When strategy and audit meet to spell business success
Roberto Manabat
Roberto Manabat is the founder and former chair/chief executive officer of KPMG R. G. Manabat & Co., a member firm of KPMG International.
He was a member of KPMG International’s global council, as well as the Asia-Pacific Board of KPMG International. He was also a former chair of the Auditing & Assurance Standards Council, the auditing standard-setter in the Philippines. He is now an independent director/adviser in a number of listed companies.
In this interview, Manabat shares his thoughts on strategy and audit.
Q: How has the role of the chief audit officer changed in the last few decades, and how has it influenced and shaped today’s corporate and business strategy?
A: The role of a chief audit executive has evolved from a fault finder and an internal control watchdog to now being part of management, with emphasis on risk management. This evolution has turned the CAE from a police officer into a partner of management in achieving the entity’s business objectives. Successful managers now realize that they have to consider the various risks faced by the company in formulating their strategies and the important role that the CAE plays in addressing those risks.
Q: What business metrics do you think are overrated and underrated? Why should we use more or less of these metrics?
A: Metrics based on historical financial statements (e.g. current ratio, asset turnover, receivable aging, etc) have been used in the past and are now overrated. Underrated in the past but are now in vogue are forward looking metrics. For example, in evaluating collectibility of receivables, we now look at expected credit losses. We also have a lot of scenario planning especially in these disruptive and uncertain times. In addition, nonfinancial information are gaining traction. The business community now looks at metrics focusing on the environment, social and governance matters, which are not necessarily based on the financial statements.
Q: What key business metrics should CEOs be focusing on during the COVID-19 pandemic and why?
A: During this COVID-19 pandemic, performance metrics concerned with enterprise resilience should be the focus. This will comprise financial resilience (stress testing, liquidity, crisis response and contingency planning), operational resilience (crisis management, people, supply chain, tech and data, property protection and fraud risk) and commercial resilience (products & services and changing customer behavior). Focus on resiliency will ensure that companies will ride out this pandemic as well as any other disruptions that may be forthcoming.
Q: What new revenue model or business model trends have you seen emerging during the COVID-19 pandemic, and do you feel they will stay afterward?
A: The most important stakeholders of a company are its employees, customers and suppliers. Because of continuing health concerns even post-Covid, online transactions and e-commerce are expected to be the trend. As a result, business or revenue models that will leverage on digital capabilities will emerge.
Q: What are the top challenges CEOs are facing risk-wise, and how can audits help them?
A: I believe it depends on the industry of the company. However, there are some that are top of mind in most industries such as technology, cybersecurity and people risks. I will add supply chain risk for those in manufacturing; regulatory risk for the highly regulated ones. Internal audit, as part of the control function, plays an important role in seeing to it that the mitigating controls are really working to address the risks that are part of the company’s business.
Q: From an audit perspective, what marketing practices should companies improve?
A: Customer centricity, which is the current marketing slogan, basically means satisfying customer wants by creating engaging experiences throughout the customer life cycle. This means that the entire organization—front, middle and back—is aligned to deliver on its brand promise and customer expectations. The audit function comes into play more at the middle and back portions to ensure that things like timely deliveries, accurate accounting of transactions and reconciliation of balances, among others, happen on a routine basis.
Q: How can audits be integrated best as part of strategy?
A: Control functions like audits, risk management and compliance, should be given a seat at the table and be considered as partners of management. They will be there to ensure that the strategy is properly set and monitored.
—contributed
Josiah Go is chair and chief innovation strategist of Mansmith and Fielders Inc. His seminar schedules can be found at www.mansmith.net
