In the dynamic and rapidly evolving business landscape, traditional internal audit methodologies are often deemed too rigid and time-consuming to effectively address the emerging risks and challenges faced by organizations.
To adapt to this ever-changing environment, internal audit functions must embrace agility and incorporate agile principles into their audit practices.
i. The Need for Agile Auditing
Traditional internal audit methodologies, often characterized by linear, sequential processes and lengthy audit cycles, struggle to keep pace with the increasing velocity of business change. This can result in outdated audit plans, missed opportunities to identify and assess emerging risks, and delayed delivery of valuable insights to management.
Agile auditing, on the other hand, emphasizes flexibility, adaptability, and continuous iteration to address the dynamic nature of modern business. It adopts an iterative approach, breaking down audits into smaller, more manageable phases, allowing for continuous learning and adaptation throughout the audit process.
ii. Benefits of Agile Auditing
A. Improved Risk Management: Agile auditing enhances risk management by providing timely and relevant insights into emerging risks, enabling organizations to take proactive measures to mitigate potential threats.
B. Enhanced Efficiency: Agile auditing improves efficiency by streamlining audit processes, reducing audit cycles, and focusing on areas of highest risk, leading to better use of audit resources.
C. Increased Agility: Agile auditing increases the agility of the internal audit function, enabling it to adapt quickly to changing business priorities and respond effectively to emerging risks.
D. Improved Stakeholder Satisfaction: Agile auditing improves stakeholder satisfaction by delivering timely, relevant, and actionable insights that address their concerns and support informed decision-making.
E. Future-Readiness: Agile auditing prepares the internal audit function for the future by fostering a culture of continuous learning, adaptability, and innovation, enabling it to thrive in a dynamic and ever-changing business environment.
iii. Key Principles of Agile Auditing
A. Customer Focus: Agile auditing prioritizes the needs and expectations of stakeholders, particularly the audit committee and senior management. It focuses on providing timely, relevant, and actionable insights that address the organization’s most critical risks.
B. Iterative Approach: Agile auditing breaks down audits into smaller, more manageable phases or sprints, allowing for continuous feedback, adaptation, and refinement of audit scope and objectives.
C. Risk-Based Prioritization: Agile auditing emphasizes risk-based prioritization, focusing on areas of highest risk and potential impact, ensuring that audit resources are allocated effectively.
D. Collaboration and Communication: Agile auditing promotes collaboration and open communication among auditors, stakeholders, and auditees, fostering a culture of continuous learning and improvement.
E. Continuous Learning and Adaptation: Agile auditing embraces continuous learning and adaptation, allowing auditors to incorporate new information, emerging risks, and evolving business processes throughout the audit process.
iv. Developing an Agile audit framework
A. Understand Agile Principles: Auditors must first understand Agile principles and techniques – for example, iterative development, the importance of collaboration, and rapid response to change. It will help protect the advantages of Agile while identifying potential risks.
B. Agile Principles Integration:
o Incorporate Agile Values: Align audit processes with Agile values such as collaboration, customer satisfaction, and adaptability.
o Iterative and Incremental Approaches: Embrace iterative and incremental audit approaches to accommodate changes and feedback throughout the audit lifecycle.
C. Incorporate Continuous Auditing: Agile auditing incorporates continuous monitoring and auditing to ensure risks are rapidly identified and mitigated. This shift allows the audit function to keep pace with the Agile project’s rapid development cycles.
D. Cross-Functional Teams:
o Multidisciplinary Auditors: Form cross-functional audit teams with diverse skills, including technical, operational, and business expertise.
o Collaborative Teamwork: Foster collaboration and open communication among team members to enhance knowledge sharing and problem-solving.
E. Agile Planning:
o Sprint Planning: Use sprint planning techniques to define audit scope, objectives, and deliverables within specific timeframes (sprints).
o Backlog Management: Maintain an audit backlog that prioritizes audit activities based on business value and risk considerations.
F. Continuous Feedback:
o Regular Retrospectives: Conduct regular retrospectives to reflect on audit processes, identify improvement opportunities, and adjust strategies for subsequent sprints.
o Stakeholder Feedback: Gather continuous feedback from stakeholders to enhance the relevance and effectiveness of audit activities.
G. Adaptive Auditing:
o Flexible Scoping: Embrace flexibility in audit scoping to accommodate changes in organizational priorities and risk landscapes.
o Adaptation to Change: Be prepared to adapt audit plans and objectives based on emerging information and shifting business needs.
