Auditing Corporate Culture

Recent ethical scandals have put corporate culture in the spotlight. They reveal that a weak or toxic corporate culture may encourage inappropriate behavior across the organization. PwC held an Internal Audit Roundtable in Geneva to take on this topic. Here are some pieces of advice and best practices from the roundtable to help you achieve a healthier and stronger culture.

What is the role of Internal Audit in restoring trust in and within the organization?

There is an increasing expectation from the Board and Senior Management for Internal Audit functions to provide cultural assurance to the organization. Indeed, Internal Audit functions are well positioned to provide an independent assessment of corporate culture, while leveraging on their understanding of the organization.

How should it be performed?

As there is no “one size fits all” approach to auditing culture, Internal Audit plays a key role in helping the Board define the scope of the assessment (e.g. culture, risk culture), the framework to assess against (e.g. corporate values, behaviors, strategic priorities, etc.) and design the approach. To get a good coverage across high cultural risk areas, Internal Audit will likely use a combination of approaches including discrete culture reviews, thematic reviews and/or incorporating a cultural component into regular audits. It can also draw on a variety of data from different sources such as focus groups, employee surveys, desktop reviews and behavioral observations.

What value does it bring to the organization?

Culture assessments help the Board identify how the ‘intended’, ‘expressed’ and ‘actual’ culture is aligned within the organization. The ultimate value delivered to the business is the identification of behaviors having positive or detrimental impact and the drive for embedding positive behaviors across all layers of the organization.

In short, auditing corporate culture is not so much a one-time audit but rather a tool to assess the existing corporate culture and to start the journey for a healthier and stronger culture.

What Internal Audit Leaders in Switzerland think about it:

“ Our corporate culture is not strong enough. However, the organization is not yet ready for this type of assessment. ”

“ When I audited this local entity, I could feel that people wanted to talk to me about something that was wrong. ”

“ In my organization, this could work if we do not call it an audit, but rather an assessment. ”

“ We already started this type of cultural audit through a thematic review on fraud. ”

“ This type of assessment would probably highlight that our intended culture (purpose, vision, values) is not aligned with our expressed culture (leadership action, objectives, etc). ”

What are the top 3 questions you may ask yourself if you want to further explore this topic within your organization?

  1. Where is there cultural risk in my organization?
  2. What criteria do I assess against and what is in scope?
  3. How do I get Management buy-in and establish the mandate?

In our Internal Audit roundtable in Geneva, it was noted that not very many Internal Audit functions in Switzerland have actively addressed culture within their audit plans. At the same time, Chief Audit Executives recognize the value of culture and how it can play a key role in fostering good governance and a healthy control environment. A diverse array of approaches and techniques can be used by Internal Audit to assess culture and provide additional value add for Management and Boards.

Download the PDF version of this article here:

To learn more about this topic, please feel free to contact our Internal Audit Services team.

Dominique Perron
Partner, Internal Audit Services, PwC Geneva
dominique.perron@ch.pwc.com / +41 58 792 94 48

Richard Thomas
Partner, Internal Audit Services, PwC Zurich
richard.j.thomas@ch.pwc.com / +41 58 792 27 82

Nicolas Gaillard
Director, Internal Audit Services, PwC Geneva
nicolas.gaillard@ch.pwc.com / +41 58 792 98 52

Céline Hartenberger
Manager, Internal Audit Services, PwC Geneva
celine.hartenberger@ch.pwc.com / +41 58 792 96 23

Enhanced auditor’s report: towards trust and transparency

The new auditor’s report required by Swiss legislation is designed to be more informative and insightful, and give the stakeholders of reporting entities greater assurance. We at PwC welcome the new reporting requirements as an opportunity to unlock the ‘black box ’of what we actually do as auditors and increase trust in our role.

We also realise, though, that the new reports and their potential impact on governance have to be discussed and understood – not only by the auditors who produce them, but by reporting entities and their stakeholders, from shareholders to regulators. For this reason we’ve produced a short flyer explaining the major changes and their implications, including a commented overview of the structure of the new report.

You can read the flyer via the link below. Feel free to contact us if you’d like to discuss the new auditor’s report and its implications in more detail.

Download flyer

 

PwC at the forefront of new auditor reporting

PwC recently issued the first auditor’s report in Switzerland under the new reporting requirements. The IAASB (International Auditing and Assurance Standard Board) issued these requirements in response to a demand for more informative auditor reporting in the wake of the financial crisis.

The new auditor’s report constitutes a revolution in auditing – it’s a game-changer for shareholders, investors, clients and the audit profession and goes beyond just a redesigned boilerplate report. The reports will help organisations and their auditors to build trust in the capital markets and to enhance the reputation of all involved.

Greater insight and transparency

The most significant innovation involves the ‘key audit matters’. This new section of the report sheds light on matters that, in the auditor’s judgment, were of most significance in the audit of the financial statements of the current period. It also describes how the auditor addressed these matters. This bespoke description of key areas of focus in the audit gives the auditor an opportunity to provide meaningful comments and explanations.

Going concern also receives more visibility in the new auditor’s report. Both the management’s and the auditor’s responsibilities regarding going concern are included.

We believe these changes will help translate the new reporting requirements into added transparency and trust – to the lasting benefit of our clients and their stakeholders.

In Switzerland, this new reporting requirement will come into full effect for audit reports for financial statements of listed companies for period ending on or after 21 December 2016, but early application is permitted. This new reporting style is already in place in the UK and the Netherlands.

For further information read our Disclose article.

Please contact Matthias Jeger or your usual PwC contact if you have any questions or wish to discuss these or other aspects of the new auditor’s report.