The challenge of international audits

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For large companies having operations worldwide, international audits will be the hardest to perform. Language, culture and regulation differences will be the main challenges.

In a large company, International audits are key because international entities should be audited more frequently than domestic ones. Indeed, entities located abroad are more difficult to control by senior management. Their language, culture and regulation difference make them more exposed to risks.

As we will see, it is not possible to perform an International audit on the same principles as domestic ones. If not, only minor facts already known by management would be reported.

Setting up the right level of indépendance of international entities

Before starting, we are here supposing that our large international group directly controls international entities. Of course another possibility is to leave them a wider independence and to limit the control through financials. This setup is not examined here.

Overcome language barrier with fluent auditors or with local support

The first difficulty will of course be the language difference. Indeed audits are based on interviews and documents and therefore will be highly impacted by the language. Nevertheless auditors can overcome this issue if they are either fluent or include local auditors in their team.

Problems will arrise with documents translation. This will probably be only necessary for important documents. Nevertheless I never found external translators able to correctly translate such sensitive facts. Auditors will need to work on it and therefore need to include this translation in the audit schedule.

Auditors education to cultural and regulations differences

Even if international companies tend to build their activities on international standards, countries still have large cultural and regulation differences. Those differences are strongly impacting internal controls and internal audits.

  • Most failures of large companies to start business in a different country is due to cultural differences.
  • A main task of internal audit is to assess the conformity of activity towards regulation. Any regulation difference with the home country may therefore impact the knowledge of auditors.

To be frank, it will be very difficult to overcome those key differences. Of course the best is to use auditors who already know the culture. If none is available, auditors must prepare themselves through education. It will be particularly important for China where almost 50% of companies entering china fail within 2 years. This is the reason for the following Posts dedicated to this country.

Smaller spectrum and longer audits

Language, culture and regulations differences will evidently result in a slowdown and therefore a limitation of the scope of work. The first item impacted will be the audit schedule. As we have seen in a previous Post, audit schedule is critical to yield high value findings.

Without adjusting the spectrum and length, the audit will not have the possibility to go sufficiently deep in the organization. The risk is to end up with general audit findings with low added value.

If you liked this blog, please leave a comment. I plan to consolidate all posts is a white paper: just let me know if you wish to receive it.

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