![]() Without a common language, it becomes difficult to reach agreement on the severity of each risk, Mauriello says. “If you don’t have a shared risk language, it takes away from the ability to communicate,” the nuances of rating, he adds. This requires a common risk language with which auditors and auditees can discuss observations. Before implementing a rating system, the organization should have a fairly mature governance and risk management structure, says Joseph Mauriello, director of Center for Internal Auditing Excellence at the University of Texas at Dallas. Internal auditors can take steps to leverage the benefits of ratings while minimizing their shortcomings. They also can damage any goodwill established between auditors and auditees, and promote distrust among both parties. Line managers may agree with all of the findings of the audit as they are summarized in text, but then push back on the summary rating. Some chief audit executives report feuds over ratings that can go on for weeks and months. Richard Chambers, President and CEO, Institute of Internal Auditorsĭisagreements about ratings can consume time and energy that would be better spent identifying ways to remediate control weaknesses. “Ratings can be a powerful tool, but if management and the audit committee place undue emphasis on them, they tend to have a polarizing effect on line and operating managers whose performance ends up being summarized in a single word: ‘unsatisfactory'” “It’s human nature that people get entangled into how a third party, the internal auditor, is projecting the unit head to senior management,” says Parveen Gupta, professor of accounting at Lehigh University. That’s especially true when the ratings will be seen by upper management and could impact their performance reviews or compensation. Few managers, not surprisingly, want to see their areas earn an unsatisfactory rating. The calculations are weighted, so the ratings quickly focus attention on more critical areas, such any lapse in safety protocols.ĭespite their benefits, ratings can provoke disagreements. Scores between three and four are yellow, and below three is red. The goal is for each branch to score of at least a four, or green. Members of the audit team assess each of the company’s approximately 136 locations on a regular basis and assign each one a score based on a series of criteria.Īudits at Mobile Mini are scored from zero to five in increments of. Ratings also can help in quickly comparing one area, location, or branch to another, says Brendan Friedman, director of internal audit at Mobile Mini, a provider of portable storage solutions, which includes ratings on audit reports. In doing so, ratings help mitigate one of the more common criticisms of audit reports-namely, their length. She says they make it easier for readers to quickly identify areas of risk. “I do see more visuals,” says Audrey Gramling, chair of the school of accounting at Oklahoma State University. A survey by the IIA found that about two-thirds of internal auditor respondents said their organizations include some type of rating in their audit reports. To be sure, the practice of including rating in audit reports appears to growing in popularity. “Ratings can be a powerful tool, but if management and the audit committee place undue emphasis on them, they tend to have a polarizing effect on line and operating managers whose performance ends up being summarized in a single word: ‘unsatisfactory,’” wrote Institute of Internal Auditors President and CEO Richard Chambers, in a blog post on the topic. Or they can omit them and answer to senior executives and board members who don’t appreciate wading through long paragraphs to find the summarized results of the audit. They can include ratings and battle their audit clients when they push back over the audit report summary ratings, which can often result in a prolonged back and forth. The tension leaves chief audit executives stuck in the middle. They think that boiling the findings down to one letter or color oversimplifies the issues and can paint their units in an unfair light. While boards and senior management tend to love the audit report ratings, since they quickly guide their focus to what needs the most immediate attention, process owners and auditees tend to hate them. Ratings may be scored with a number-from one to five, for example a color-often red, yellow, and green with an adjective such as “satisfactory,” “needs improvement,” or “unsatisfactory” with a letter grade from “A” down to “F” or with other mechanisms. ![]() Many internal audit shops include a rating or grade at the end of an audit report intended to summarize the findings and bring attention to the most important conclusions of the report.
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