Cutting Edge Internal Auditing

Jeffrey Ridley

Further praise for Cutting Edge Internal Auditing

“Cutting Edge Internal Auditing is compiled from Professor Ridley’s personal and intimateknowledge of the development of the profession since he entered it over half a century ago.It is an insightful and thought-provoking read.”—Professor Georges Selim, Professor of Internal Audit, Head of the Faculty ofManagement, Cass Business School, London

“Refreshingly different, this book is for the thinking internal auditor, provoking innovationand thoughtful leadership. It seeks to grow the auditor beyond current practices and theimagination of management. If management has the tendency to manage with hindsight, thenthe auditor needs to be the auditor of the future – at the cutting edge – today.”—Vicky Kubitcheck, Head of Risk and Compliance, AEGON

“This book is a motivational read for those with the imagination to apply themselves to bemore than a good internal auditor. A great bringing together of themes to be dipped into atmoments when we find we need a framework to hang our best ideas on and help achieveour ambitions for ourselves and our profession.”—Kelsey Walker, Director, Kelsey Walker Associates

“Cutting Edge Internal Auditing convincingly presents many varied aspects of internalauditing practice. The work contrasts a highly interesting and very readable discussion ofthe key milestones in the development of the internal auditing profession with insightfulviews of the current governance environment and future prospects. The author’s personalperspective on issues important to internal auditing makes this volume a ‘must read’ forinternal auditors.”—Dr. Curtis C. Verschoor, CIA, CPA, CFE, CMA, L & Q Research Professor, Schoolof Accountancy and MIS, and Wicklander Research Fellow, Institute for Business andProfessional Ethics, DePaul University, Chicago

“Professor Ridley has provided a comprehensive survey of the characteristics, dynamicsand processes of setting ‘cutting edge’ standards, and an examination of the contributionsof internal auditing research in solving problems in this context. The orientation he hasoutlined is not institutional, but rather an attempt to increase the understanding of theinternal auditing processes and its special characteristics from a global perspective.”—Ronald Lackland CIA, CCSA, CGAP, CFE, MIRM, Acting Head of the Centre forInternal Audit, Risk and Governance, Birmingham City University Business School

Cutting Edge Internal Auditing

Cutting Edge Internal Auditing

Jeffrey Ridley

Copyright © 2008 Jeffrey Ridley

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Library of Congress Cataloging in Publication Data

Ridley, Jeffrey.Cutting edge internal auditing / Jeffrey Ridley.

p. cm.Includes bibliographical references and index.ISBN 978-0-470-51039-1 (cloth)1. Auditing, Internal. I. TitleHF5668.25.R527 2008657 ′ .458—dc22

2008007632

British Library Cataloguing in Publication Data

A catalogue record for this book is available from the British Library

ISBN 978-0-470-51039-1 (HB)

Typeset in 10/12pt Times by Integra Software Services Pvt. Ltd, Pondicherry, IndiaPrinted and bound in Great Britain by Antony Rowe Ltd, Chippenham, Wiltshire

To my parents and their encouragement for me to continuously learn.

To my wife Angela, without whose support and patience, along many audit trails, this bookwould not have been written.

To our children, Christine and Neil and their families. And most importantly, for ourgrandchildren Crystal, Lucy, Daisy, Jed and Josh: each, in their own way, is pioneering,

with lots of imagination and a will to continuously learn. The future is theirs.

Contents

List Of Figures And Training Slides xvii

List Of Cutting Edge Case Studies Which Appear On The CD ROM xix

About The Author xxiii

Preface xxv

Foreword xxix

Acknowledgements xxxi

1 Introduction 1

‘Science does not know its debt to imagination.’

Cutting Edge Internal Auditing Before 1994 1Article: Professional Internal Auditors Are Talented People (1994) 4

Cutting Edge Internal Auditing Is All About Imagination 4Letter: We Should Have A Vision To Be Innovators (1998) 6

Leading Edge Internal Auditing In 1998 7Today’s Cutting Edge Internal Auditing Vision 9

Article: Celebrating Professionalism (2004) 12Introduction To The Following Chapters 13Framework Of The Chapters In Cutting Edge 15Notes And References 16

2 Cutting Edge Internal Auditing Looks Into The Future 19

‘The future is purchased by the present.’

