Ann Stock is a senior and well-known leader in the Internal Audit field who has spent extensive periods with some of the world’s most prominent investment businesses. She is currently a Principal in The Vanguard Group’s Internal Audit function with responsibility for Global Professional Practices, having previously covered the firm’s international businesses and global corporate functions. Ann joined Vanguard in 2012 from State Street Global Advisors, having previously spent twelve years at Fidelity International, overseeing audit, operational risk and compliance. Ann spent her early career in audit with Legal and General plc, having trained as an accountant with KPMG. Here she shares some of the insights and lessons she has learnt from her career in risk, controls and corporate governance.

HK:  Ann, throughout your career in audit, what are the biggest changes you have seen in the discipline?

AS:  There have been some significant changes. When I joined the internal audit department at Legal and General in 1987 as a newly qualified accountant, it was a means to an end. It was a way to escape the accountancy profession, as many newly qualified accountants seek to do, to get a foot in the door in industry, and then move on internally to a ‘proper’ job. Back then, that was the way to do things. Audit was also a department where management could park their less effective staff. Consequently, the perception of audit was not great, and the perceived value that the function could add to a business was negligible. It was seen as a necessary evil, rather than as an integral aspect of a company’s infrastructure. Audit is now very much a profession in its own right, and the discipline attracts and retains top talent, both at entry-level and later in executive careers. Boards and management teams now see audit as a strategic partner to the business, and not just for checking of process controls and other housekeeping measures. Moreover, a well-run modern audit function will live up to that reputation.

HK:  What have you found most unexpected and surprising about your career to date?

AS:  I am continually surprised at the fact that my roles have been so varied and challenging, and that my work is never boring. The fulfilling life of an auditor is one of the best kept secrets of the financial services industry! I was definitely one of those people in audit that was going to get a ‘proper job’ eventually, which I did after ten years. This was a mainstream accounting role in the finance department, which I hated. I took the first possible opportunity I could to get back into audit! It’s definitely a career out of which you can get as much as you are willing to put in. You can be paid for learning and for using your brain power to solve problems. It is also a wonderful function for developing talent, which is a surprise, given it has had a reputation for being a bit dry and uninspiring. As a manager, you can create stretch opportunities for people in your team, allowing them to develop at just the right pace, and you can hone the negotiation and influencing skills of young talent in a safe and supportive environment. The final aspect I have found surprising is that I never expected the amount of overseas travel and international opportunities with which I have been fortunate to have been presented, although it makes perfect sense, because if you’re responsible for auditing a given global business, then there’s no substitute for going to the places where the business is being done, no matter how far-flung. I can honestly say that as a consequence of my audit career, I have good friends in most financial services centres globally.

HK:  You work for a progressive organisation when it comes to leadership culture; Vanguard is known for its commitment to developing its people. What is your view on current talent management and leadership standards within the audit function?

AS:  I’m of the view that audit functions probably vary across sectors and locations in their commitment to talent management, but I think all businesses now recognise the need for top performers in audit leadership roles. In some organisations, audit is a function for ‘high flyers’ to rotate through, before reaching the top in a business line. A form of Utopia would be to turn this around – to have top talent rotate through business functions to reach a senior role in audit. We are not quite there yet, but I do see a shift with audit being increasingly able to attract talent from the business and offer really good leadership development opportunities. The extent to which audit functions are committed to the investment in talent does vary though, and is often a reflection of both the tone from the top, and the calibre of the head of the function. That person’s ability to influence proceedings is a key factor in the audit function’s overall talent agenda.

HK:  Over the course of your career, what has your experience been of the role and effectiveness of audit committees?

AS:  I have seen audit committees that are passive and those that are proactive. The very existence of an audit committee, especially with non-executive directors sitting on it or chairing it, raises the status and gravitas of the audit function. Where audit committees have been most effective is in asking the follow-up questions – asking what is not in the audit report, and what the underlying message of the audit report might be. Although the audit function is independent, audit reports will be subject to ‘word-smithing’ and ‘internal socialisation’, and the Chief Audit Executive (AKA Head of Internal Audit) is sometimes just hoping for that clarification question to be asked by an audit committee member. Also, audit committees whose members engage and communicate with the audit team outside formal board meetings will be better informed as to the real day-to-day concerns of the business, and effective in questioning the issues raised at committee meetings. The audit committee also needs to be proportionate in its response to issues, avoiding unintended consequences of heavy handedness and allocating blame. Taking the more combative, destructive approach can in fact increase potential risks, because those issues might be avoided in the next report for fear of another outburst. Finally, oversight and challenge of efficiency and effectiveness of the audit process, and visible, vocal support for the Chief Audit Executive in getting their work done effectively, regardless of the interests of non-independent stakeholders, is critical.

