Internal Auditor: Finland - Finnish internal auditing practices

The origin of internal auditing in Finland dates back to around 1951, the same year Finland was invited to join the newly formed IIA Scandinavian Chapter. The other member countries included Denmark, Norway, and Sweden. The first Finnish chapter members represented various sectors of the economy, including industry, academia, the City of Helsinki, and the Finnish Institute of Authorized Public Accountants.

The Scandinavian Chapter split in 1956, and Finland established its own IIA organization. Throughout the succeeding 15 years, Finland's internal auditing efforts focused on controls over administration, funds, and bookkeeping. A list of conference topics from 1955-1968 reveals the challenges these early internal auditors faced: profitability, controls of sales and administration, internal controls, insurance and loan process, organizational politics, centralized or decentralized accounting, and profitability of information systems.

By 1970, the internal auditing profession had added analysis and audit of various functions, systems, and methods to its role. Internal auditors ensured that the mission statement and business idea were followed. They implemented operational controls; audited information; made suggestions; advised, counseled, and educated personnel; and aided the company's external auditors. In performing these duties, internal auditors hoped to help management better perform their jobs - a goal very similar to that of modern internal auditors.

Today, practitioners in Finland perform operational, compliance, or financial-based audits, with an emphasis on assessing the organization's control system and control environment as a whole. The savings banks' debacles, the "quality movement," and the banking crisis in the early 1990s had already focused internal auditors' attention on internal control; but it was COSO and the collapses of BCCI and Barings that finally cemented that emphasis.

Media coverage of the collapses, coupled with numerous discussions at educational seminars, brought broad-scale attention to the control system. Efforts were made to ensure that employees at every level and from every function in the organization recognized the seriousness of control problems.

In this area of control and risk-assessment, internal auditors typically act more as consultants or partners with management. For example, while management is responsible for organizing appropriate and sufficient control over a company's use of funds and its bookkeeping, they often rely on internal auditing's expertise and experience to accomplish their goals.

Finnish internal auditors are often involved in assessing and analyzing (1) the organization's production or service processes, (2) plans for change in a particular function, (3) corporate strategies, (4) human resource or other resource management issues, (5) risk management, and (6) special projects and campaigns. As information systems become more integral, internal auditors will become more involved in audits of technology.

Conservative estimates indicate that 700 to 800 internal auditors practice in Finland, most with master's degrees and a major in accounting or finance. When those who may conduct traditional internal audit duties under different job titles - such as directors, controllers, engineers, lawyers, accountants, and auditors in particular industries like government, forestry, and insurance are included, the number grows even larger. Most of Finland's internal auditors work in banking and insurance (22.5 percent); industry, including manufacturing (20.8 percent); state and community government (19.6 percent), and commerce (8 percent). While no law mandates internal auditing in any business in Finland, the Financial Supervision regulatory body indirectly requires the existence of an internal audit function in banks.

The primary challenges faced by Finland's internal audit population include:

* Promoting the internal auditing profession.

* Establishing effective and efficient internal control systems and good corporate governance.

* Certifying true and valuable professionals.

* Understanding and using the IIA's Standards and Code of Ethics.

* Addressing today's hot topics - corporate governance, COSO, the

Standards, ethics, quality, and benchmarking. Finland's internal auditors are meeting these challenges by analyzing the risks and control systems at their organizations' various levels; discussing, consulting, and suggesting improvements; and emphasizing the value of effective and efficient controls, control systems, and corporate governance.

The Finnish chapter became a national institute in 1994. As the country's primary internal auditing professional body, IIA Finland and its 370 members and volunteers strive to help the profession meet its challenges. Since 1993, the CIA has been the only professional certification for internal auditors offered. To date, 30 internal auditors have earned this designation. In partnership with Finland's external auditor's association, IIA Finland jointly publishes a newsletter and a monthly magazine. IIA Finland also organizes seminars and courses, and supports internal audit research at business schools.

FINLAND AT A GLANCE

GDP $123.5 billion Average annual inflation (1985-94) 3.5% Principal export: Metals/engineering equipment $17 billion Exchange rate: Markka per dollar 5.5 Land area (sq. km) 338,145 Population 5.1 million Religion 86% Lutheran Languages 96% Finnish/6% Swedish Life expectancy 77 years Adult literacy rate 99% Crude birth rate (per 1,000 population) 12.5

Based on information from The Economist and Blue Wings Magazine of Finnair, 1997.

RELATED ARTICLE: A Mecca for Technology?

A recent New York Times article describes Finland as "the most wired nation in the world." Nearly 33 percent of the Finnish population carry mobile phones, and the number has been increasing annually by 27 percent. Figures indicate that there are currently 62 Internet host computers for every 1,000 Finns - double the proportion in the U.S. In a recent three-month period, roughly 570,000 Finns used the Internet, reflecting a 21 percent increase over the previous three months.

Olli-Pekka Heinonen, Finland's Education Minister, says that within two years, Finland will spend 2.9 percent of its gross national product on computer-related research and development. In 1997, government and industry spending will reach $417.5 million to educate one million students and adults on Internet usage, he says.

Finns are moving their banking, shopping, and socializing to the virtual world faster than any other population. They rely on "electronic wallets" and cash systems to order stamps, play roulette in electronic arcades, purchase groceries, attend courses hundreds of miles away, and make financial transactions. Merita, Finland's largest bank, provides more than three million account holders with secure, electronic access by computer.

Such sophisticated payment systems force Finnish auditors to remain current on Internet development. In addition, issues of security and firewall protection have been important to auditors whose companies advertise on the Internet.

The use of the Internet to help perform audits depends on individual auditors and their companies' choices of wide area networks (WANs). For a glimpse of what the future may hold for Finland's internal auditors, however, one can look to the dusty, silent fax machine in the back corner of the auditor's office, says Ilona Halla, Senior Auditor for OKOBANK Group Central Cooperative. Once a primary tool, faxes are becoming obsolete as more auditors use e-mail for instant communication. Johan Helsingus, chief executive of Eunet Finland, one of Europe's largest Internet providers, told the Times: "In my company, staff is wired 24 hours a day. This is no joke. Being wired all the time is the shape of the future."

Ilona Halla is Senior Auditor for OKOBANK Group Central Cooperative in Helsinki, Finland.