Over the past two decades, the audit process within aerospace and defense industry has been undergoing a monumental shift. Traditionally rooted in process-based methods, the audit landscape is now veering towards a more sophisticated risk-based approach. This evolution has brought forth an exciting opportunity for chief audit executives, paving the way for Internal Audit (IA) to demonstrate its unparalleled value.
There are instances when auditors pinpoint significant issues impacting a business unit. However, the true potential of IA in underlining its importance is often realized outside the traditional confines of the audit process. This shift from a mere “risk-based audit process” to a more comprehensive “risk-based methodology” is crucial to understanding. While the former is confined to the audit’s boundaries, the latter is a perpetual cycle that encompasses the audit process and extends to monitoring, risk assessment techniques, training, building strong relationships, and optimizing audit committee reporting. By adopting this methodology, auditors transition from mere compliance officers to “trusted advisors.”
Here’s a closer look at how aerospace and defense organizations can successfully pivot from a rudimentary audit process to an advanced methodology:
1. Quarterly Monitoring Process
In the ever-evolving sectors of aerospace and defense, risks change rapidly. Instituting a quarterly monitoring process ensures a more proactive approach. By reviewing high-risk business units at least once every three months, emerging risks can be identified, key risk indicators can be monitored, and issues can be flagged sooner, leading to potential cost savings. This not only improves the efficiency of IA but also fosters effective communication with business units beyond routine audits.
2. Dynamic Risk Assessments
The vitality of risk assessments in IA methodology cannot be understated. Traditionally conducted annually, these assessments may overlook changes in business landscapes, regulatory shifts, or recent audit results. By treating risk assessments as living, evolving documents, they remain pertinent throughout the year, ensuring that audit plans are constantly aligned with the present challenges. This dynamic approach alleviates end-of-year pressures and results in a more agile audit process.
3. Prioritize Training
Understanding the intricate facets of aerospace and defense industries is crucial for auditors. Any hint of the auditor’s unfamiliarity can diminish their credibility. This makes training a paramount concern. While classroom training imparts theoretical knowledge, on-ground exposure to business units enriches auditors with practical skills, helping them foster valuable relationships and better understand the business dynamics. Armed with this holistic understanding, auditors can offer impactful insights, positioning themselves as trusted allies.
4. Collaboration with Business Stakeholders
Regular interaction between auditors and business stakeholders is pivotal. Such interactions provide auditors insights into business objectives, strategies, perceived risks, and more, subsequently refining monitoring, risk assessments, and audit scopes. This symbiotic relationship can transform audits from a mere regulatory obligation to a constructive collaboration, amplifying IA’s value proposition.
5. Building Credibility Through Relationships
Credibility is the cornerstone of an auditor’s influence. Establishing robust relationships ensures a more cooperative and productive audit process, minimizing disagreements and optimizing efficiency. When auditors invest in relationship-building, it transcends the technicalities of an audit, fostering a culture of mutual trust and respect.
6. Elevate Audit Committee Reporting
The boardroom is where IA can underscore its strategic importance. Reporting to the audit committee goes beyond completed audits and key findings. Diving deep into issue aging, on-time remediation, and emerging concerns paints a comprehensive picture of the organization’s control environment. Chief auditors need to communicate these insights effectively, ensuring that the committee has a thorough understanding of the organization’s health.
For aerospace and defense industry, with their intricate operations and high stakes, robust audit functions are vital. While it’s evident when audits fall short – when control lapses occur or high-risk events transpire – truly gauging an audit’s effectiveness requires a broader lens. By focusing on methodology, risk assessment strategies, training, and stakeholder feedback, chief executives can obtain a clearer assessment of their audit function’s efficiency and impact.
In the complex world of aerospace and defense, where the smallest oversight can have monumental implications, a robust and dynamic audit methodology is not just beneficial – it’s imperative.