You are on page 1of 7

The Art Of Auditing

Internal Auditor, August, 2000 by Lawrence Metzger "Creativity" and "auditor" are not contradictory terms. In fact, creative thinking is the linchpin of effective internal auditing--and it's a skill you can learn and polish. The work of internal auditors is as much an art as it is a science or technique. The internal audit process encompasses far more than a series of rote checklists; it is much more akin to an archeological dig, where layers of information are methodically uncovered. To connect and understand the layers of organizations, the internal auditor must be able to think creatively. Not only is creativity an inherent aspect of successful internal auditing, but it has become a hot, sought-after commodity in all fields. In his book Jamming, John Kao observes that we are living in an age of creativity. He argues, for example, that global competition is increasingly about a company's ability to mobilize its ideas, talents, and creative abilities. Kao maintains, along with other observers, that companies will increasingly be measured by their knowledge, and he emphasizes that creativity is the crucial variable in the process of turning knowledge into value. Knowledge is more than mastery of facts and data; it is also insight-the ability to see into a situation and make connections. Ideas are interconnected insights that we can grab and run with. And it is creativity that enables the transformation of one form of knowledge to the next. Kao states that "today's creative player is someone who picks up--faster, more deftly, and more usefully than others--the conflicts that need resolution; the gaps that need filling; the hidden connections that need drawing; and all the quirky, and possibly profitable, interrelationships that can be discerned in the new oceans of information." It's a definition that uncannily seems to sum up the demands of internal auditing. ENHANCING CREATIVITY The ability to generate novel responses to problems and challenges is a basic human ability. Creative thinking is a skill that can be learned. We all have the capability to innovate and think "outside the box." Developing the habit of creative thinking takes effort, however, plus patience and a willingness to change our views. Robert Grudin, author of The Grace of Great Things, describes 10 habits and attributes that are linked to expanded creative powers. 1 A passion for work. The first and most powerful sign that individuals are committed to a life of creative endeavors is their sense of intensity: They want to see, explore, understand, experience, and go beyond what is already known.

In many ways, our work defines us. We need to identify with it and see it as an expression of our own character. In his book, The Care of the Soul, Thomas Moore states: "Work is sacred. Work is a vocation. We are called to it. But we are also loved by our work. It can excite us, comfort us, and make us feel fulfilled." 2 Fidelity. Staying in contact with your challenges is an essential aspect of creativity. For an auditor, who usually has to work under tight time constraints, fidelity involves developing a calm attention to detail. In the short run, it means developing a habit of intense concentration. 3 Love of the problematic. The auditor's constant need to balance issues such as change, ambiguity, risk assessment, and cost-benefit issues may make the audit process seem chaotic. But auditors need to embrace chaos, make it their own, and develop a love for the problematic. They should be attracted to pieces that do not totally fit. At times they may need to emphasize processes rather than particular solutions. 4 A sense of wholeness. Creative thought often expresses itself as a sudden connection or dosed circuit between ideas that previously seemed disconnected. It is crucial for auditors to understand the connections and layers in their organizations. Auditors must be aware of the relatedness of systems, such as operating and reporting systems, and the way employees connect with the overall organization and themselves. Seeing connections and layers--and achieving a sense of wholeness--requires a high degree of technical knowledge. In fact, creativity and expertise are closely linked. Creativity almost always is dependent on a high level of familiarity with a subject area. 5 Boldness. We often regard innovators as "bold"; and it's a valuable concept for auditors, who must often devise original and creative ideas to help the organization. But in thinking the original, we sometimes risk thinking the ridiculous. When we think creatively, we often walk near the edge of chaos. Auditors must develop the courage to explore new ideas but be willing to reject invalid ideas once they are seen for what they are. 6 Consequence. Auditors must know that their work matters. They should view everything they do as a process rather than just as a project with deadlines and a completion date. When "consequence" becomes a habit, patience to complete work that is sometimes slow, tedious, and difficult may be inspired. 7 A sense of time. The notion of "that's the way we have always done it" is of little value in today's world. Such preconceptions can detract from valid insight. Auditors who insist on building exclusively upon past findings set themselves up for defeat. What was done last year or what various sources tell you may or may not be valid. At the same time, auditors must walk a fine line in this area. They need to use the past when it is useful and yet project their own current impressions into the situation. There

