The role of emotional intelligence in audit reporting effectiveness

Frederick Pokoo-Aikins Business News Jan - 23 - 2024 , 03:19

In a profession that is fundamentally driven by precision, technical skills, and an analytical mindset, an auditor's arsenal traditionally showcases a thorough understanding of accounting principles, audit regulations, audit techniques, and data analysis expertise.

However, as the terrain of auditing evolves, the spotlight has begun to shift towards a more balanced skill set.

While technical competencies remain crucial, an increased emphasis is now being placed on soft skills.

Often underestimated, these include aspects like communication, conflict management, persuasion, negotiation, and most importantly, emotional intelligence.

Emotional intelligence (EI) is rapidly becoming a critical determinant of audit success. It influences not only the effectiveness of individual audit engagements but also the overarching trajectory of a professional auditor's career.

In the realm of internal auditing, the importance of emotional intelligence is even more pronounced—an issue that warrants a deeper discussion in another article.

This article, however, will focus specifically on how Emotional Intelligence impacts audit reporting effectiveness.

The essence of Emotional Intelligence is harnessing the power of emotions positively, a skill instrumental in improving communication, decision-making, and interpersonal relationships within the audit function.

Understanding emotional intelligence

Emotional Intelligence, intrinsically focused on people and interactions, relies heavily on proficiency in two significant dimensions: Self and Social.

A person with high Emotional Quotient (EQ) is someone who exhibits extensive knowledge, a positive attitude, and skillful behavior in both these realms.

Emotional Intelligence, at its core, refers to the capability to identify, comprehend, and effectively manage emotions—both in oneself and in others. It consists of four primary components, each as significant as the other:

- Self-awareness: The capacity to recognize and comprehend one's own emotions. This involves understanding how these emotions can affect thoughts and behaviors, recognizing strengths and weaknesses, and possessing self-confidence.

- Self-management: The ability to regulate impulsive feelings and behaviors, manage emotions in ways that are healthy and productive, demonstrate initiative and commitment, and adapt to changing circumstances. This component also includes being transparent, adaptable, and a keen achiever with a positive outlook.

- Social awareness: The aptitude to understand and notice emotional cues from others, empathize with their perspectives, and recognise power dynamics within a group or organisation. Key elements of social awareness include empathy, organizational awareness, and service orientation.

Relationship management: The knack for developing and maintaining good relationships, communicating clearly, inspiring and influencing others, working effectively in a team, and managing conflict. This component consists of excellent leadership skills, the ability to influence, strong conflict management skills, being a good team player, and the ability to catalyse change and manage complex scenarios.

The role of emotional intelligence in audit reporting

The influence of emotional intelligence in audit reporting is multi-faceted and increasingly significant.

Emotional Intelligence is not just about personal growth; it plays an integral role in how auditors interact with clients and their teams and how they approach and solve problems. Here's how EI can enhance audit reporting effectiveness:

- Improved communication: Auditors equipped with high emotional intelligence can empathize with audit clients, leading to a more effective exchange of information. They can understand the perspective of the client, allowing them to present audit findings in a constructive, non-threatening manner that facilitates improvement rather than causing defensiveness or conflict. Clear, open, and empathetic communication aids in establishing and maintaining a positive relationship between the auditor and auditee, forming the basis for productive future engagements.

- Enhanced decision-making: High emotional intelligence empowers auditors to manage their emotions during stressful periods, maintain objectivity, and make rational decisions. This is particularly beneficial during complex audits, where stress levels can be high, and decision-making capabilities are critically tested.

- Conflict resolution: Conflict is not uncommon in the auditing world. Auditors may often face situations where the audit client disputes their findings. In such cases, emotional intelligence can help manage conflicts effectively. An emotionally intelligent auditor can understand the audit client’s viewpoint, negotiate solutions that satisfy both parties, and maintain a good working relationship despite the disagreement.

- Effective teamwork: The process of auditing often requires robust teamwork. Emotional intelligence facilitates effective team interactions by enabling auditors to understand, respect, and respond to their colleagues' emotions. This understanding fosters a more productive, collaborative, and positive work environment, leading to efficient and successful audit processes.

- Change management: Auditing often involves suggesting changes to improve business processes. However, changes, especially significant ones, can be met with resistance. An emotionally intelligent auditor can empathize with the concerns of those affected by the change, communicate effectively about the necessity and benefits of the change, and help manage the transition smoothly.

Conclusion

The effectiveness of an audit is not solely determined by the technical proficiency of the auditor. It is a blend of technical expertise and emotional intelligence that leads to successful audit reporting. Given this reality, organisations should incorporate emotional intelligence training into their audit training programs.

Simultaneously, individual auditors should proactively seek to improve their EI, understanding that it is as crucial to their profession as their technical abilities.

The benefits are wide-ranging – improved communication, enhanced decision-making, effective conflict resolution, and seamless change management.

With heightened emotional intelligence, audsitors can skillfully navigate the intricate dynamics of their work environment, drastically improving the overall effectiveness of audit reporting.

The writer is an independent Internal Audit Advisor, Enterprise Risk Management Consultant, and professional trainer.

He is the founder and Chief Operating Officer of Redric Consulting, your trusted partner for comprehensive training and consulting services in the fields of Governance, Risk, and Compliance (GRC).

With a proven track record in Internal Audit, Internal Control, Compliance, Fraud Risk Management, and Cybersecurity, Redric Consulting empowers your organization and ensures its success.
You may reach out to Frederick on [email protected]