The Future In 1975 19Article: The Future Is Ours (1975) 24

The Future That Followed 26Article: No Exceptions Allowed – All Internal Audit Activities

Should Be Regulated (2003) 28The Present Will Always Buy The Future Of Internal Auditing 31Chapter Summary 31A Vision For Future Internal Auditing 32

x Contents

Synopsis Of Case Study 32Self-Assessment Questions 33Notes And References 33

3 Cutting Edge Internal Auditing Is World-Class 35

‘Good enough to be classed with or compete with the best in theworld.’

World-Class Internal Auditing Before 1990 35Article: Internal Audit Opportunities In The TQM Environment

Can Lead To World-Class Auditing (1990) 38World-Class Internal Auditing 1990 To 2000 40

Article: A New Internal Auditor For A New Century (2000) 42World-Class Internal Auditing 2000 To 2002 46

Article: Overcoming Complexity In Internal Auditing (2002) 47Cutting Edge Internal Auditing Is World-Class Today And In The Future 51Chapter Summary 53World-Class Internal Auditing Principia 1998 And 2008 55A Vision For World-Class Internal Auditing 55Synopses Of Case Studies 55Self-Assessment Questions 58Notes And References 58

4 Cutting Edge Internal Auditing Wears Many Hats 59

‘ � � � internal auditors often find themselves torn by conflictingforces that pull them in opposite directions � � � Their role asproblem-solving partners for management � � � often competes withtheir role as a watchdog � � �’

Internal Auditing Hats Before 2000 59Article: Internal Auditors Are Ambassadors In The

Commonwealth � � � Across The European Union, AndInternationally Too! (2000) 65

Internal Auditing Hats 2000 To 2003 68Article: Hat Trick (2003) 69

Internal Auditing Hats 2003 To 2005 73Article: Is Internal Auditing’s New Image Recognized By Your

Organization? (2005) 74Cutting Edge Internal Auditing Hats – Today And In The Future 77Chapter Summary 82Internal Auditing Hats Principia 1998 And 2008 83A Vision For Internal Auditing Wearing Many Hats 83Synopses Of Case Studies 83Self-Assessment Questions 86Notes And References 86

Contents xi

5 Cutting Edge Internal Auditing Knows How To Govern 89

‘The proper function of a government is to make it easy forpeople to do good, and difficult for them to do evil.’

Governance Before 1995 89Article: Status Of UK Quality Management And Governance (1995) 93

Governance 1995 To 2000 99Article: Risk Management, Control And Governance Challenges

And Opportunities For Internal Auditors (2000) 100Article: Weak Links In The Supply Chain (2000) 108

Governance 2001 To 2002 109Article: What Was The Point Of Cadbury – What Should Be The

Point Tomorrow? (2002) 111Cutting Edge Internal Auditing Knows How To Govern Well – Today And In

The Future 113Chapter Summary 122Internal Auditing And Governance Principia 1998 And 2008 123A Vision For Internal Auditing And Governance 124Synopses Of Case Studies 124Self-Assessment Questions 128Notes And References 129

6 Cutting Edge Internal Auditing Fights Crime 131

‘History� � � , is indeed, little more than the register of the crimes,follies, and misfortunes of mankind.’

Internal Auditing Fights Crime In Organizations Prior To 1994 131Article: Think Like A Criminal (1994) 134

Cutting Edge Internal Auditing Fights Crime Today And In The Future 136Chapter Summary 143Internal Auditing Fighting Crime Principia 1998 And 2008 144A Vision For Internal Auditing Fighting Crime 145Synopses Of Case Studies 145Self-Assessment Questions 148Notes And References 149

7 Cutting Edge Internal Auditing Assists The Board 151

‘The board should undertake a formal and rigorous annualevaluation of its own performance and that of its committees andindividual directors.’