is an interrelationship between past, present, and future. The auditor must connect all three. 8 Courtesy. In a book about the Nobel physicist Richard Feynmann, author James Gleick writes, "Tiny errors, tiny gaps in our knowledge are amplified by the interaction of complex systems until they reach large scales." In this context, courtesy refers to the creative mind giving respect and patience to the smallest detail. Minute anomalies in detail can inspire revisions in general laws. For an auditor, seeing the trees in the forest is essential in detecting problems in a particular system. 9 Memory. Creativity is profoundly linked to memory. The mathematician Stan Ulam once stated, "What we call talent or genius...depends to a large extent on the ability of one's memory to properly find analogies, past, present, and future, which are essential to the development of new ideas." If nourished and attended to, memory offers up new-and sometimes invaluable--ideas. 10 A sense of openness. Auditors often see their jobs as a series of defined, discrete projects with a given time frame and at least some degree of closure. The issuance of a report, perhaps with some follow-up procedures, illustrates this sense of the finite. But creative people see the world of inquiry more as an unfinished product. Completion of one project opens up avenues for new thought. Incompleteness and emptiness seem to beckon inventive people. They understand not only that things can change, but that they must. INSPIRED AUDITING When precise aspects of creativity are identified and compared with elements in the practice of internal auditing, many correlates emerge. For example, the many aspects of analytical thinking--the auditor's stock-in-trade--are also integral elements in creative thought. ANALYSIS The process of analysis--an activity in which reason and emotion combine to open the mind to new discoveries--involves breaking something down into its constituent parts and reviewing it systematically and objectively. Financial statement analysis, variance analysis, and cost-benefit analysis are familiar examples. Auditors perform analysis when they evaluate data or other relevant information and express conclusions about the data. In fact, analysis is an integral part of running and evaluating a modern organization. When a problem is separated into its constituent parts, however, we risk losing sight of its contextual meaning. To analyze something in its full context, auditors need an understanding of the whole, a sense of goal and value. As an auditor interprets data, notes relationships, and draws conclusions, the subject is no longer raw or alien but absorbed fully into the mind. Thus, true analysis is more than a breaking-down process; it is the re-creation of a subject under study.

DISCOVERY The concept of creative discovery can also be applied to the internal audit process. Discovery normally occurs via two main channels of thinking: analogy, the unexpected resemblances between two or more events, and anomaly, the occurrence of unexpected distinctions. The analogies that inspire discovery may be interdisciplinary, which link apparently disparate fields of experience, or intradisciplinary, which establish new connections between elements within a single field of experience. Interdisciplinary discoveries occur in the audit cycle when issues in different systems connect together. Making such connections can be difficult because they are not always obvious or intuitive; they require auditors to move to another level of thinking. For example, production difficulties may be traced back to the purchasing department, which has been meeting price budgets by purchasing inferior material. Intradisciplinary discoveries are usually associated with some form of repetition. When certain events repeatedly occur under differing circumstances, the presence of a unifying, underlying reason is suggested. In internal auditing, statistical sampling is often associated with these types of discoveries. Although discovery by analogy comes through the unexpected perception of order and organization, discovery by anomaly is provoked by a feeling that something just doesn't make sense. Having noticed the anomaly, we sense that we cannot explain it in terms of our current view, but rather must alter our view to accommodate what we have found. As auditors perform their work, they are constantly on the lookout for unusual situations. These situations may be found by chance or by conscious effort. Sometimes auditors discover something; sometimes they don't. ALTERNATIVE APPLICATIONS Creativity also involves the ability to take existing objects and combine them in different ways for new purposes. For example, Johannes Gutenberg took the wine press and the die punch and produced a printing press. Henry Ford conceived of a better way to mass-produce his cars from a visit to a slaughterhouse. Thomas Edison's idea for the first multiplex telegraph was based on the workings of a water pump. Although internal auditors are likely to apply their creative energies less dramatically, they are similarly engaged in generating novel, useful ideas and solutions to everyday problems and challenges. THE CREATIVE EDGE In today's environments, thinking imaginatively and coloring--or painting--outside the lines are powerful assets. "The most important attribute of success in the workplace of the future will be openness to new ideas and concepts and adaptability in the supplication of new knowledge," G.D. Kuh, an expert on learning issues, has stated. "Knowledge must be constructed rather than merely absorbed."

