By CPA Peter Kibet Kitur
Navigating Technological Disruptions and ESG Integration
The landscape of internal auditing is undergoing a significant transformation, driven by the rapid advancement of emerging technologies and evolving business practices. These innovations have not only enhanced auditors’ ability to process vast amounts of data more efficiently and accurately but have also empowered them to identify risks and opportunities with unprecedented speed and precision. Technologies such as blockchain, Robotic Process Automation (RPA), Big Data analytics, Internet of Things (IoT) devices, cybersecurity measures, and Virtual Reality (VR) are at the forefront of this revolution. Simultaneously, the increasing importance of Environmental, Social, and Governance (ESG) issues has added a new dimension to the auditing process. Together, these forces are reshaping the future of internal auditing, demanding a more integrated and technology-driven approach to ensure comprehensive risk management and strategic alignment.
The future of internal auditing is an evolving landscape significantly influenced by emerging technologies and shifting business practices. These advancements have enabled auditors to process larger volumes of data more efficiently and accurately, while also enhancing their ability to identify potential risks and opportunities promptly.
The technologies disrupting internal auditing include:
Blockchain Technology is emerging as a powerful tool in auditing, particularly within supply chain management and financial transactions. It is poised to revolutionize the handling and recording of financial transactions. Auditors are expected to adapt to this technology, which facilitates the verification of transaction accuracy and authenticity, ensuring that they are valid and tamper-proof. This shift can reduce fraud and other irregularities, enhancing transparency in the auditing process.
Robotic Process Automation (RPA), also known as software robotics, uses intelligent automation technologies to perform repetitive office tasks typically handled by human workers, such as data extraction, form completion, and file management. RPA integrates Application Programming Interfaces (APIs) and user interface interactions to execute tasks autonomously across various software systems. This capability streamlines processes and improves efficiency.
Big Data analytics allows auditors to analyze extensive data from multiple sources, leading to more comprehensive insights. It supports real-time monitoring and continuous auditing, which enables immediate detection and resolution of issues.
Internet of Things (IoT) devices contribute to real-time data collection, essential for continuous monitoring and auditing. The data collected helps in assessing operational risks and identifying potential issues early, thereby enhancing risk management.
Cybersecurity Technologies play a crucial role in the digital age by identifying and mitigating cyber risks. They ensure compliance with regulatory requirements related to data protection and privacy, which is increasingly important as cyber threats become more sophisticated.
Virtual Reality (VR) offers innovative solutions for training auditors, providing immersive and interactive learning experiences. Additionally, VR facilitates remote audits, allowing auditors to virtually inspect physical locations, thus expanding the reach and flexibility of audit processes.
The Future of Internal Auditing: Supporting ESG Goals
As the landscape of internal auditing continues to evolve, driven by technological advancements and the increasing complexity of business operations, Environmental, Social, and Governance (ESG) issues have emerged as critical considerations for all institutions. Companies are recognizing that those who proactively integrate ESG principles into their operations are better positioned to attract and retain talent, strengthen their employee value proposition, cultivate loyal customers, and access capital markets more efficiently.
In this rapidly changing environment, internal audit’s role has expanded beyond traditional functions, integrating technology to offer deeper insights and more robust assurance on ESG reporting and broader sustainability issues.
Leveraging Technology for Objective ESG Insights and Advice
As internal audit teams increasingly adopt advanced technologies such as data analytics, artificial intelligence, and automation, their capacity to provide assurance and advisory services on ESG issues has grown significantly. The Institute of Internal Auditors (IIA) emphasizes that internal audit has a pivotal role in supporting ESG initiatives through the following services:
Assurance
- Enhanced ESG Reporting Through Technology: Leveraging technology to ensure ESG reporting metrics are relevant, accurate, timely, and consistent.
- Data-Driven Materiality and Risk Assessments: Utilizing advanced analytics to conduct comprehensive materiality and risk assessments on ESG reporting.
- Integrating ESG into Technology-Enabled Audit Plans: Regularly incorporating ESG factors into audit plans, with the support of technology to increase efficiency and accuracy.
Advisory
- Developing a Tech-Enabled ESG Control Environment: Identifying gaps and building a robust ESG control environment, enhanced by technology.
- Recommending Technology-Driven Reporting Metrics: Advising on effective ESG reporting metrics that can be tracked and reported using advanced data systems.
- Supporting ESG Governance with Technological Insights: Providing guidance on ESG governance structures, using insights derived from technology-driven audits.
Addressing Key ESG Questions with Technological Support
Internal audit, equipped with the latest technological tools, can assist management in addressing key ESG questions:
- Comprehensive and Technology-Driven ESG Risk View: Do we have a clear and technology-supported view of all ESG risks and opportunities, including compliance risks related to existing and upcoming regulatory expectations? Are these regularly reassessed using advanced analytical tools?
- Preparedness for Regulatory Changes: Are we ready for upcoming legislative and regulatory changes related to ESG, with the help of technology to monitor and adapt to these developments?
- Aligning ESG Culture with Technology and Risk Management: Do we have the appropriate ESG culture and risk management practices, supported by technology, that align with our ESG goals and strategies?
- Technologically Supported Public Commitments: What are our current ESG public commitments, and do we have the necessary policies, procedures, controls, and data, supported by technology, to uphold these commitments?
As companies continue to navigate the evolving ESG landscape, internal audit, empowered by technology, will play an indispensable role in ensuring that organizations not only meet their ESG objectives but also manage the associated risks effectively. By integrating technological advancements with critical insights and recommendations, internal audit can help organizations align their ESG goals with their broader strategic objectives, securing a sustainable and resilient future.
As internal auditing continues to evolve in response to technological disruptions and the growing significance of ESG, the role of auditors is expanding beyond traditional boundaries. The integration of advanced technologies such as blockchain, RPA, Big Data, IoT, cybersecurity, and VR is enabling auditors to deliver more accurate, timely, and insightful assessments. Additionally, the incorporation of ESG principles into audit practices is becoming increasingly crucial as organizations seek to align their operations with sustainability goals.
In this dynamic environment, internal audit functions must adapt to these changes, leveraging technology to provide deeper insights and more robust assurance on both financial and non-financial matters. By doing so, internal auditors will not only support their organizations in achieving their ESG objectives but will also play a vital role in safeguarding the integrity and resilience of businesses in the face of an ever-changing global landscape.
CPA Peter Kibet Kitur is a Tax consultant with Bon and Drew Associates, serves in public sector, is the ICPAK Central Rift Region’s Branch Chairman and a member of ICPAK’s Devolution sub-committee.
pkitur.cpa@gmail.com.
