Changing internal auditing from a compliance-based to a conduct- focused approach

Rigg, Clare and Soh, Woon Gan and Antonacopoulou, Elena and Bento, Regina and White, Lourdes (2023) Changing internal auditing from a compliance-based to a conduct- focused approach. Research on Professional Responsibility and Ethics in Accounting. (In Press)

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Abstract

Amidst public acknowledgment of recurring ethical violations in the volatile financial services industry, Internal Auditing professionals (IA) do not seem to have done enough to perform their professional responsibility as a line of defence for their employing organizations. This paper explores whether changes in IA approach can effectively enable IA as a practice to fulfil its governance role in managing ‘conduct risk,’ i.e., any behaviour in a firm that could cause problems to consumer protection, market integrity or competition. We examine the ethical implications of the existing compliance-based IA approach and explain its ineffectiveness in auditing conduct risk within a turbulent environment. Using action research, we explain the germane changes necessary to define a new conduct-focused IA approach capable of predicting and preventing ethical wrongdoing. A conduct-focused approach launches auditors into unfamiliar but strategically critical areas to not only identify material risks but also add value to their organizations. We further examine how a change in the auditor’s mindset and other factors promote the effectiveness of the new IA approach in a sustainable way. Based on our literature review, this is the first paper to use action research as a way of introducing impactful change to IA, from a compliance-based to a conduct-focused approach.