Internal Auditing Assists The Board Before 1976 151Article: The Audit Committee (1976) 152

Internal Auditing Assists The Board Between 1976 To 2000 154Article: How Effective Is Your Audit Committee? (2000) 160

Cutting Edge Internal Auditing Assists The Board – Today And In The Future 164Chapter Summary 168Internal Auditing Assists The Board Principia 1998 And 2008 169

xii Contents

A Vision For Internal Auditing Assisting The Board 169Synopses Of Case Studies 169Self-Assessment Questions 172Notes And References 173

8 Cutting Edge Internal Auditing Is Committed To Quality 175

‘As internal auditors adjust to the rigours of functioning in atotal quality environment, their focus will be external, ortoward the customer. Their mission will be one of qualityservice to the organization to help management attain itsgoal of Total Quality Management.’

Quality In Internal Auditing Before 1997 175Article: Embracing ISO (1997) 181

Quality In Internal Auditing 1997 To 2001 188Article: Quality Schemes And Best Value In The 21st Century (2001) 188

Cutting Edge Internal Auditing Commitment To Quality Today And TheFuture 198

Chapter Summary 208Internal Auditing Commitment To Quality Principia 1998 And 2008 210A Vision For Commitment To Quality In Internal Auditing 210Synopses Of Case Studies 210Self-Assessment Questions 213Notes And References 214

9 Cutting Edge Internal Auditing Continuously Benchmarks 217

‘Always to be the best, and to be distinguished above the rest.’

Internal Auditing Continuously Benchmarking Before 1998 217Article: Have A ‘Best Value’ Christmas And Prosperous ‘Learning’

New Year (1998) 219Article: Shout How Best You Are In All Your Internal Auditing

Market Places (2001) 224Cutting Edge Internal Auditing Continuously Benchmarks Today And In The

Future 231Chapter Summary 237Internal Auditing Continuously Benchmarking Principia 1998 And 2008 238A Vision For Internal Auditing Continuously Benchmarking 239Synopses Of Case Studies 239Self-Assessment Questions 240Notes And References 241

10 Cutting Edge Internal Auditing Continuously Improves 243

‘Every day, in every way, I am getting better and better.’

Continuous Improvement In Internal Auditing Before 1994 243Article: If You Have A Good Audit Recommendation – Look For

A Better One (1994) 245

Contents xiii

Article: What Is Success? (1997) 246Continuous Improvement In Internal Auditing 1997 To 2006 250

Article: What Does Continuous Improvement Imply And How HasIt Evolved? (2006) 251

Cutting Edge In Internal Auditing Continuously Improves Today And In TheFuture 263

Chapter Summary 266Continuous Improvement In Internal Auditing Principia 1998 And 2008 267A Vision For Continuous Improvement In Internal Auditing 268Synopses Of Case Studies 268Self-Assessment Questions 271Notes And References 271

11 Cutting Edge Internal Auditing Is Creative 273

‘� � � if internal auditors wish to hold themselvesout as problem-solving partners to management,they had better become aware of their innatecreativity or learn about creativity and put it to use.’

Creativity In Internal Auditing Before 1995 273Article: Creativity And Inspiration Are Essential Requirements For

The Artist Auditor (1995) 275Research: A Question Of Values (1997) 277

Creativity In Internal Auditing 1997 To 2002 278Article: Walk Faster This Year (2002) 278

Cutting Edge Internal Auditing Is Creative Today And In The Future 280Chapter Summary 281Creativity In Internal Auditing Principia 1998 And 2008 282A Vision For Continuous Creativity In Internal Auditing 282Synopses Of Case Studies 282Self-Assessment Questions 285Notes And References 285

12 Cutting Edge Internal Auditing Asks The Right Questions 287

‘I shot an arrow into the air,It fell to earth I know not where � � �’

Internal Auditing Asks The Right Questions Prior To 2001 287Article: Mind Your Language (2001) 291

Cutting Edge Internal Auditing Asks The Right Questions TodayAnd In The Future 292

Chapter Summary 293Internal Auditing Asks The Right Questions Principia 1998 And 2008 294A Vision For Internal Auditing Asking The Right Questions 295Synopses Of Case Studies 295Self-Assessment Questions 297Notes And References 298

xiv Contents

13 Cutting Edge Internal Auditing Contributes To Good Reputations 299

‘The best way to gain a good reputation is toendeavour to be what you desire to appear.’

