Internal audit's involvement in environmental, social and governance assurance and consulting

This thesis by publication examines the provision of assurance and consulting over environmental, social and governance (ESG) areas by internal auditors in the Australian context. The thesis consists of three papers based on a sequential mixed methods design comprising a survey in Stage 1 and semi-structured interviews in Stage 2 of the thesis, both conducted with internal auditors. The thesis aims to further our understanding of the nature and dynamics of internal audit's involvement in ESG areas by investigating three key objectives.•What is the nature of internal audit's involvement in ESG areas?•Why is internal audit involved in ESG areas?•How does internal audit facilitate its expansion and embed itself into emerging ESG areas?The first paper provides the context for the study by investigating the current state of play with respect to internal audit's involvement in ESG areas. It examines internal auditors' perceptions of the current and future importance of these issues to internal audit and the adequacy of their skills and expertise in meeting the challenges associated with their involvement in these areas.Using data from a survey of chief audit executives and service provider partners of internal audit services, the study found that respondent internal audit functions were involved in providing assurance and consulting on a diverse array of ESG issues, with greater involvement in assurance services relative to consulting services. While internal audit predominantly focused on governance issues, Paper 1 reports that environmental issues were generally expected to increase in importance in coming years, with a corresponding need for internal auditors' skills in environmental areas in greatest need of further development.The second and third papers address the question of why internal audit is involved in ESG areas. Paper 2 examines factors associated with the extent of internal audit's involvement in environmental and social issues using data collected from the survey in the first stage of the thesis. The findings indicate that management support for internal audit's involvement in ESG activities is the key factor associated with the extent of the internal audit function's involvement in assurance and consulting over these areas. In addition, internal audit functions in organisations operating in sensitive industries, and with higher levels of external ESG reporting, were found to be associated with greater involvement in assurance over environmental and social issues. Interviews conducted in the second stage of the study and reported in Paper 3 reveal that changes in the regulatory environment, as well as related increase of the board and management awareness and sensitivities to the importance of managing risks associated with emerging ESG areas, is also an important driving factor. ii Paper 3 examines the dynamics of internal audit's involvement in ESG areas, focusing on how internal audit facilitates its expansion and embeds itself into emerging ESG areas. The study finds that support needs to be obtained at the board and management levels, and that internal auditors employ a range of strategies to obtain this support, including mobilising the rhetoric of regulation and reputation, (different types of) expertise (through various means), transparency and consultation, and the consulting role of the internal audit function.Collectively, the thesis contributes to the extant internal auditing and sustainability assurance literature and highlights the diverse nature of internal auditing in practice, as well as the capacity for internal auditors to drive integrated thinking and assurance over emerging ESG risks. The findings also have practical implications for internal auditors, other assurance providers, professional bodies and regulators.