“The Story of Success and Failure”

AE10 Governance, Ethics, Risk Management and Internal Control

Presented By:
Sabrine Kate Aumentado
Hannah Shaneen Dayapan
Alma Endonila
Shella Garcia
Risley Kathleen Joaquin
Jovelle Loma
Katrina Eunice Mercurio
Maria Angelica Joy Pitalco

Objectives:
1. Identify the roles of internal audit
2. Understand success
3. Determine Challenges in internal auditing
4. Embrace failure
5. Discuss Toshiba: A Tale of Internal Audit Failure and Success

Roles of Internal Audit in Project Success and Failure

Internal audit has a central role in ensuring project success by preventing risky shortcuts
that may compromise overall project objectives. This is particularly important in complex
projects, such as Information Technology (IT) projects, where different groups are involved in
design, testing, and implementation. The independence of internal audit allows it to play a
critical role in ensuring that each group avoids taking risky shortcuts that could jeopardize the
project's success. This includes:
● Validating Critical Controls and Identifying Potential Failure
● Ensuring Risk Management and Compliance
● Providing Insight into Organizational Risk
● Mitigating Project Failure
● Contributing to Risk Management and TQM

Understanding Internal Audit

Internal audit is a critical function that provides independent assurance and consulting
services. It helps organizations accomplish their objectives by bringing a systematic, disciplined
approach to evaluate and improve the effectiveness of risk management, control, and
governance processes.

Understanding Success
Success in internal auditing is achieved through a combination of effective risk
management, robust control systems, and a proactive approach to identifying and addressing
vulnerabilities. Embracing these principles can lead to sustained success and value creation.
Strategies For Success

● Implementing robust risk assessment methodologies

Continuous monitoring and management in internal auditing involve ongoing oversight of
processes, controls, and activities to ensure that risks are effectively identified,
assessed, and managed. Continuous monitoring involves the use of tools and
technologies to enable rapid detection of compliance issues and security risks within the
IT infrastructure. It goes beyond traditional periodic audits by implementing continuous
monitoring of transactions and controls, allowing weak or poorly designed controls to be
corrected or replaced sooner rather than later
● Fostering a culture of transparency and accountability
Fostering a culture of transparency and accountability within an organization is essential
for promoting ethical behavior, building trust, and enhancing performance.
Example: Sharing data and information with the organizational community can help
demonstrate achievements, challenges, and opportunities, fostering transparency and
accountability. Involving stakeholders in governance and decision-making and
establishing and monitoring standards and expectations are also essential for promoting
transparency and accountability
● Leveraging advanced technology can empower internal auditors to navigate the
peaks and valleys with confidence.
Advanced technology, such as artificial intelligence and machine learning, can enable
internal auditors to analyze large volumes of data more efficiently.
Today's intelligent automation innovations have the potential to increase the speed,
operational efficiency, and cost-effectiveness of internal audit functions. This empowers
internal audit professionals to generate more impactful insights and make smarter
decisions more quickly

The Role Of Leadership

● They align the goals of the internal audit function with the overall organizational strategy.
● Establish open communication and collaboration with stakeholders, ensuring the
function is aligned with their needs and expectations
● Promote a culture of continuous improvement, using innovative methodologies and
technologies to enhance the internal audit process.

Celebrating Success
By celebrating success in internal audit, organizations can not only recognize the hard work
and achievements of the internal audit team but also reinforce the importance of the function
and its contributions to the organization's goals and objectives.

Steps to show internal audit success:

 1. Confirm your internal audit reporting requirements to the audit committee – think ahead
about topics you want to report and start tracking progress.
2. Agree on what success will look like – continue the dialogue with the audit committee
chair and provide a view of areas for consideration over the next three to six months to
meet internal control declaration requirements.
3. Capture success stories – emphasize where internal audit teams add value, adapt and
support the business to demonstrate what the function can do in the future. Share
success stories and positive events to maintain a positive outlook.
4. Refine your Key Performance Indicators (KPIs) to support the demonstration of your
effectiveness as the business landscape changes

Challenges in Internal Auditing

Internal auditors often encounter complex challenges such as evolving regulatory
requirements, technological disruptions, and organizational resistance to change. Navigating
these valleys requires resilience, adaptability, and a proactive mindset. Embracing these
qualities is essential for internal auditors to effectively address the multifaceted challenges they
encounter in their profession.

