GRC Tuesdays: Auditing in the Age of Digital Transformation—A Riddle – Info Analytic

A year ago, I presented about 25 senior internal audit executives with an extensive overview of some of the features of digital innovation in finance and in business operations. I discussed the “Universal Journal” and its advantages in terms of efficient reconciliation and aggregation and instant insight and analysis. I added a section covering transformative potential of robotics, machine learning and predictive capabilities.

Interested in their perspective, I asked what they thought the impact would be on internal audit. The consensus was that there would need to be many more internal auditors.

Going back further in time, I can recall when the proliferation of spreadsheets was see as a reason for more internal audits. I was puzzled. I believe today’s technology largely solves the inherent risks of spreadsheets. Am I wrong?

What Is an Audit?

I began my career as an auditor and eventually became a Chief Auditor before spending several years consulting with internal audit departments. So, I thought I should go back to square one and establish what exactly an audit was and how or if auditing should change as a result of emerging technology.

The Riddle

Imagine you are a business manager sitting in your office. Mary comes in, presents you with a file. It’s well organized, indexed with a number of documents, pictures, photocopies, spreadsheets, and so on. She tells you she has just completed an audit.

A few minutes later, Michael enters with a similar file, similar contents, well organized, very neat and tidy. He tells you he has also done an audit.

One of them is lying.

The Rules

Can you articulate three questions you could ask to determine who is telling you the truth and who is lying?

Assume that Mary and Michael will answer your questions truthfully.

I do not know the answer to this riddle. At least my answer would probably differ from yours. So this is a serious question.

Don’t peek in either file. Just ask as few questions as possible to establish the key attributes, characteristics, or end results of an audit that would allow you to conclude one was an audit and one was not.

• Does Mary have professional audit credentials? If so, and that is the determining characteristic, could Michel give her his file and it would then be an audit? Is the secret to what an audit is who does the audit?
• Did one of them follow established professional standards and the other did not? Is that the criteria? Is the secret to determine what is an is not an audit the process that was followed?
• Find the definition of an audit. Will that help?
• Is there a specific tangible outcome we should be looking for? Is there a specific action we could expect to take?

What Does the Future Hold for Internal Auditors?

I need to fully understand how to meet the needs of today’s internal auditors. To do that, I need to understand the value internal auditing contributes to the business. I do believe internal auditing can add value. I am skeptical that audits are the key value adding activity.

I will be attending the IIA/ISACA Governance Risk and Control Conference in Atlanta August 13-15. I’ll be presenting in the Innovation Theater at 7:45 Monday August 13 and will be spending most of my time after that in Booth 317, right next to the Innovation Theater. I’d be happy to hear your answer in person.

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