Workplace Issues

Internal Audit: a Dead-end Job?

A new study reveals that new entrants to the corporate-accounting profession have second thoughts about entering internal audit.
Kathy HoffelderOctober 12, 2012

The internal-audit profession may be in need of an overhaul — at least in the eyes of entry-level employees.

A new academic working paper from accounting professors at Brigham Young University suggests that accounting students have significant negative perceptions about the internal-audit profession as a potential employer. While the authors admit that further research is needed to evaluate whether the same attitude persists among more senior internal-audit professionals, they say the findings are important to CFOs looking to retain talent.

Finance chiefs in particular need to be aware that “if you want more people to apply to internal audit, you need to describe it as a management training ground that performs consulting work. If you are doing that, you’ll attract more people,” says David Wood, assistant professor in the School of Accountancy at BYU and one of the co-authors of the report. The others are Greg Burton, associate professor and a Deloitte & Touche Fellow in BYU’s School of Accountancy; Scott Summers, a professor in BYU’s School of Accountancy; and Matthew Starliper, a research assistant at BYU.

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In the study, the majority of the 169 undergraduate- and graduate-level accounting students in the United States that the authors surveyed said they needed the prospect of a promotion out of internal audit into management cited in the job description before they would even agree to apply to an internal-audit job. In most cases, that was the sole determining factor in making their decision, says Wood.

The students also favored a job labeled as “accounting” more than one cited as “internal audit” by 17% when given identical job descriptions. When the job being offered was called accounting, 82% of the respondents chose it, but when it was labeled internal audit, 65% preferred the job.

Although the internal audit/accounting differential does not appear large, Wood notes that the data combined with other response answers reveals a general bias against working in internal audit. For example, in another question, some responses showed the students would not even apply for a position in internal audit even when they considered themselves a good match for the job. In contrast, when the same students believed they were a good fit for an accounting job, they said they would apply.

“Entry-level job applicants have concerns about going into internal audit,” explains Wood. Judging from the responses, he says participants in the study were overwhelmingly worried they would be stuck in a position they considered to be too focused on assurance services as opposed to one that includes more of a consulting function.

The reason for the negative sentiment is partly historical and partly a result of the way internal audit is structured now, observers say. In the past, the internal-audit unit was thought of as strictly an assurance provider as opposed to more of a consultant liaising with management.

As Richard Chambers, president and chief executive of the Institute of Internal Auditors (IIA), explains, internal audit “is a discipline that has evolved rather quickly away” from what it was in the mid-2000s, just after the Sarbanes-Oxley Act was signed by President George W. Bush in 2002. Corporate adherence to Sarbox increased demand for internal auditors, but also increased their focus on compliance testing and financial controls as a main job function.

Since then, says John McLaughlin, partner and risk advisory services leader at BDO USA, the companies that most value internal audit and have a progressive view of the job tend to see it as both a business-consulting function and a risk-and-control function.

Chambers adds that there is a much more balanced and diversified approach to internal audit today. “That is a way to enhance perception on the part of internal-audit candidates,” he says.

But there is still a long way to go. “Certain companies do not necessarily hold internal audit in high esteem. But other companies clearly value internal audit and the intelligence gathering,” McLaughlin notes. Companies still debate the importance of internal audit, with midsize firms, in particular, not as focused on the function’s value compared with larger companies, he adds.

One thing is clear, however: the students studied preferred internal-audit posts in which they could rotate to other parts of the firm. In such rotation programs, new internal auditors typically work in their department for two to three years before rotating into accounting or another business unit within the corporation.

The rotation concept was made popular by General Electric’s audit-rotation model. GE still abides by this philosophy today at GE Capital, its financing arm. At GE Capital, auditors routinely team up with loan reviewers, which is considered a relatively high level task.

According to the IIA, almost one-third of all internal-audit groups now use rotational-staffing models.

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