Embracing Failure
Embracing failure is an opportunity for growth and improvement is crucial for fostering a
culture of continuous learning and resilience within internal auditing. The notion that all failure is
bad is misguided, as some failures are inevitable and even beneficial.

Lessons from Failure

Failures in internal auditing can indeed provide valuable insights into weaknesses in
processes, controls, and risk management strategies. Learning from these failures and
implementing corrective actions is essential for driving sustainable improvement. Moreover,
failure can serve as a stepping stone, providing powerful life lessons that make individuals
better and more resilient. Embracing failure as an opportunity for growth and improvement is
crucial for fostering a culture of continuous learning and resilience within internal auditing.

Adapting To Change
The landscape of internal auditing is constantly evolving, marked by technological
advancements, regulatory changes, and shifting risk landscapes. Embracing these changes is
essential for internal auditors to navigate the peaks and valleys with agility and foresight.

● Technological Advancements: The integration of emerging technologies such as artificial

intelligence (AI), robotic process automation, and blockchain is significantly altering the
financial reporting environment. By embracing these advancements, internal auditors
can enhance their audit processes, improve efficiency, and gain deeper insights into
organizational operations
● Regulatory Changes: Regulatory frameworks and standards governing internal auditing
are subject to continuous updates and modifications. Internal auditors must stay abreast
of these changes to ensure compliance and alignment with the latest regulatory
 requirements. Adapting to regulatory changes is crucial for maintaining the integrity and
effectiveness of internal audit processes
● Shifting Risk Landscapes: The risk landscape within organizations is dynamic,
influenced by factors such as economic conditions, industry practices, and geopolitical
uncertainties. . By adopting a resilient and agile approach to audits, internal auditors can
add value to their organizations and drive positive change.

Resilience and Adaptability

Resilience and adaptability are indispensable qualities for internal auditors to navigate
the complexities of their profession. By embracing change, learning from setbacks, and
continuously evolving, auditors can position themselves for long-term success and contribute
effectively to the resilience and success of their organizations.

Toshiba: A Tale of Internal Audit Failure and Success

Toshiba: A Legacy of Innovation

Toshiba, a Japanese multinational electronics company headquartered in Minato, Tokyo,
has established a legacy of innovation spanning over 135 years. The company's commitment to
innovation is evident in its significant contributions to various industries, including technology,
healthcare, and retail solutions.
● Founded in 1875, Toshiba is a global leader in electronics and technology
● Known for products like laptops, televisions, and power generation equipment
● A pillar of Japanese industry with a rich history of innovation

The Accounting Scandal

In 2015, Toshiba's reputation was tarnished by a devastating accounting scandal. The
company was found to have inflated its profits for a period of seven years. This manipulation of
financial statements eroded investor trust and resulted in hefty fines. The scandal exposed
serious shortcomings in Toshiba's internal audit function.

Internal Audit Failures

Internal audit failed to detect or prevent the accounting irregularities. Reasons for failure
included:
● Lack of independence from management
● Inadequate resources and expertise
● Rotational staffing model that limited continuity
● Corporate culture that discouraged challenging authority

Aftermath and Reforms

Toshiba faced significant consequences for the accounting scandal. The company was
fined, executives resigned, and investor confidence plummeted. In response, Toshiba undertook
major reforms to strengthen internal audit:
● Increased independence and reporting line to the board
 ● Enhanced resources and expertise within the internal audit team
● Established a more stable staffing model
● Promoted a culture of open communication and ethical conduct

The Road to Recovery

● The reforms have led to a more robust and effective internal audit function
● Improved risk management and detection of potential issues
● Increased transparency and trust from investors and stakeholders

Conclusion
The journey through success and failure in internal auditing is a dynamic and
transformative experience. By embracing resilience, learning from setbacks, and fostering a
culture of continuous improvement, internal auditors can navigate the peaks and valleys with
confidence and drive sustained value.
Toshiba's story offers valuable lessons about the importance of a strong internal audit
function. The accounting scandal exposed the dangers of weak internal controls and a
corporate culture that prioritizes short-term gain over ethical conduct. However, Toshiba's
commitment to reform demonstrates the positive impact that a robust internal audit function can
have. By strengthening its internal audit, Toshiba has improved risk management, increased
transparency, and regained trust from investors. The company's journey serves as a cautionary
tale and a testament to the power of internal audits in ensuring financial integrity and corporate
governance.