H. Automated Testing and Monitoring:
o Continuous Monitoring: Implement continuous auditing through automated tools and techniques to monitor controls and detect anomalies.
o Data Analytics: Leverage data analytics for real-time insights and risk assessment, aligning with Agile’s emphasis on data-driven decision-making.
I. Agile Documentation:
o Lightweight Documentation: Prioritize concise and relevant documentation over extensive paperwork.
o Living Documentation: Maintain living documentation that evolves alongside audit activities and captures key findings, actions, and insights.
J. Risk-Based Auditing:
o Dynamic Risk Assessment: Conduct dynamic risk assessments to identify and prioritize audit areas based on changing risk profiles.
o Focus on Critical Risks: Direct audit efforts toward areas with the highest impact on organizational objectives and risk mitigation.
K. Value Risk Over Documentation: Agile auditing must align with the Agile principle of valuing working software over comprehensive documentation. Focus on critical risks instead of producing extensive, detailed audit reports.
L. Transparency and Communication:
o Daily Stand-ups: Hold regular stand-up meetings to facilitate quick updates, address challenges, and ensure everyone is on the same page.
o Transparent Reporting: Provide transparent and real-time reporting to stakeholders, highlighting progress, issues, and key insights.
M. Use Data Analytics: Agile auditing should incorporate data analytics to streamline the audit process and gather real-time insights. Data analytics allows for more frequent and in-depth risk assessments.
N. Foster a Culture of Learning and Adaptation: Just as Agile emphasizes learning and adaptation, so too should Agile auditing. Post-audit reviews should be focused on learning lessons, both positive and negative, for future audits.
O. Flexibility in Scope: Agile audits should be open to adjusting their focus. If a more significant risk emerges during an audit, auditors shouldn’t be afraid to shift attention towards that newly detected concern.
P. Continuous Learning:
o Knowledge Sharing: Encourage continuous learning and knowledge sharing within the audit team.
o Skill Development: Invest in training and development opportunities to enhance auditors’ skills in Agile methodologies and emerging technologies.
Q. Regulatory Compliance:
o Compliance Alignment: Ensure that Agile audit practices align with regulatory requirements and compliance standards relevant to the organization.
o Documentation Traceability: Maintain documentation traceability to demonstrate compliance with regulatory expectations.
R. Lean and Agile Tools:
o Use of Agile Tools: Utilize Agile project management tools for task tracking, backlog management, and collaborative work.
o Kanban Boards: Implement Kanban boards to visualize and manage the flow of audit tasks throughout the process.
By integrating these elements into an Agile audit framework, organizations can enhance the agility and effectiveness of their audit practices, allowing them to adapt to changing business landscapes while maintaining a focus on risk management and value delivery.
v. Implementing Agile Auditing
Transitioning to an agile audit framework requires a cultural shift within the internal audit function. It involves embracing new ways of working, adopting agile tools and methodologies, and fostering a collaborative mindset.
A. Assess Current Audit Processes: Conduct a thorough assessment of current audit processes to identify areas for improvement and opportunities to incorporate agile principles.
B. Establish Agile Audit Framework: Develop an agile audit framework that outlines the principles, practices, and tools to be used in the agile audit approach.
C. Train Audit Staff: Provide training and coaching to audit staff on agile methodologies, tools, and techniques to equip them to work effectively in an agile environment.
D. Pilot Agile Audits: Conduct pilot agile audits to test the new approach, gather feedback, and refine the framework before full-scale implementation.
E. Continuously Improve: Embrace a culture of continuous improvement, regularly evaluating the effectiveness of the agile audit framework and making adjustments as needed.
Agile auditing is not merely a change in methodology; it is a transformation of the internal audit mindset. By embracing agility, internal audit functions can enhance their effectiveness, adapt to the changing business landscape, and become indispensable partners in organizational success.
For an Agile Audit Framework to function efficiently, auditees must perceive auditors as part of the project team and involve them from the project’s initial stages. This strategy can help ensure that audit considerations are built in from the start of the project, reducing both risks and project delays.
https://www.wolterskluwer.com/en/expert-insights/agile-auditing-rethinking-the-audit-plan
https://assets.kpmg.com/content/dam/kpmg/cn/pdf/en/2022/03/adapting-agile-to-internal-audit.pdf
https://www.infoq.com/articles/work-with-auditors-influence-experience/