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One myth about internal audit that is easily disproved

Published

10 months ago

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For more than a decade, I have been trying to dispel lingering myths that haunt the modern internal audit profession. 

Some of the myths are based on perceptions, such as “internal auditors are the corporate police” and “internal auditors can’t succeed unless others fail.” I have offered what I believe are compelling arguments on why these are simply myths. But there is one myth that is easily disproved by simply looking at the facts: “Internal auditing is just another corporate ‘bean counting’ function.” This simply isn’t true, and a little research will debunk this myth every time.

An essential element of risk management is understanding how risk impacts organizations beyond finances, including operations, competition, regulatory compliance and strategy. Indeed, it would be foolhardy for boards and executive management to focus solely on budgets and financial reporting.

What’s more, there is little argument that assurance and advisory services provided by internal auditing are essential to effective risk management. So, why does the myth persist that internal auditors are primarily glorified accountants?

Demystifying the “bean counting” narrative

The reality is that most modern internal audit functions spend less than a third of their time providing assurance over financial risk management, and recent data from The Institute of Internal Auditors bears this out. Financial reporting including internal controls over financial reporting, financial areas excluding ICFR, and fraud investigation make up about 28% of the average audit plan in North America, according to the latest IIA Pulse of Internal Audit report. In contrast, operational, non-ICFR compliance/regulatory, and IT/cybersecurity make up 50%.

It’s also important to note that the average North American chief audit executive lists cybersecurity and business resilience as top audit priorities ahead of governance/corporate reporting, according to the recently released Risk in Focus report from The IIA.

And yet, no matter what internal audit gets called to do, there will always be a cadre of misguided executives and board members who think internal audit is just an extension of the finance function. Of course, it doesn’t help that too often internal audit reports administratively to the organization’s chief financial officer. This unfortunately reinforces the view that internal audit must only be looking at numbers.

I covered the downsides to having internal audit report to the CFO in my September post, but let me address now why thinking of internal auditors as “bean counters” is simply dangerous in a modern risk environment.

The good news is that the data reflect that internal audit efforts are aligned with top risks, with cybersecurity at the top of the list. The bad news is that viewing internal auditors as primarily focused on finance makes an organization susceptible to weakening its audit function.

Key dangers of the “bean counter” bias

The accounting pigeonhole erodes audit priorities: Overemphasizing the need for internal audit services on financial risks while minimizing their value in combating nonfinancial risks is easier when boards and/or executive management think of internal audit as primarily a function of accounting. Whether conscious or unconscious, this bias is simply dangerous in a modern risk environment.

New risks won’t emerge from new math: In the 21st century, most new risks have emerged from groundbreaking technologies. Cyberattacks remain by far the biggest threat to organizations, and each innovation that presents new and exciting business opportunities invariably carries new and novel threats, as well. Artificial intelligence is an obvious example here. Even as organizations race to adopt and adapt AI to their processes and strategies, cybercriminals are leveraging the technology to enhance social engineering attacks by making them more convincing, personalized and hard to detect, with phishing and deepfakes being prime examples. These types of threats aren’t focused on financial reporting.

An audit team filled with bean counters will undoubtedly be less effective: Because today’s internal auditors are more likely to focus on fraud risks, compliance issues and myriad operational issues unrelated to accounting, their backgrounds should be as diverse as the operations they audit. An accounting degree won’t help as much as one in IT or computer science when auditing cybersecurity issues. 

The reality is that most audit executives recognize this and prize internal auditors with strong analytic and critical thinking abilities, data-mining skills, business acumen and IT skills more than they do those who are extraordinarily proficient in accounting.

Recruiting internal audit talent is harder if the focus is on crunching numbers: The next generation of internal auditors must possess skills that address modern business risks. This requires recruiting the best minds in data analytics, computer science, engineering and psychology to fill the internal audit talent pipeline. That will be next to impossible if organizations view internal auditing as synonymous with accounting.

My hope is that leaders who understand modern risk management don’t buy the bean counter myth. Indeed, 65% of publicly traded companies globally have internal audit reporting directly to the CEO. But I’m deeply troubled that, according to Pulse data,  nearly 8 in 10 (79%) of CAEs in publicly traded organizations in the U.S. still report to the CFO.

