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Lenz, R., Sarens, G. & Jeppesen, K.K. (2018): In Search of a Measure of Effectiveness for Internal Audit Functions: An Institutional Perspective, EDPACS, 58:2, 1-36

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ABSTRACT

Internal auditing (IA) effectiveness is still viewed, to large extent, as a “black box” in academic research. In this article, relevant empirical studies based on self-assessments of internal auditors and on other stakeholders’ perspectives are reviewed through an “effectiveness lens.” Major patterns are identified in the existing literature. This article reviews the empirical literature on IA effectiveness that has been published since the latest revision of the IA definition in 1999, using the perspectives of new institutional theory and institutional entrepreneurship as a framework, thereby recognizing the tension between institutional forces and the role of agency. In cases where isomorphic forces are in conflict with other organizational demands, chief auditing executives’ (CAE) agency can be a solution that enables local adaptation (institutional entrepreneurship). The ability to exploit fully the potential of agency is an opportunity for the CAE to tailor and advance the role of IA in its specific organizational context.

Regular access to this paper Lenz et al. (2018) @EDPACS

 

In September 2018, this thought-piece was published as a stand-alone paper in the Canadian journal EDPACS (part of the Taylor & Francis Group). Thank you Dan Swanson (Chief Editor).

This paper is part of my PhD book (2013). Thank you Professor Gerrit Sarens (Louvain School of Management, Belgium) and Professor Kim Klarskov Jeppesen (Copenhagen Business School, Denmark) for our discussions and your contributions.

Lenz, R. (2013), Insights into the effectiveness of internal audit: a multi-method and multi-perspective study, Université catholique de Louvain – Louvain School of Management Research Institute, Doctoral Thesis 01|2013

Access to my PhD book (2013)

 

 

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In Search of a Measure of Effectiveness for Internal Audit Functions: An Institutional Perspective

[Sept 11, 2018]

Also paper 1 of my cumulative dissertation (from 2013) got published, eventually, as stand-alone paper in the Canadian journal EDPACS (part of Taylor & Francis). Thank you Dan Swanson (Chief Editor). Thank you Gerrit Sarens and Kim K. Jeppesen for your contributions.

 

Lenz, R., Sarens, G. & Jeppesen, K.K. (2018): In Search of a Measure of Effectiveness for Internal Audit Functions: An Institutional Perspective, EDPACS, 58:2, 1-36

ACCESS TO THIS PAPER

 

ABSTRACT

Internal auditing (IA) effectiveness is still viewed, to large extent, as a “black box” in academic research. In this article, relevant empirical studies based on self-assessments of internal auditors and on other stakeholders’ perspectives are reviewed through an “effectiveness lens.” Major patterns are identified in the existing literature. This article reviews the empirical literature on IA effectiveness that has been published since the latest revision of the IA definition in 1999, using the perspectives of new institutional theory and institutional entrepreneurship as a framework, thereby recognizing the tension between institutional forces and the role of agency. In cases where isomorphic forces are in conflict with other organizational demands, chief auditing executives’ (CAE) agency can be a solution that enables local adaptation (institutional entrepreneurship). The ability to exploit fully the potential of agency is an opportunity for the CAE to tailor and advance the role of IA in its specific organizational context.

In Search of a Measure of Effectiveness for Internal Audit Functions: An Institutional Perspective

Lenz, R., Sarens, G. & Jeppesen, K.K. (2018): In Search of a Measure of Effectiveness for Internal Audit Functions: An Institutional Perspective, EDPACS [Forthcoming]

 

Abstract

Internal auditing (IA) effectiveness is still viewed, to large extent, as a ‘black box’ in academic research. In this paper, relevant empirical studies based on self-assessments of internal auditors and on other stakeholders’ perspectives are reviewed through an ‘effectiveness lens’. Major patterns are identified in the existing literature, and the paper complements the work of Gramling et al. (2004), who examined the literature related to IA quality, largely from the viewpoint of external auditors. This paper reviews the empirical literature on IA effectiveness that has been published since the latest revision of the IA definition in 1999, using the perspectives of new institutional theory and institutional entrepreneurship (DiMaggio and Powell, 1983; DiMaggio, 1988) as a framework, thereby recognizing the tension between institutional forces and the role of agency. In cases where isomorphic forces are in conflict with other organizational demands, chief auditing executives (CAE) agency can be a solution that enables local adaptation (institutional entrepreneurship). The ability to exploit fully the potential of agency is an opportunity for the CAE to tailor and advance the role of IA in its specific organizational context.

 

Key words: Internal auditing, effectiveness, new institutional theory, institutional entrepreneurship

Process Mining in der Revision: Ein Erfahrungsbericht

Lenz, R., Druckenmueller, J. & Nominacher, B. (2018): Process Mining in der Revision: Ein Erfahrungsbericht, Zeitschrift Interne Revision (ZIR), 4.18, 202-203

Lenz, Druckenmüller & Nominacher, ZIR_04.18_202-203

Process Mining in der Revision: Ein Erfahrungsbericht

[Info] Dieser Diskussionsbeitrag wird im August 2018 veröffentlicht:

Lenz, R., Druckenmueller, J. & Nominacher, B. (2018): Process Mining in der Revision: Ein Erfahrungsbericht, Zeitschrift Interne Revision (ZIR), August

 

Zusammenfassung:

Die Interne Revision sieht sich heute mit einem grundlegenden Wandel konfrontiert. Aufgrund der fortschreitenden Digitalisierung verändert sich die Unternehmenswelt zunehmend – und mit ihr die Themen und die Praxis der Revisionsprüfung. Berufsständische Vorgaben empfehlen die Anwendung von Big-Data-Analytics. Villeroy & Boch nutzt Process Mining, um eigene Geschäftsprozesse zu optimieren.