Internal Auditing And Good Reputations Prior To 1997 299Research Paper: Quality And Environmental Auditing – A Time

For Internal Auditors To Be Involved (1997) 305Internal Auditing And Good Reputations 1997 To 2000 308

Article: Social Responsibility – A Challenge For Organizations AndInternal Auditing (2000) 309

Article: Skeletons In The Closet (2001) 318Internal Auditing And Good Reputations 2001 To 2006 319

Article: All Professional Institutes Should Be Involved In SocialResponsibility Issues – So Should All Internal Auditors (2006) 325

Cutting Edge Internal Auditing Contributes To Good Reputations Today AndIn The Future 329

Chapter Summary 338Internal Auditing Contributes To Good Reputations Principia 1998 And 2008 339A Vision For Internal Auditing Contributing To Good Reputations 339Synopses Of Case Studies 340Self-Assessment Questions 342Notes And References 346

14 Cutting Edge Internal Auditing Promotes Itself 349

‘No man is an Island, entire of itself;every man is a piece of the Continent,a part of the main � � � ’

Internal Auditing Promotes Its Services Before 1997 349Article: All-Year Greetings From Internal Auditing (1997) 355Research: Marketing Internal Auditing Starts With A Vision (1998) 359

Cutting Edge Internal Auditing Promotes Its Services Today And In The Future 366Chapter Summary 373Promoting Internal Auditing Principia 1998 And 2008 375A Vision For Internal Auditing Promoting Itself 375Synopses Of Case Studies 376Self-Assessment Questions 378Notes And References 379

15 Cutting Edge Internal Auditing Manages Knowledge Well 381

‘The simple fact is that if you have the right people in the rightjobs and you have teamwork you can achieve anything youwant.’

Internal Auditing Manages Knowledge Well Before 2001 381Article: Wise Internal Auditors Manage Knowledge Well (2001) 386

Cutting Edge Internal Auditing Manages Knowledge Well Today And In TheFuture 390

Contents xv

Chapter Summary 394Internal Auditing Managing Knowledge Principia 1998 And 2008 396A Vision For Internal Auditing Managing Knowledge Well 396Synopses Of Case Studies 396Self-Assessment Questions 399Notes And References 404

16 The Future Of Internal Auditing Is Yours 405

‘To be successful we must be sensitive to the problems of eachday. All can have an impact on our professional activities farbeyond the changes we may foresee at the present time.’

Worth Repeating Again 405Article: Worth Repeating (2001) 407

The Future For Internal Auditing In A Flatter World 413Motivations, Goals And Categories For Innovation In Internal Auditing 2008 413Visions For Cutting Edge Internal Auditing 2008 414Principia For Cutting Edge Internal Auditing 2008 416A Cutting Edge Internal Auditing Model For 2008 416Are These The Last Words? 417Synopses Of Case Studies 418Notes And References 421

Appendices:A Leading Edge Internal Auditing – Principia 1998 423B Cutting Edge Internal Auditing Principia 2008 425C Answers To Self-Assessment Questions 427