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Accounting

SEC’s Semiannual Reporting Proposal Faces Investor Pushback: What CFOs Need to Know

Published

1 week ago

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August 25, 2026

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U.S. Securities and Exchange Commission (SEC)

A proposal from the U.S. Securities and Exchange Commission to potentially shift some public companies away from quarterly financial reporting toward a semiannual model is drawing significant pushback from investors, even as it continues moving through the regulatory process. The debate has direct implications for corporate finance teams, auditors, and the broader transparency of U.S. capital markets.

What the SEC Proposed

According to a summary published by accounting advisory firm Cohen & Co., the SEC issued a proposed rule on May 19, 2026, aimed at simplifying financial reporting requirements for many U.S. public companies. The proposal would potentially reduce the frequency of certain mandatory disclosures from quarterly to semiannual, a structural change that has not been made to core U.S. reporting requirements in decades.

The proposal follows an extended debate within U.S. policy circles, with proponents arguing that reduced reporting frequency could lower compliance costs and free up management time for longer-term strategic planning rather than quarter-to-quarter results management.

Why Investors Are Pushing Back

Comment letters submitted in response to the proposal have been extensive, and according to Cohen & Co.’s review of the public record, investors “appear to be largely opposed” to the shift, viewing frequent interim reporting as a core benefit of U.S. capital markets relative to other jurisdictions.

Accounting and law firms have taken a more measured position, generally urging any changes to remain aligned with the Financial Accounting Standards Board (FASB), whose existing disclosure requirements and guidance are built around a quarterly reporting cadence. A shift to semiannual reporting without corresponding changes to FASB guidance could create friction between SEC filing requirements and GAAP-based disclosure expectations.

Lessons From the U.K. Experience

The debate is not without precedent. The United Kingdom moved away from mandatory quarterly reporting for listed companies in 2014, returning to a semiannual disclosure requirement. According to Cohen & Co.’s analysis, that experience offers a cautionary data point: there was no measurable increase in capital expenditure or R&D investment following the change, while analyst coverage of affected companies declined as reliable interim information became less available — a particular risk for smaller and newly public companies that rely on analyst coverage to maintain investor visibility.

Practical Implications for Finance Teams

Beyond the debate over disclosure philosophy, the proposal carries practical complications. Many companies have debt covenants and credit agreements structured around quarterly financial delivery; a shift to semiannual reporting could require renegotiating those terms. Reduced reporting frequency would also extend the “window of market silence” between disclosures, a factor that governance and investor-relations teams would need to manage carefully to avoid information asymmetry.

Separately, and unrelated to the reporting-frequency debate, the SEC and FASB have continued finalizing more routine updates this year. New Accounting Standards Updates are taking effect for December 31, 2026, fiscal year-ends covering income tax disclosures, credit loss measurement, induced debt conversions, and stock compensation, according to Eide Bailly’s review of 2026 ASU activity. Additional guidance on paid-in-kind dividends and environmental credits is also on the near-term horizon.

What to Watch Next

The semiannual reporting proposal remains in the comment and review phase, and no final rule has been adopted as of this writing. Finance leaders should monitor the SEC’s regulatory agenda for further movement, while treating the current quarterly reporting requirement as the operative standard until any final rule is issued and an effective date is set.

Given the extent of investor opposition documented in the comment file, a full shift to mandatory semiannual reporting appears more likely to result in either a scaled-back compromise or continued study rather than swift adoption — though the SEC’s ultimate direction remains uncertain.

 

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Accounting

AI-Driven Automation and Continuous Accounting Frameworks

Published

3 weeks ago

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August 15, 2026

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The accounting profession is undergoing a fundamental structural transition as enterprise finance departments shift from periodic month-end closes toward automated continuous accounting models. By integrating specialized machine learning algorithms directly into enterprise resource planning (ERP) platforms, chief accounting officers are transforming financial reporting from a retrospective exercise into a real-time operational asset.

The Shift from Periodic Close to Continuous Financial Reporting
Traditional accounting workflows heavily relied on manual data reconciliation, spreadsheet calculations, and multi-week closing cycles at the end of each fiscal period. In contrast, continuous accounting frameworks utilize automated software agents to process, validate, and post transactional data in real time as business activities occur.

