«The pace of change has never been this fast, yet it will never be this slow again.» - A wise quote from Justin Trudeau, the Prime Minister of Canada, aptly describing the rapid changes in our economic world. Globalization and digitalization confront companies with increasing dynamics and complexity - causing uncertainty to rise. Here, internal auditing can make an important contribution by providing valuable advice and additional resources to overcome strategic hurdles and strengthen the control environment. To keep pace with the changing requirements of companies, the processes in internal audit must be continuously adapted. Efficiency is essential even with increasing complexity in order to be able to generate added value for customers. Agile auditing, inspired by software development methods, offers new opportunities to respond dynamically and flexibly to adjusting customer needs.
To keep pace with the changing requirements of companies, the processes in internal audit must be continuously adapted. Efficiency is essential even with increasing complexity in order to be able to generate added value for customers. Agile auditing, inspired by software development methods, offers new opportunities to respond dynamically and flexibly to adjusting customer needs.
Agile Auditing versus Traditional Auditing
The traditional audit method is characterized by established roles and a hierarchical system. The emphasis is on structure and a predefined approach. Therefore, the planning is fixed in the annual schedule and tailored towards specific aspects of the audit factors. Intensive communication with the audit team, stakeholders, and the areas to be audited shape the implementation of the classic audit. Often, the process is very time-consuming and is perceived as sluggish. The audit is completed with the publication of a comprehensive report at a previously agreed time.
In contrast, the agile method prioritizes iterative planning. With the help of so-called «sprints», the focus is placed on specific areas. Strong communication between the sprint teams is also important in the agile method. However, this takes place continuously and is not tied to a fixed period. The sprints are characterized by their adaptability, enabling the teams to be strategically filled with the right experts for each topic, thereby enhancing the overall quality. This allows for rapid adaptation to changing circumstances and focus attention on matters that are significant to the business. Thus, allowing for a quicker identification of changes or risks.
In agile auditing, short but intensive audit phases are applied, which can be ideally adapted to the needs of the company and its stakeholders. Regular and more frequent reporting due to the iterative approach ensures transparency. The agile method improves the traceability of milestones, as the individual steps are easier to understand. Moreover, it facilitates a more effective emphasis on key insights and enables quicker responses to them.
Summing-up, agile auditing is characterized by the following four properties:[1]
Benefits of Agile Auditing
A significant advantage of the agile method is that insightful interim results can be generated during the audit. As such, feedback from stakeholders can be incorporated and the audit can be improved and adjusted to meet specific needs throughout the auditing process itself. Furthermore, the iterative approach of the agile method promotes the early identification and addressing of risks, which increases the overall value of the audit results. Breaking the audit down into sprints allows for a clear allocation of the sub-processes to the auditors. A unique feature is that for each sprint, teams can be strategically assembled with specialist experts for each sprint.
In practice, it has been shown that agile methods in the audit can help to adapt to changing and increasing requirements. The result of a quantitative study by Botzenhardt & Schommer, published in the Journal for Internal Audit (ZIR), with employees and executives of Internal Audit, shows that the agile audit methodology is perceived as advantageous compared to the traditional audit methodology by auditors. In particular, the topic planning process, communication, and faster knowledge gain were rated significantly better, with no significant disadvantages found in the queried factors.[2]
Compared to traditional auditing, agile auditing allows for greater flexibility during the audit, a more dynamic auditing process, and continuous communication. The iterative approach is particularly valuable when the audit area and requirements are complex or unclear.
Limitations of Agile Auditing
Agile auditing is considered a modern, progressive approach and has thus far been subject to limited scientific research. As a result, the empirical proof for the precise advantages of agile internal auditing is restricted; the application of research findings from agile methods in software development to auditing is only partially feasible.
The implementation of agile audit methods necessitates an audit subject that can be segmented into distinct, well-defined audit steps, both temporally and contextually. While the audit procedures can yield significant outcomes swiftly, it is crucial that these are conveyed in a timely and comprehensible manner.
Not every audit necessitates or benefits from the use of agile methods. If the requirements to be audited and the necessary solution approaches for them are known, a traditional audit methodology is more suitable.[3] In the case of a standardized branch audit, the traditional method is appropriate, such as using well-defined annual audit programs.
The application of agile methods requires qualified auditors who not only have the necessary basic knowledge, but also the necessary mental attitude and an agile mindset. In addition, the support of management is required for the successful implementation of agile methods. The leadership team should not only believe in the effectiveness of agile principles but should also comprehend and embody them, which necessitates substantial training and experience.
Additional Value for Internal Audit
Implementing agile methods and practices can offer significant benefits for Internal Audit. However, agile audit isn't always the most effective approach, and it requires specific conditions, which largely hinge on the individual company. Nevertheless, there's a growing trend indicating the rising importance of agile audit methods.
Agile audit enables the Internal Audit to adjust to the growing volatility in the audit environment, while also capitalizing on opportunities for efficiency and effectiveness.
Sources: Zeitschrift Interne Revision (ZIR)
- Juni 2019: Die agile Revision, eine neue Chance?; Seite 110-111
- August 2019: Agile Auditing: Die Lösung der Revision für steigende Anforderungen; Seite 160-170
- April 2019: Agiles Projektmanagement und agile Revision; Seite 56-63
[1] Vgl. Botzenhardt & Schommer in ZIR (August 2019) S.161
[2] Botzenhardt & Schommer in ZIR (August 2019) S. 169
[3] Stacey Matrix (Vgl. Stacey RD. Strategic management and organisational dynamics: the challenge of complexity. 3rd ed. Harlow: Prentice Hall, 2002)