Bibliography 433

Chronology Of Author’s Articles And Research 437

Index 441

List Of Figures And Training Slides

1.1 Model Spectrum For Internal Audit In The United Kingdom 1998 84.1 Examples Of Internal Audit Teams 645.1 Framework For Quality And Governance 1997 985.2 The Seven Principles Of Public Life 1015.3 Standards Of Corporate Governance In The Public Services 1025.4 Internal Auditing At The Heart Of Governance 1105.5 Enterprise Risk Management (ERM) Model 1175.6 Internal Control And Enterprise Risk Management Components 1175.7 Cutting Edge Internal Auditing Model 2007 1226.1 Questions About Crime 1346.2 Harold Russell Fraud Checklist 1356.3 Three Approaches To Auditing Computers In 1967 1417.1 Six Steps To Success For All Audit Committees 1607.2 Framework Of Audit Committee Responsibilities 1618.1 Internal Auditing Quality Methods In Late 1980s 1788.2 TQM Framework: Total Commitment Across The Supply Chain 1818.3 ISO 9000 Involvement 1996 1828.4 Perceived Influence Of TQM And ISO On Control Objectives 1838.5 ISO 9000 And COSO. Integrated Control Framework 1848.6 Number Of Internal Audit Functions Pursuing ISO 9000 In 1996 1858.7 Internal Audit Functions Registered To ISO 9000 In 1996 1868.8 Five Components Of The COSO Control Model (1992) 1898.9 Quality Principles 1908.10 How Business Excellence Model Criteria Match Other Quality Systems 1948.11 Internal Auditing: Reasons For Registration To ISO 9000 1978.12 Internal Auditing: Benefits From Registration To ISO 9000 1978.13 Framework For Total Organization Excellence 2008.14 Quality Measures For The Internal Audit Function 2059.1 Seven Benchmarking Steps 23210.1 List Of Internal Auditing Best Attributes Ranked By Perceptions Of Value 25010.2 Deming Continuous Improvement Cycle 25110.3 Rules For Promoting Quality 25410.4 EFQM Eight Fundamental Quality Concepts In Excellence Model 25410.5 ISO 9000 Continuous Improvement Principles Related To Other Quality

Principles, Rules And Concepts 259

xviii List Of Figures And Training Slides

10.6 Cosmas Twelve Steps To Implementing Continuous Improvement 26213.1 Need For And Desire To Have A Good Reputation 30013.2 The Seven Principles Of Public Life 30413.3 John Humble’s Social Responsibility Audit (1973) 31013.4 How Good Is Your Conduct? 31113.5 OECD General Policies For Multinationals 31313.6 Key Global Reporting Initiative Performance Indicators 31413.7 Links Between AA1000 Auditing Principles/Guidelines And The IIA

Professional Practices Framework 31513.8 Principles Of Good Governance For The Public Sector 32313.9 Best Practice Principles For Occupational Health & Safety (OHS)

Governance 33213.10 Health & Safety Risk – Corporate Manslaughter 33413.11 The Case For A Business Ethics Strategy 33614.1 The IIA’s 12 Strategic Thrusts For The 1990s 35114.2 Customer Satisfaction Survey Questionnaire 35314.3 Internal Audit ‘Supporting Management’ 35814.4 Introduction To Housing Association Internal Audit Forum Website

(HAIAF) 37014.5 Introduction To Charities Internal Audit Network Website (CIAN) 37114.6 Customer Satisfaction Survey Questionnaire 37215.1 Fifth European Academic Conference On Internal Audit And Corporate

Governance: University Of Pisa, Italy – April 2007 39116.1 Cutting Edge Internal Auditing Model 2008 416

LIST OF TRAINING SLIDES

Chapter

1 Cutting Edge Internal Auditing Model 1992 12 Management Of Internal Audit 193 World-Class Internal Auditing 354 Responsibilities Of Internal Audit Staff 595 Cutting Edge Internal Auditing Model 2007 897 Audit Committee Best Practices 1518 Quality & Internal Audit TQM Framework 175

10 Quality Leadership Process 24312 Time & Change 28713 Vision 29916 Worth Repeating 1977–2002 40516 Cutting Edge Internal Auditing Model 2008 416

List Of Cutting Edge Case StudiesWhich Appear On The CD ROM

Chapter 2

2.1 Do Your Audits Report Plaudits?

Chapter 3

3.1 Internal Auditing Can Be World-Class3.2 World-Class Internal Auditing In The United Nations System3.3 General Motors Audit Services (GMAS)3.4 Key Attributes, Strategies And Actions For World-class Internal Auditing3.5 Tomorrow’s Company

Chapter 4

4.1 Wanted – A Head Of Internal Audit Wearing Many Hats4.2 Hats That Create Internal Audit Value4.3 Internal Audit Consulting Provides Cutting Edge Opportunities4.4 Internal Auditors As Facilitators Of Risk Management4.5 The Royal Bank of Scotland Risk Academy

