In late December, I wrote about the five events that defined the past decade for internal auditors. It is too speculative (and far too early) to predict any defining events for the next decade. However, I do have some views on key imperatives that internal auditors must pursue if we are to build on the success we enjoyed during the past 10 years.

In the event you missed it, the U.S. Securities and Exchange Commission (SEC) announced the adoption of new rules on enhanced proxy disclosures (PDF) December 16, 2009. The new rules will likely have far-reaching impacts on risk management and corporate governance in the U.S.

One of the most significant developments of the internal audit profession in the past decade has been its rise in stature relative to audit committees. A decade ago, a chief audit executive (CAE) with a functional reporting relationship to the audit committee was considered a “leading practice.” Today, it’s the norm.

As the decade comes to a close, the media seems to be awash with reports reflecting on milestones of the 2000s. Some have focused on the top new stories of the decade, while others focus on entertainment milestones, such as the best movies or sports events over the past 10 years. This has gotten me thinking about the most significant events of the past decade that have impacted the profession of internal auditing. I’m sure there were many events in global regions or individual countries that would make the list depending on where you practice internal auditing; however, I’ve compiled my list of the five events that defined the decade for internal auditors.

Throughout my career of more than 30 years as an internal auditor, I’ve seen several recessions come and go, and the impacts on the internal audit profession (WMV video file) have followed predictable patterns each time. I’ve seen operating environments shift and require internal auditors to reach into their skill toolbox and demonstrate their agility and versatility. The recessions we’ve experienced in the past, and the one we’re facing currently, also foster an environment much more conducive to fraud schemes, and the internal audit activity is in a perfect position to show its value during these times.

One of the most predictable consequences of corporate financial failures is the inevitable finger-pointing that follows. There was plenty of finger-pointing following the Enron, World-Com, and other failures of the early 2000s, and it was sure to happen again following the financial failures of the past two years. Lately, however, I have noticed that the accusations are literally “going global.” As important as it is to understand the contributing factors, I believe it’s time to move forward with the design and implementation of corrective measures in corporate governance and risk management that will effectively mitigate the risks of calamities of this magnitude in the future.

As I have commented often in recent months, the current economic crisis has not been kind to internal auditing. Granted, we have not seen the level of layoffs or staff reductions that we may have seen in other professions, but there is plenty of evidence that our Sarbanes-Oxley era of prosperity has come to an abrupt halt. Following years of healthy growth, many internal audit activities reported budget and staffing reductions in 2008. This pain was nothing compared to what 2009 would bring. A recent Knowledge Alert (PDF) from The IIA’s Audit Executive Center reports on the results of a North American survey about the impacts of the economy on internal audit activities. The Knowledge Alert notes that 23 percent of all responding organizations — as well as 34 percent of survey respondents working for Fortune 500 companies — report that their internal audit staff levels had been reduced in 2009. This is a far cry from the year-over-year, double-digit increases that were being posted in 2004 and 2005.

Greetings from Canada, where I am attending the second annual Canadian Conference in Quebec City. I am impressed with the energy and enthusiasm of the profession here, and the conference has been packed with informative and timely sessions that address the challenges and opportunities facing internal auditors. The conference will close with an afternoon Canadian Audit Leaders Forum, and I have been asked to deliver some remarks to open the event. Among other topics, I plan to highlight for the audience what I view as the characteristics of a highly successful 21st century chief audit executive (CAE).

Greetings from San Diego, where The IIA’s aptly titled conference, “Internal Audit Solutions for Tough Times,” is wrapping up. It has been a great event with some very thought-provoking discussions on how the global economic crisis is impacting our profession. In a pre-conference survey of U.S. internal audit practitioners, we learned:

I have often characterized internal auditing’s journey over the past decade as being one from “the back room to the board room.” Following the spectacular corporate failures in 2001-2002 — and the subsequent regulatory and legislative response — internal auditing found itself front and center with the audit committee and other members of the board. The rapid elevation of stature was reflected in reporting relationship statistics. In 2002, The IIA found that only 55 percent of U.S. chief audit executives (CAEs) reported functionally to their audit committees. By 2007, PricewaterhouseCoopers found the number had leaped to 86 percent. In the past two years, internal auditing’s emphasis on assessing the effectiveness of financial controls has abated significantly. Given the shift in emphasis, I believe there is a real threat that some audit committees may lose their newfound interest in internal auditing.