The impact of digital transformation on the internal audit process and practices

Details

Supervisors

Betti, Nathanaël ; Sarens, Gerrit

Faculty

Louvain School of Management

Degree label

Master [120] en ingénieur de gestion

Abstract

The current society is continuously changing. Today, one of the main trends impacting the world is digitalisation. Organisations are also affected by the digitalisation waves. In order to respond to an ever-changing and accelerating customer demand, they need to leverage these technologies in order to adapt the way they work. These allow them to be more efficient. As internal audit is an essential function in an organisation, one can wonder whether this digital transformation has an impact on the internal audit process and practices and what the effect is. The study starts with a review of the literature. It results from a combination of scientific articles, relevant industry reports, internal audit and digitalisation literature and other relevant documents. The concepts of internal audit and digitalisation are analysed. On the one side, it reveals that internal auditors’ role has evolved from mainly assuming an assurance role and a limited consulting role in the past, to now a fair sharing of these two roles. On the other side, the different waves of digitalisation have given birth to technologies such as information systems, data analytics, Big Data, artificial intelligence, machine learning, Internet of Things, blockchain, robotics… The six last ones are considered to be emerging technologies. The literature review highlights the lack of studies on the concrete and current impact of the digital transformation on the internal audit function. Indeed, some reports from organisations (e.g. Big Four) have been released on that matter, but only a few academics talk about it. The most important impacts discovered are the implementation of continuous auditing, the emergence of new risks to audit and to manage in the internal audit process, and changes in the control and the governance purposes of internal audit. Furthermore, the literature does not document any evidence regarding an impact of technologies on the different steps of the internal audit process. Big Four reports also mention that the utilisation of emerging technologies was still quite limited. These findings led this thesis to study the existence of a current impact of the digital transformation of organisations on the internal audit process and practices. In order to have a comprehensive understanding, this study follows a qualitative methodology. Fourteen in-depth interviews were performed, gathering the opinion of eighteen heads of internal audit or internal auditors of nine financial and non-financial Belgian organisations. After analysing the situation in nine organisations, this thesis suggests that there is an impact of the digital transformation of organisations on the internal audit process and practices. It implies a further evolution in the internal auditors’ role. They can now offer a higher level of assurance with less effort, enabling them to better assume their consulting role. Furthermore, the scope of consulting activities will soon be broadened, with an additional focus on the future. This impact is still relatively small for the moment but is expected to grow in the next years, allowing the internal audit function to leverage these technologies to improve their efficiency. All in all, it increases the value that internal audit brings to the organisation. The study ends with some recommendations for management regarding the digital transformation of the internal audit function. To digitally transform his department, a Head of Internal Audit or Chief Audit Executive should start by standardising its process. Afterwards, implementing a solid data analytics tool and creating a digital-savvy internal audit team is necessary to manage this digital transformation.