Chapter 5

5.1 Internal Audit And Ethics5.2 Internal Control Is Like A Well Lit Christmas Tree5.3 BG Group Audit Charter5.4 Role Of Internal Auditing In Governance5.5 Corporate Governance And Internal Audit5.6 Providing An Effective Internal Control System – First Steps To Good

Governance In Charities

Chapter 6

6.1 Combating Extortion And Bribery: ICC Rules Of Conduct And Recommendations6.2 United Nations Office On Drugs And Crime6.3 The Stop Light Model6.4 Militate Against Corruption6.5 Forensic Auditing In The United Kingdom Metropolitan Police Authority

xx List Of Cutting Edge Case Studies Which Appear On The CD ROM

Chapter 7

7.1 Corporate Governance Practices In The Context Of The Combined Code 20067.2 Review Of Corporate Governance At Board Level In The United Kingdom

Prison Service7.3 Good Practice Guidelines For The Audit Committee 19877.4 Specimen Terms Of Reference For An Audit Committee 20037.5 Key Questions For An Audit Committee 2007

Chapter 8

8.1 Certification Of The Internal Audit Function Under ISO 9001: 20008.2 After Registration To ISO 9000 – A Quality Manual8.3 A Unique Approach For External Quality Assessments8.4 Internal Auditors Too Can Be Quality Champions8.5 Collecting Performance Data

Chapter 9

9.1 Internal Auditing According To Treadway Commission 19879.2 Use A Delphi Study To Develop Best Practice Internal Auditing9.3 The European Benchmarking Code Of Conduct

Chapter 10

10.1 Quality Assurance And Improvement – The IIA Guidance 200710.2 Continuous Improvement In Internal Auditing Is A Must Not A Luxury10.3 Implementing Teamwork For Continuous Improvement – The ‘Drive’ Model10.4 Innovative Practices In Today’s Internal Auditing10.5 Performance Measurement And Innovation In Internal Auditing

Chapter 11

11.1 Creative Problem Solving For Internal Auditors11.2 Succeeding Through Innovation11.3 Principles-Based Regulation Requires Creative Thinking In Financial

Services11.4 Creativity, Innovation And Change11.5 Why Study Creativity? Here Are Twelve Solid Reasons

Chapter 12

12.1 Six Honest Working Men12.2 When Asking Questions Be Modern And Confident12.3 Interviewing Style12.4 Asking The Right Questions When Planning For Information Technology12.5 Leverage The Internet

Chapter 13

13.1 Internal Auditing Contributes To Good Reputation In British Waterways13.2 Risk And Control Issues For Health, Safety And The Environment

List Of Cutting Edge Case Studies Which Appear On The CD ROM xxi

13.3 Reputational Risk The Challenge For Internal Audit13.4 Auditing Sustainable Development13.5 Setting The Tone

Chapter 14

14.1 Meeting New Demands14.2 Selling And Marketing Are Two Different Things14.3 The Housing Association Internal Audit Forum As A Promoter Of Professional

Internal Auditing14.4 Internal Auditing Is Re-Branding Itself14.5 South West Audit Partnership, England

Chapter 15

15.1 Opportunities For Strategic Innovation – Examination Question15.2 Internal Audit Capabilities And Needs15.3 The IIA Research Foundation Report – March 200715.4 There Are No More Internal Audit Experts Only Communities Of Practices Experts15.5 Teams And Work Groups – Working Across Networks

Chapter 16

16.1 Issues That Will Impact Internal Auditing In The 21st Century16.2 Internal Auditing In Europe16.3 The Finance Professional In 202016.4 Next Generation Accountant: A New Outlook On A Timeless Profession16.5 Internal Auditing Must Take A Lead In Meeting The Risks From Future

Information And Communications Technology

About The Author

Jeffrey Ridley started his auditing career in Her Majesty’s Colonial Audit Service in 1953,working in Nigeria, West Africa, as a government and local authority external auditor. In1963 he left Nigeria to return to the United Kingdom. At that time he joined VauxhallMotors Limited, England, a subsidiary of General Motors, as a senior auditor. In 1965 hemoved, as a senior auditor, to Kodak Limited, England, a subsidiary of Eastman Kodak. Hewas appointed internal audit manager in 1971 and served in that position until his retirementfrom Kodak in 1993.