The "creative edge" is more than a myth. Internal auditors may need to change their self-image and emphasize and enhance their creative thinking skills. The rewards will include heightened value to the organization and a higher level of personal satisfaction. ROADBLOCKS TO CREATIVITY * People who try to please or otherwise gain acceptance seldom seem creative. They limit their work and thoughts to what has come before them and what has been established by others. For example, mechanically following audit checklists because that's the way it has always been done may satisfy management but does not in itself allow for original thinking. Indeed, the thinking has already been done. Auditors will not discover much if they have strong expectations about what they will find and then project these expectations into the future. In their analyses, auditors may miss or dismiss nonconforming data that could have provided new insight. Anomalies are overlooked. Rigid, programmed thinking makes it difficult for people to be creative. * A poor or underdeveloped memory will make it difficult for the professional. to make connections and can hinder creative thought. * Many people are not creative because it is not expected of them. People going into accounting and auditing may not have believed that they were creative and, therefore, chose a field they thought would not require creative thinking. Auditors must say to themselves, "I am a creative person." When they say it, they will begin to believe it; and then they will become interested in seeking out the skills needed to develop this belief. It confirms the old saying: "Whether you think you can or whether you think you can't, you're probably right." * Humorless people respond sluggishly to experience and are unlikely to discover much. So every auditor worth his salt will develop and hone a sense of humor. * Not working on weak areas can seriously hinder creativity In today's complex and changing world, it is difficult to keep skills at a high level. We must review and periodically revise not only what we do best, but also where we need to improve. * Finally, competitive instincts can impede creative thinking. When we compete with our peers, we limit ourselves to their models of expertise and end up playing their games. BUILDING A BETTER PAPER CLIP In his book Invention, author Henry Potoski asks readers to contemplate the ordinary paper clip. Few of us give much tought to this low-tech piece of office equipment; but if we do, a substantial list of deficiencies emerges. For example, paper clips: * Go on only in one direction. Half the time, the user has to turn the clip around before applying it.

* Do not just slip on. The user must first spread the loops apart. * Do not always stay on. The clip easily becomes snagged on papers or other objects and often gets pulled off. * Tear papers. The sharp ends of the clip can dig into the papers when it is removed. * Do not effectively hold large quantities of paper. The clip either twists badly out of shape or flies off the pile. * Often become hopelessly tangled with other paper clips in the box. * Bulk up stacks of papers, increasing file space. Yet, how many of us have asked: Could I improve on the paper clip? The tought process of determining the various deficiencies of the clip--and finding ways to improve on it--is very much the same process that internal auditors should bring to their assignments. THE FIVE PHASES OF CREATIVITY Preparation: The initial stages of the creative process involve analyzing the task at hand, gathering data, looking for patterns, trying out ideas, and questioning assumptions. Sometimes a problem needs to be redefined. Patience and discipline are critical at this stage. Frustration: When issues cannot be resolved or ideas are not bearing fruit, frustration sets in. We doubt our ability and may turn away from the project; but frustration is part of the process. It can be a single that something is missing, or that something else needs to be done. Certain aspects of the problem may not have been explored, or hidden assumptions may have led us astray. Frustration can be a single for us to develop our skills, seek more information, or get help from others. When frustration sets in, it may be important to work less, while listening and learning more. Incubation: Ideas need to incubate before they can hatch. At this stage in the creative process, leaving the problem alone and doing something different may be an effective tactic. In essence, we turn the problem over to our unconscious for a while. For auditors, this step is often difficult, especially when they feel pressure and cannot take time off. Insight: Ideas that were previously unrelated can suddenly come together, sparking a new concept. Insights can come to us as images rather than words. Walt Disney, for example, would draw his famous characters on pieces of rubber and then pull and stretch the material to see what the new figures looked like. In this phase, self-trust is a critical component.

Working Out: The creative process is incomplete without this phase, which gives from to an idea. You must be willing to expand on your ideas, test your insight, and be prepared to see each failure as new data that moves you closer to success. The creative process is not linear, but dynamic. Any phase can lead to another phase, an any phase may be experienced many times. Adapted from Handbook for Creative and Innovative Managers, by Robert Kahn. COPYRIGHT 2000 Institute of Internal Auditors, Inc. COPYRIGHT 2002 Gale Group LAWRENCE H. METZGER, PHD, CPA, CMA, CFM, is Associate Professor of Accounting at Loyola University in Chicago. Bibliography for: "The Art Of Auditing" Lawrence Metzger "The Art Of Auditing". Internal Auditor. FindArticles.com. 04 May, 2010. http://findarticles.com/p/articles/mi_m4153/is_4_57/ai_64568699/ COPYRIGHT 2000 Institute of Internal Auditors, Inc. COPYRIGHT 2002 Gale Group