O’Reilly, in order to continue to provide value to the business.

MISTI’s Joseph McCafferty sat down with O’Reilly at Audit World 2016 in Boston last week to discuss the latest trends impacting internal auditors, as well as some areas he suggests these departments should focus on to remain relevant and successful within their organizations.

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Part four of our series, Building the Modern Corporate Risk-Assurance Function

By Matt Kelly

June 21, 2016

Cybersecurity is unlike any other business risk because it isn't a risk at all. It's simply a new manifestation of all the business risks you already have.

That point may sound trite, but its implications are profound. Managing cybersecurity in a comprehensive, effective way will take audit and compliance executives well beyond their comfort zones. All the risk assurance efforts you build on the framework of the COSO cube and the strategy of the Three Lines of Defense will still exist, but in new mixtures and new forms. Much of what you do today will need to be re-imagined.

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June 8, 2016

The agenda has been released for the 2016 SuperStrategies conference taking place in Las Vegas from September 26 to September 30, and the focus of the event is how the internal audit profession is adjusting to address the changing risks that companies are working to manage.

Among the main sessions will be talks on how internal audit is now providing assurance on such areas as compliance, operations, strategy, and even culture. Speakers at the event will also look at how audit departments at leading companies are evolving to help tackle such major challenges as improving cybersecurity, uncovering fraud, and governing the growing stockpiles of data organizations are collecting.

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They say they are struggling to compile the needed data  and to implement policies to comply

By Joseph McCafferty

June 7, 2016

Just 10 percent of companies are prepared to adopt the new Financial Accounting Standards Board (FASB) lease accounting standards, according to a recent report by audit firm Deloitte. And it's not that many companies are just procrastinating; only 15 percent of respondents say they expect compliance to go smoothly when requirements begin kicking in as early as next year.

Respondents to the Deloitte survey say the top challenges to lease accounting implementation are collecting necessary data on all organizational leases in a centralized, electronic repository (33.3 percent); and instituting processes to evaluate quarterly adjustments for the balance sheet, as well as profit and loss statements (20.5 percent). The firm surveyed more than 5,400 financial and accounting professionals.

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A global survey of audit committee requirements finds increased oversight of audit processes

By Joseph McCafferty

May 31, 2016

U.S. regulators have expanded the role of the audit committee in recent years to oversee the hiring and performance of the external auditor in the hopes of improving audit quality. In many ways, the United States was just catching up with audit governance practices that were already common in Europe. A new survey, however, finds strong audit oversight by the audit committee is a concept that is taking hold around the globe.

The survey, conducted by the Board of the International Organization of Securities Commissions (IOSCO) and titled "Survey Report on Audit Committee Oversight of Auditors," seeks to identify audit committee practices that could improve audit quality at publicly listed companies.

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Market downturns have a way of exposing accounting frauds

By Joseph McCafferty

May 25, 2016

Warren Buffet, the king of folksy, one-liner investment aphorisms, has one for the problems that a bear market can cause: "It's only when the tide goes out that you can see who has been swimming without their trunks on."

For the last seven years or so, companies have been swimming in a rising market tide with only some minor ebbs and flows along the way. But we all know that bull markets don't last forever, and this one is likely running on borrowed time. So what should we expect when the stock market retreats? If history is any judge, expect a raft of accounting troubles and scandals.

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Regulator weighs in on use of unsanctioned accounting measures, amid uproar

By Joseph McCafferty

May 24, 2016

The fury over the increasing use of non-GAAP accounting measures when companies report earnings is building, and now the Securities and Exchange Commission is weighing in with some guidance on practices that are and aren’t acceptable.

As part of its published Compliance & Disclosures Interpretations guidance, the SEC issued a series of questions and answers that may come up as companies consider releasing non-GAAP measures. The guidance also serves as a warning to companies to use caution when using non-GAAP measures.


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Part three of our series, Building the Modern Corporate Risk-Assurance Function

By Matt Kelly

May 18, 2016

Risk assurance executives—whether they work in compliance, internal audit, risk management, IT security, or any other related function—ultimately worry about three things as they do their jobs.

  • Is everything functioning normally?

  • Do I understand how to address anything not functioning normally?

  • Am I working effectively with everyone else in the organization who helps fulfill my goals?

Those three questions, for example, invoke all five elements of the COSO internal control framework: risk assessment, the control environment, and monitoring (the first question); control activities (the second question); and communication (the third question). Those questions seek to understand what is normal and abnormal, and whether you can respond to events properly as the need arises. In one way or another, we all ask ourselves these questions every day.

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The price of worldwide corruption is rising for those that get caught…and those that don’t

By Joseph McCafferty

May 17, 2016

Companies are paying a huge price for worldwide corruption and bribery, even if they are adopting practices to fight against it. That's because the cost of corruption takes many forms, including loss of business to less scrupulous companies, regulatory requirements, and lost opportunities in regions where corruption risks are too high.

According to a new survey from consulting firm Alix Partners, corruption risks for companies in the United States, Europe, and Asia are expanding. Anti-corruption laws and regulations are proliferating, increasing the need for compliance efforts. They are also causing some companies to avoid or delay acquisitions due to bribery risks, and they are avoiding or pulling out of some regions or countries due to those risks. Nine out of ten respondents said their industries are exposed to corruption risk, compared to 85 percent in 2015, and 28 percent cite "significant risk," compared to 22 percent last year.