At Kodak he developed internal auditing practices; managed the company’s graduateaccountant training scheme; and, in the mid-1980s served for some years on the company’sQuality Council. In 1977 the Kodak graduate accountant-training scheme won the firstprestigious annual Chartered Institute of Management Accounting national award for besttraining practice. In 1992 he registered his internal audit department to the internationalquality standard ISO 9001.

In 1966 he joined, and is still a member of, the Institute of Internal Auditors: over manyyears he has served on committees in the United Kingdom and internationally, includingresearch, quality and education. In 1975–76 he was elected first president of the newlyformed United Kingdom Chapter, which subsequently became the IIA – UK and Ireland, anaffiliated National Institute of The Institute of Internal Auditors Inc.

In 1991, he accepted a position as visiting professor of auditing at the then South BankPolytechnic, teaching an internal auditing unit at undergraduate level. After retirementfrom Kodak, he increased his teaching time and research at the now London South BankUniversity. He currently facilitates student research and teaches corporate governance atpostgraduate level at that university. In 2006, he also accepted a similar position at theBirmingham City University, England.

In 1998, he co-authored with Professor Andrew Chambers Leading Edge Internal Audit-ing, published by ICSA Publishing Limited. He has written and researched widely and inter-nationally on internal auditing and governance topics. In 1996, the Institute of InternalAuditors Research Foundation published his international research into ISO 9000 –International Quality Standards: Implications for Internal Auditing. His most recentresearch papers are ‘Quality and Internal Audit – A Survey of Theory and Practice’(2005),1 ‘Continuous Improvement in Internal Audit Services’ (2006),2 ‘Internal Auditing’s

1 Proceedings of the 2nd European Academic Conference on Internal Audit & Corporate Governance 2004 (May 2005), ISBN0-9550137-0-4, London, England.2 Proceedings of the 4th European Academic Conference on Internal Audit & Corporate Governance 2006, London, England.

xxiv About The Author

International Contribution to Governance’ (2007)3 and ‘Innovative Practices in Today’sInternal Auditing4: the latter three papers co-authored with Dr Kenneth D’Silva, LondonSouth Bank University.

He is a fellow of the Institute of Chartered Secretaries and Administrators, a fellow ofthe Institute of Internal Auditors – United Kingdom and Ireland, and a Certified InternalAuditor.

3 Published also in The International Journal of Business Governance and Ethics, Vol. 3, No. 2, 2007, pp. 113–126, InterscienceEnterprises Ltd.4 Proceedings of the 5th European Academic Conference on Internal Audit & Governance 2007, Pisa, Italy.

Preface

‘The world can only be grasped by action not by contemplation� � � The hand is the cutting edge of the mind.’

Jacob Bronowski 19731

This is not a textbook of internal auditing practices. It is a book about the imagination that hascreated those practices – practices that have continuously improved internal auditing duringthe more than fifty years I have audited, advised, taught and researched risk management,control and governance. There are already many excellent books worldwide on techniquesfor best practice internal auditing that will continue to be revised, and others published, inthe future. There are excellent national and international standards and guidelines for riskmanagement, control, governance and auditing, representing best practices in all countries:these will continue to be improved. This book will reference into many of these, and I hopeit will encourage the reader to research them and view this book as a supplement to theknowledge and guidance they contain.

The primary referencing is into material and practices in the United Kingdom, and manyof these references and practices have been influenced by international activities and events.Countries throughout the world have placed their own interpretations on the influences thatglobalization has made to risk management, control and governance in their environments.It will be the reader’s task to relate the United Kingdom references to more appropriateguidelines in his or her own country.

The title of the book is deliberately chosen to challenge and focus on change in internalauditing in the past, present and future. Cutting edge will always mean different things todifferent people at different times, nationally and across the world. These differences havebeen shaped by culture, language, experiences, knowledge and enthusiasm for change.

