THE GLOBAL INTERNAL AUDIT STANDARDS – OLD WINE IN NEW BOTTLES?

Abstract

In this paper the authors suggest that the Global Internal Audit Standards (the IIA’s Standards) issued in January 2024 resemble the placing of old wine in new bottles, insofar as they represent a missed opportunity to truly transform rules-driven Standards into principles-based Standards. This co-authored essay provides two perspectives on the revised Standards: although written independently, and originating from different premises, they both arrive at similar conclusions in favor of principles-based Standards. The authors suggest that the prescriptiveness of the IIA’s Standards continues to petrify individual judgment and critical reasoning, narrowing intellectual and moral horizons in modern internal auditing. By following rules, the focus of internal auditors is misguided toward form over substance, encouraging a checklist-based mind-set that diminishes moral agency. The authors therefore advocate principles-based Standards because they tend to encourage the internal auditor to apply abstract concepts to concrete examples. The authors see unexploited potential inherent in the encouragement of individual judgment, especially when entering the pioneering zone of the pragmatic implementation of the IIA’s Standards – a zone characterized by complexity, chaos, ambiguity, and trade-offs, in which internal auditors are compelled to address WHAT IF types of question. Although the two authors converge in their overall conclusion, they offer alternative reasons for their views, and differing (though perhaps not entirely irreconcilable) suggestions for the future. Lenz draws our attention, in our VUCA and BANI world, and in the age of artificial intelligence, to rethink what it means to be human, and to rethink the skills that make internal auditors strong, influential, and effective. He presents the Trust Triangle that places authenticity as an anchor term to the discourse. Effective internal auditors must have strong human skills: he therefore suggests a model with five competence blocks of the most important skills of the effective internal auditor. There is no need for humans who behave like robots. The refined leitmotif of “The Gardener of Governance: Our nature is Nurture” is suggested as purposeful for internal auditing. O’Regan proposes a future focus on the rigorous application of traditional logic to internal auditing. He suggests that such an emphasis on logic might offset the socially-constructed, slippery, and ever-changing knowledge base of internal auditing, thereby facilitating the development of principles-based standard-setting.

Acknowledgments

Rainer and David thank Dan Swanson, the Managing Editor of EDPACS, for the opportunity. We thank Alexander Ruehle, CEO at zapliance, for funding OPEN ACCESS.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Notes

1. According to Korine (2020) (11),“When governance breaks down it is because of too much power concentration or not enough accountability or both.”

2. The term “Gardener of Governance” stems from Lenz and Jeppesen (2022). The refined wording “The Gardener of Governance: Our nature is Nurture” (September 2023) benefits from contributions by Kathleen Carroll (Brand Positioning Expert) https://drrainerlenz.wordpress.com/2023/09/07/gardeners-of-governance-its-our-nature-to-nurture/.

3. VUCA stands for: Volatility, uncertainty, complexity and ambiguity, Wikipedia, accessed online, 12 February 2024, https://en.wikipedia.org/wiki/VUCA.

4. Is BANI the new VUCA? Agile work in the 21st century, accessed online, 12 February 2024, https://www.leaders21.com/en/blog/is-bani-the-new-vuca-agile-work-in-the-21st-century/; BANI stands for Brittle, Anxious, Non-linear, and Incomprehensible.

5. SOY stands for “Shit of Yesterday” (Hinssen, 2017, p. 58).

6. Financial Times (2023), “With 101,000 employees and €50.7bn in revenue, Bayer is one of Europe’s largest corporate juggernauts, owning 354 consolidated companies in 83 countries.”

7. Building on Lenz’s blog from May 2020: https://drrainerlenz.wordpress.com/2020/05/08/we-are-all-in-the-pioneeringzone-now/.

8. Recording via YouTube: https://www.youtube.com/watch?v=aF3wnnP0i64, and Lenz’ blog about the event from 12 January 2024: https://drrainerlenz.wordpress.com/2024/01/12/cpe-webinar-rethinking-internal-audit-governance-needs-gardening-30-january-2024/.

9. Accessed online 04 February 2024, https://rcanalytic.com/rctheory/.

10. Lenz’ blog from 15 September 2023, after initial discussion with Professor Jody Hoffer Gittell, https://drrainerlenz.wordpress.com/2023/09/15/internal-audit-as-gardeners-in-the-governance-ecosystem-gittell-lenz-2023/.