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The number of companies reporting non-GAAP measures is on the rise, as is the hyperventilating over their use

By Joseph McCafferty

May 11, 2016

There is a growing backlash against the use of measures that don't meet Generally Accepted Accounting Principles (GAAP) when reporting earnings results, and its quickly becoming a frenzy.

Late last month, the New York Times proclaimed, "Fantasy Math Is Helping Companies Spin Losses into Profits." A headline on Yahoo in March warned, "Companies haven't fudged their numbers this much since the financial crisis." Even Warren Buffett got into the act—although in his famously level-headed way—suggesting in his annual letter to shareholders: "It has become common for managers to tell their owners to ignore certain expense items that are all too real."

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After several months of debate, plans are set to take effect next year

By Joseph McCafferty

May 10, 2016

The Securities and Exchange Commission has approved a plan by the Public Company Accounting Oversight Board to require audit firms to disclose the names of audit engagement partners and to provide more information about other firms that participate in audits.

The PCAOB hopes the new rules will improve the transparency of audits by identifying the lead person in charge of conducting them and shed more light on additional firms that participate, particularly those who contribute audit work on overseas operations.

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Common attributes that advance some IT audit departments from good to great.

By Fred Roth

May 5, 2016

As the use of information technology continues to proliferate so do the associated risks organizations face.

The massive cyber heist affecting more than 100 financial institutions in some 32 countries is only the latest in a spate of data security breaches worldwide. Losses from the attack, disclosed last year, eventually could exceed $1 billion. During the past 10 years, hackers have infiltrated millions of files of customers at eBay, Target, Sony, Heartland Payment Systems, and so many others.

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A new survey finds communication and critical thinking skills in demand among auditors

By Joseph McCafferty

May 4, 2016

A new survey is out about the skills that audit leaders are looking to add to their departments and you may be surprised at what tops the list. Cybersecurity chops? Nope, that ranked twelfth. Financial acumen? Tenth.

The top skills that chief audit executives say they are looking for are critical thinking and communications. Those are the only skills that more than half of respondents cited in the top five traits they are seeking. Nearly two-thirds (64 percent) of the CAE's polled ranked analytical and critical thinking skills among the top five things they look for when recruiting new internal auditors, while just over half (51 percent) said they want candidates with communication skills.

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The SEC is advancing efforts to reform financial disclosure, but real reform is unlikely

By Joseph McCafferty

April 26, 2016

Earlier this month the Securities and Exchange Commission took the next step in its year’s-long campaign to reform the vast dump of information we collectively call financial disclosure. It issued a concept release seeking public comment on hundreds of questions about improving disclosures required under regulation S-K, which covers the majority of financial reporting including annual and quarterly reports.

The SEC has embarked on an ambitious plan to make company filings more useful to investors and to try to eliminate some of the redundancy and legal language that makes such reports nearly impossible to trudge through for all but the most motivated professional investors.

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Part two of our series, Building the Modern Corporate Risk Assurance Function

By Matt Kelly

April 20, 2016

Office politics and turf wars are a fact of corporate life.

They are also among the most dangerous forces an organization can face, because they pit employees against each other and lead individuals to put their own or their departments' interests ahead of the business as a whole. The risk management and risk oversight functions are no strangers to battles for territory and control. Unclear lines of responsibility, siloed thinking, and guarding of information are common among departments and business units responsible for managing risk. For that reason, they are also the perfect starting point to explore how compliance, audit, and other corporate governance functions should work together to achieve better risk assurance.

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Filings involving company announcements of internal control weaknesses hit highest level in 10 years

By Joseph McCafferty

April 19, 2016

While Valeant Pharmaceuticals continues to battle allegations of bookkeeping misdeeds, it's not the only company dealing with accounting problems. The number of class-action securities law suits based on allegations of accounting missteps increased for the third straight year in 2015, according to a new report from Cornerstone Research. There were 71 such class-actions in 2015, up from 69 in 2014.

Accounting-based class-actions continued to costs companies a bundle, too. Accounting case settlement dollars reached $2.6 billion in 2015. Not only did the number of accounting case filings increase in 2015, the market capitalization losses associated with those filings jumped as well," said Elaine Harwood, a vice president of Cornerstone Research and head of the firm's accounting practice.

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A bank anti-fraud Executive's open memo to the Justice Department is a too-rare example of plain talk on regulation

By Joseph McCafferty

April 13, 2016

During the past several years that I have covered corporate compliance, auditing, accounting, and other functions that intersect with government regulation the executives and company representatives I've talked to have always choose their words very carefully. That is, when they choose to talk at all.

I understand the discretion. You can't be too cautious when you're speaking to a journalist about how you may or may not be dealing with all the many issues that can get you in trouble with the government. I generally don't expect too much candor when companies are talking about how they handled an internal fraud, an instance of potential corruption, or whether or not they are doing all they can to combat inhumane practices by suppliers around the globe. Those are not going to be free-wheeling conversations.

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Audit regulator wants lead auditor to provide better oversight on farmed out audit work

By Joseph McCafferty

April 12, 2016

The Public Company Accounting Oversight Board has proposed changes to audit standards that would require lead auditors to provide better oversight and take more responsibility for audit work that they farm out to other audit firms. It also wants to impose a more uniform approach to the lead auditor's supervision of other auditors and has proposed a new auditing standard for situations in which the lead auditor divides responsibility for the audit with another firm.

When auditing a multinational company, lead auditors often seeks the help of other firms or individual accountants to complete the audit. According to the PCAOB, other auditors are used in about 55 percent of audits performed by large U.S. audit firms.

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