Revisionsabteilungen im Wandel

Objektiv, transparent, effizient – Process Mining in der internen Revision

Process Mining bei Villeroy & Boch

Die Interne Revision kann Pionier bei der Nutzung von Process Mining sein

Die Daten sprechen lassen

 

Autorenangaben

Dr. Rainer Lenz ist Leiter der Konzernrevision bei Villeroy & Boch

Jens Druckenmüller ist Manager in der Konzernrevision bei Villeroy & Boch

Bastian Nominacher ist Mitgründer und Co-CEO von Celonis

Möglichkeiten und Grenzen des Three-Lines-of-Defense-Model – Es ist Zeit für einen Paradigmenwechsel.

 

Möglichkeiten und Grenzen des Three-Lines-of-Defense-Model – Es ist Zeit für einen Paradigmenwechsel.

 

• 3LOD-Modell ist das gegenwärtige Paradigma
• „Man muß die Dinge so einfach wie möglich machen. Aber nicht einfacher.“ (Albert Einstein)
• Defensive und Offensive
• Silodenken vs. Zusammenarbeit (Aligned / Integrated Assurance)
• Faktor Mensch (Turf Protection)

 

Das “Three-Lines-of-Defense” Modell ist das gegenwärtig vorherrschende Paradigma im Kontext von „Effective Risk Management and Control”. Insbesondere in Zeiten gekennzeichnet von rasanten, disruptiven Veränderungen, man spricht auch von VUCA (volatile, uncertain, complex, ambiguous), erscheint das Modell immer mehr als eine zu grobe Vereinfachung und weist in die Irre. Albert Einsteins Bonmot, „Man muss die Dinge so einfach wie möglich machen. Aber nicht einfacher“, trifft hier ins Schwarze. Das Modell hat lediglich die Defensive im Titel und zum Inhalt. Die Offensive kommt überhaupt nicht vor. Ein Designfehler. Die Offensive gewinnt Spiele, die Defensive gewinnt Meisterschaften, heißt es zurecht. Beides gehört zusammen. Risiko hat zwei Seiten. Im modernen Fußball sind Spieler offensiv, wenn die eigene Mannschaft den Ball hat, und defensiv, wenn der Gegner den Ball hat. Was bedeutet das für Organisationen? Das aktuelle Paradigma fördert Silodenken statt Zusammenarbeit und ignoriert den Faktor Mensch. Es ist Zeit für einen Paradigmenwechsel.

 

 

 

What does Independence as an Internal Auditor really mean?

Link to the article published in CiA based on my input

Published: 12 Feb 2018 | Careers in Audit

The IIA definition positions internal auditing as an “independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes.” According to Rainer Lenz, Head of Corporate Audit at Villeroy & Boch, independence in internal audit is perhaps one of those ideas that works better in theory than in practice; it poses a challenge in its expectation of the internal auditor to be both “watchdog and consultant”.

Lenz draws attention to what commentators often refer to as the internal auditor’s ‘role dilemma’ and ‘role confusion’, noting the difficulties of internal auditors in striking a balance between being independent from operations while at the same time providing added value and benefit to operations. “Some view internal audit as a schizophrenic function,” he says; “on the one hand it needs to be completely integrated and knowledgeable and on the other hand, it requires a measure of independence from all auditors.” As a result, Lenz ascribes “a built-in cognitive disconnect” to the very purpose of internal audit.

Acknowledging this fundamental inconsistency in the very nature of internal audit within the wider business sphere, which indicates that those at the head of the business food chain are somewhat frustrated with internal audit’s inability to properly define its own role; Lenz notes “there is no congruence between what the board wants, what the audit committee wants and what senior management wants.” Thus internal audit are forever faced with the impossible task of pleasing everybody with no real sense of who to please first, particularly when each party expects something different. Lenz refers again to the IIA, who acknowledge that there may be conflicts when internal audit tries to “serve two masters” and understandably this “who’s your boss?” issue can present problems in terms of allegiances, independence, and effectiveness.

This in turn raises the need for filtering independence from the head down, with most CEOs advocating a free speech approach with their Chief Audit Executives (CAEs) enabling them to work under the understanding that he or she should feel free to voice their opinion, regardless of potentially controversial scenarios. This, Lenz notes, “draws particular attention to the importance of the CAE’s characteristics, which is possibly more important than the debate around the general independence of internal audit.”

One could argue that for internal auditors to do their jobs successfully, this requires full independence from senior management in order that the board is able to rely on their internal audit department for the necessary assurance in relation to internal controls, risk prevention and so on. “Otherwise,” says Lenz, “the risk is that internal audit’s reports to the board and audit committee will be filtered by senior management in such a way that only what is palatable to senior management is communicated.”

If internal audit is to retain its necessary independence in practice, it must take the time to invest in its relationships with the board, audit committee, key business stakeholders and senior management, sustaining a steady and robust dialogue with each party in order to perpetuate its own functional success.