The Oxford English Dictionary defines cutting edge as a noun ‘� � � the latest or mostadvanced stage; the forefront � � � ’ and as an adjective ‘� � � innovative; pioneering’. In thisbook it is used as both a noun and an adjective. What does cutting edge really mean inpractice? It is a term that has been (still is and always will be) used by many across theworld to describe different activities, from strategy to operations, with outputs includingboth products and services. It has many synonyms – progressive, advanced, forward-looking,

1 The Ascent of Man (1973: ch. 3), from The Oxford Dictionary of Quotations (1999), Oxford University Press, Oxford, England.

xxvi Preface

radical, even revolutionary: rarely evolutionary. Two other synonyms often used are ‘leadingedge’ and ‘best practice’.

Cutting edge is frequently used to promote innovation and motivate customer interest.In this book it applies to all activities pioneering and developing new paths in professionalinternal auditing services – not just in today’s and tomorrow’s activities but throughout thehistory of professional internal auditing, from the early 1960s to the present.

Cutting edge is continuous. What was cutting edge in the past can still be cutting edge todayand tomorrow. This book contains a collection of cutting edge internal auditing activitiesI have experienced and researched as an internal auditor and teacher. Each is updated toreflect the current internal auditing needs. Each is supported by principles and case studyexamples of how cutting edge is being marketed and practised in internal auditing. I amgrateful to the many internal auditors and others worldwide who have given me permissionto discuss their cutting edge resources and practices. For those not mentioned I apologize,they would have been, included had I known of their cutting edge internal auditing.

As I write this book my imagination is indebted to David Scott, the US astronaut, for aphrase used in his recent book2 on the exploration of space in the 1960s, and the cuttingedge processes that took men to the Moon and brought them back safely to Earth at that time:

You can be taught to become a good pilot, but you cannot be taught to become the best pilot. Thisdepends to a great extent on your coordination, how quickly you react to situations and, perhapsmore importantly of all, how sensitive you are to the slightest movement of the plane you areflying.

Key to space exploration is the political and strategic commitment, imagination and team-work of those who worked to enter space, and who eventually stood on the Moon’s surface.In many ways I have always seen internal auditors, individually and as teams, followinga similar strategic path of commitment, imagination and teamwork in the exploration ofeach audit engagement. They start with organization and auditing strategies and step alonga path that is not familiar, with an achievement in mind. They do this with teamwork.They are trained to do this. They are taught to be good auditors: but they cannot be taughtto be the best auditor. That depends on their commitment and imagination: how they cancoordinate their work with others; how quickly they can react to the situations in whichthey find themselves; how innovative they can be in their practices: how sensitive they areto their environment. They may not be aiming for the Moon, but at the beginning of everyengagement they are stepping into the unknown.

This view may be criticized as too imaginative and pioneering, but it is one I have alwaysheld about the challenges and opportunities facing internal auditors. It is what LawrenceSawyer3 believed throughout his internal auditing career, and one he taught me and manyother internal auditors through his published material and words:

Modern internal auditing, to be successful, must be grounded on management support and accep-tance and on an imaginative service.

2 David Scott, US astronaut, in his co-authored book with Alex Leonov, Soviet Cosmonaut, Two Sides of the Moon (2004: p. 28),Simon & Schuster UK Ltd, London, England.3 The Practice of Modern Internal Auditing (1973: p. 23), Lawrence B. Sawyer, The IIA. [In the Preface to another more recentIIA Inc. publication, Sawyer’s Words of Wisdom (2004), a collection of articles by Lawrence Sawyer between the years 1979 to1998, William Bishop III, former President of The IIA Inc. wrote: ‘In the history of the internal auditing profession, no practitionerhas ever rivaled Larry Sawyer’s prophetic, visionary, and seemingly timeless contribution to internal auditing � � � .’

Preface xxvii

This book is alive with ideas for the future of professional internal auditing. Some frommy own experiences; many from the experiences of others. Imagination is its theme. I hopeinternal auditors will continue to act on the messages each chapter contains as the future ofprofessional internal auditing is theirs, not mine.

Jeffrey Ridley2008