11. Lewin, K. (1945). The research center for group dynamics at Massachusetts Institute of Technology. Sociometry, 8, 126–135, cited in Van De Ven, A. H. (1989). Nothing is quite so practical as a good theory. Academy of Management Review, 14(4), 486–489.

12. The idea stems from Lenz and Jeppesen, (2022). The refined wording “The Gardener of Governance: Our nature is Nurture” (September 2023) benefits from contributions by Kathleen Carroll (Brand Positioning Expert) https://drrainerlenz.wordpress.com/2023/09/07/gardeners-of-governance-its-our-nature-to-nurture/.

13. There are (will be) 25+ translations of that publication, originally written in English https://drrainerlenz.wordpress.com/2023/01/01/translations-of-lenz-jeppesen-2022-the-gardener-of-governance-paper/. The Lenz and Jeppesen, (2022) article is with 27,000 reads (accessed online on 04 February 2024) by far the most read publication of all time at EDPACS. https://www.tandfonline.com/action/showMostReadArticles?journalCode=uedp20.

14. Arendt (2015), German book title “Wahrheit gibt es nur zu Zweien“, Reprint 2020.

15. World Economic Forum 2023: Accessed online 04 February 2024 https://www.weforum.org/publications/the-future-of-jobs-report-2023/.

16. Blog from 16 April 2019, accessed online, 12 February 2024, https://internalauditor.theiia.org/en/voices/20192/trying-to-define-trusted-advisor/.

17. PwC (2023, p. 10) says “The ability to connect the dots and spot misalignment can often require an objective viewpoint.” We find that term misleading. There is no such thing like an “objective viewpoint.” We recommend internal auditors to become authentic. That is a pillar of the “Trust Triangle” (Frei & Morriss, 2020).

18. More about Harry Styles, please see on Wikipedia, for example https://en.wikipedia.org/wiki/Harry_Styles Accessed online on 04 February 2024.

19. Blog on LinkedIn, 11 February 2023 https://lnkd.in/e8eT3F3u.

20. Accessed online on 04 February 2024 https://www.quotespedia.org/authors/m/mark-twain/courage-is-resistance-to-fear-mastery-of-fear-not-absence-of-fear-mark-twain/.

21. For example, Herve Gloaguen (former Chief Internal Auditor at Allianz SE) regards humbleness, curiosity, and diplomacy as great soft skills for auditors (in a blog on LinkedIn on 12 January 2024). Garyn and McCafferty (2023) suggest the following “Seven Characteristics of Internal Audit Leaders of the Future”: 1 Ability to Think Strategically, 2 Technology Acumen, 3 A Contortionist’s Flexibility, 4 Remote Communication Skills, 5 Prescience, 6 Ability to Build Bridges, and 7 Executive Know How.

22. According to Heraclitus “You can’t step into the same river twice”, Wikipedia, accessed online on 14 February 2024, https://en.wikipedia.org/wiki/Heraclitus.

Additional information

Funding

Alexander Ruehle, CEO at Zapliance, Germany, funded OPEN ACCESS of this work.

Notes on contributors

Rainer Lenz

Dr Rainer Lenz is a financial and corporate audit executive with 30+ years of international experience in global organizations. He has a PhD in Economics and Management Science from the Louvain School of Management in Belgium. Dr Lenz has earned several awards for his thought leadership, including the 2023 Bradford Cadmus Memorial Award from the Global Institute of Internal Auditors. He has a teaching assignment about Governance & Internal Auditing in the master program at the Johannes Gutenberg University in Mainz (Germany). He can be reached at [email protected].

David J. O’Regan

Dr David J. O’Regan’s auditing experience spans the private, public, and academic sectors over three decades. He commenced his career in the United Kingdom with Price Waterhouse, a forerunner firm to today’s PricewaterhouseCoopers, and subsequently worked in industry before heading the internal audit function at Oxford University Press. He then entered public service in the United Nations system, initially at the Organisation for the Prohibition of Chemical Weapons in The Hague, Netherlands. From 2009 he has served as Auditor General to the Pan American Health Organization in Washington D.C. He earned a doctorate in accounting and finance from the University of Liverpool and is a Fellow of the Institute of Chartered Accountants in England and Wales. He has two books forthcoming – The Auditor’s Companion: Concepts and Terms from A to Z (Georgetown University Press) and The Closing of the Auditor’s Mind? (CRC Press).