The current status of and demand for internal auditing in South African listed companies

Abstract

The report is an investigation by the iKUTU Research Team comprising members of staff of the Departments of Auditing at the University of South Africa (UNISA), University of Pretoria (UP), Nelson Mandela Metropolitan University (NMMU), Monash University – South Africa (MSA) and Tshwane University of Technology (TUT) in South Africa.

Research that has been done on the practice of internal auditing in South Africa is limited. This lack of research is partly due to the fact that, as an academic discipline, internal auditing is still in its infancy and therefore it is still a relatively unexplored research area. The main reason for undertaking this investigation into the current status of and demand for internal auditing in South Africa was to address this research vacuum. This investigation builds on the global survey that was conducted by the Institute of Internal Auditors Research Foundation (IIARF) in 2006 to establish a common body of knowledge (CBOK) of the internal auditing profession. This investigation extends the CBOK study to the extent that it elicits the views and perceptions on internal auditing of both the chief audit executives (CAEs) and the main users of internal audit services. The users include the chairpersons of audit committees (CACs) and chief executive officers (CEOs) or chief financial officers (CFOs) or chief operating officers (COOs) of 30 participating listed companies in South Africa that have the largest market capitalisation and could serve as a benchmark for other companies. The aim of this investigation was to determine the current status of and demand for internal auditing in South Africa as perceived by the above-mentioned stakeholders. It was attempted to achieve this aim by obtaining and analysing the following: • Data on the profiles of the CAEs of the internal audit functions (IAFs), and audit committees; • The perceptions of the stakeholders or users of the functions and activities of the Institute of Internal Auditors South Africa (IIA SA); • The perceptions of the stakeholders on the IAFs’ structure; • The perceptions of the stakeholders on the IAFs’ services rendered and approaches followed as well as the demand for services; • The perceptions of the stakeholders on the IAFs’ status; • The perceptions of the stakeholders on the IAFs’ role in respect of risk assessment and risk management; • The perceptions of the stakeholders on the IAFs’ role with regard to corporate governance and fraud; and • The views of the stakeholders on the composition of the IAFs’ staff complement and their perceptions on the demand for internal audit staff. The views and perceptions of the stakeholders were obtained by means of three types of structured questionnaires. One questionnaire was developed for completion by the CAE, a second for completion by the CAC and a third for completion by the CEO, CFO or COO. In the selection of the companies, attention was focused on companies listed on the Johannesburg Securities Exchange (JSE) that have the largest market capitalisation. In order to ensure that all industries are represented in the cohort of selected companies, the selection was stratified to include at least one company from each industry. Descriptive analysis was used to present the findings of the investigation. It is envisaged that the findings of this project could provide a benchmark for South African companies with regard to internal auditing and that this investigation could be replicated for similar and comparative studies in other countries, over time in South Africa on listed companies and on Public Sector entities. This investigation found that the IAFs have a relatively high status. The high status applies especially to in-house IAFs. It was also found that there is a demand for highly skilled internal auditors, especially female internal auditors from previously disadvantaged groups.

This investigation was supported by the UNISA Bureau of Market Research ; UNISA: College of Economic and Management Sciences