Automated bank reconciliation tools cross-reference incoming bank feeds, invoice records, and purchase orders automatically. By resolving transactional variances instantly throughout the month, corporate accounting teams eliminate the traditional workload spikes associated with quarterly and annual closes.

Machine Learning in Audit Trails and Anomaly Detection
Advanced natural language processing (NLP) and machine learning tools are redefining internal audit and financial control environments. Automated systems analyze 100% of general ledger entries, identifying anomalous transactions, duplicate payments, and unauthorized journal entries in real time.

Rather than relying on random statistical sampling, corporate internal auditors can focus their attention on high-risk flags automatically surfaced by algorithmic monitoring platforms. This continuous risk assessment strengthens internal controls over financial reporting (ICFR) and significantly reduces fraud risk.

Evolving Roles for Accounting Professionals
As routine data entry and manual reconciliation tasks become fully automated, the skill set required for accounting professionals is shifting toward data analysis, system design, and strategic business advisory.
– Systems Governance: Accountants are increasingly responsible for monitoring algorithmic accuracy and managing data integration pipelines.
– Business Partnership: Finance professionals leverage real-time financial dashboards to advise operational leaders on margin management and working capital allocation.
– Regulatory Compliance Management: Accounting teams utilize automated platforms to ensure compliance with dynamic tax codes and international accounting standards.

Core Implementation Recommendations
1. Deploy Automated Reconciliation Tools: Integrate continuous transaction processing modules into existing enterprise ERP architectures.
2. Establish Algorithmic Governance Controls: Implement strict internal testing protocols to ensure automated accounting rules comply with GAAP/IFRS standards.
3. Reskill Accounting Teams: Invest in training finance staff on data analytics, workflow automation, and predictive financial modeling.

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Accounting

Global ESG Reporting Standards and Double Materiality Compliance

Published

4 weeks ago

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August 9, 2026

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Corporate accounting departments face expanding reporting expectations as international sustainability disclosure standards achieve regulatory enforcement across major global jurisdictions. Chief Accounting Officers (CAOs) and corporate controllers are establishing rigorous internal accounting controls to treat Environmental, Social, and Governance (ESG) metrics with the same data precision, auditability, and governance as traditional financial statements.

Regulatory Harmonization Under Global Sustainability Frameworks
The implementation of standardized sustainability reporting frameworks—notably rules established by international sustainability accounting boards—has created unified expectations for public and large private enterprises. Corporations must report standardized metrics covering greenhouse gas emissions (Scope 1, 2, and material Scope 3), energy utilization, workforce demographics, and supply chain governance.

In Europe and other participating international jurisdictions, double materiality principles are mandatory. Under double materiality, organizations must report both how external sustainability risks impact corporate financial performance, and how internal corporate operations affect surrounding environmental and social structures.

Integrating Sustainability Metrics into Core ERP Systems
To provide auditable non-financial data, enterprise organizations are integrating specialized carbon accounting and ESG management platforms directly into core ERP systems. Automated data collectors capture energy utility invoices, logistics fuel consumption metrics, and vendor compliance records in real time.

Establishing automated, traceable data pipelines ensures that non-financial reporting is supported by clear audit trails. This structured approach allows external financial auditors to provide reasonable assurance on sustainability disclosures during annual corporate reporting cycles.

Financial Impacts and Capital Market Disclosure
Accurate ESG reporting directly influences corporate cost of capital and institutional credit ratings. Commercial lenders and institutional asset managers systematically incorporate sustainability metrics into risk pricing models. Companies that demonstrate transparent, verifiable progress in operational energy efficiency and climate risk mitigation benefit from expanded access to green bond markets and lower debt pricing.

Action Steps for Accounting Leadership
1. Implement Double Materiality Frameworks: Conduct comprehensive assessments to identify material financial and operational sustainability metrics.
2. Build Auditable Non-Financial Data Pipelines: Automate ESG data collection within core accounting software to ensure data integrity.
3. Align Sustainability with Annual Financial Filings: Prepare non-financial disclosures concurrently with financial statements to satisfy regulatory audit expectations.

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