HK:  On that last topic, do you agree with audit functions reporting directly to the CEO, or are those days behind us?

AS:  I believe that the Chief Audit Executive should report to the Chair of the Audit Committee without question – ideally an independent Chair – and I believe that relationship should involve much more regular contact than simply the quarterly board meetings mandated by regulation. In most places that I have worked, that has been the case, and is very much the norm nowadays. However, the Chief Audit Executive also needs to be part of the organisation’s leadership community and therefore they should have a seat at the CEO’s table. I certainly think that the days of reporting to the Chief Financial Officer are over, or at least they should be, because the finance function can be a significant source of risk and conflicts with audit, in my opinion. Again, to reiterate – it’s important that the Chief Audit Executive’s opinions are heard by the CEO, and vice versa, so there should be a dialogue between the two, which could in some cases be characterised by a reporting line.

HK:  Have you witnessed the audit function having a directly positive impact on the culture of an organisation?

AS:  I have, but it is often a very slow burn, and requires consistent and continuous messaging. Not necessarily through audit reports saying positive or negative things about culture, but through discussion and engagement. Audit is in a great position to identify themes and root causes of issues all the way across a given business, and can see links between functions that might otherwise be missed, and through this, audit can provide a range of insights that might help an organisation to define its culture, and related issues. Substantiating that, with the right consultative approach, I have seen audit directly bring about improvements to the risk and governance culture within organisations. Having this degree of influence requires that the audit function gains trust and respect through its work, which can be difficult, but once there, audit’s influence can be pretty powerful.

HK:  Do you sense that most industries are sufficiently engaged with the audit agenda, and sufficiently cognisant of the benefits of a strong function?

AS:  It’s an interesting question – you often need to strike a balance between the Risk and the Audit agendas, depending on the maturity of these functions. In highly regulated industries – financial services and pharmaceuticals for example – there is strong engagement with audit. I would say there is a geographical difference as well; where financial services regulators have pushed the audit agenda more aggressively (UK, Ireland, Australia, for example) the engagement is much higher.

HK:  What do you think audit functions are still getting wrong, and how might they be improved?

AS:  I think blindly following the annual risk-based audit plan on a recurring cycle, without raising sufficient questions along the way, is not the most effective way to achieve comfort on key and emerging risks. Audit functions need to be forward-looking, and prepared to be nimble in response to market and internal events. Liaison with, and leverage of, other oversight functions, compliance and risk for example, is a challenging issue, which can always be improved upon, so as to arrive at the most efficient use of resources, and the richest insights on governance for use by business and audit committees. Some of these considerations are simply logistical, but some are political, depending on the firm you’re working for. Finally, some audit functions are too focused on ticking the methodology adherence box, thus strangling the natural inquisitiveness of great auditors who might otherwise use their judgement to go the extra step and unearth the critical issues, or make really insightful connections.

HK:  What lessons and thoughts would you wish to pass on to the next generation of leaders in audit, based on your experience?

AS:  Leaders should look for bright and inquisitive talent with sound judgement. Encourage creativity and challenge amongst your teams, and practice it yourself – the audit function is no longer about testing process controls. Data analytics and ‘robotics’ will deal with the bulk of that, although bear in mind, you should understand how those tools work too. Nurture those more creative skill sets though, as they will never be replaced by robots! Treat methodology as a ‘guard rail’, but focus on building trust and relationships across the business, at all levels, and continue to find ways of changing the outdated perception that audit is boring. Audit is exciting, engaging and important!

HK:  Well you have certainly done a great job of doing so over the years, Ann. Your success and the quality of the relationships you have developed is undoubtedly inspiring to your team. We wish you all the best for the next phase of your career.