Looking at the evolution of internal audit before and after SOX, a clear trend emerges: intense Public Company Accounting Oversight Board (PCAOB) scrutiny has driven companies to pour significant resources into SOX compliance. While this focus has been critical for financial reporting integrity, it has also created an experience gap in operational auditing. This shift hasn’t just changed what auditors do—it has redefined how the profession approaches risk. 

Before 2002, internal audit played a broader, more strategic role—balancing financial controls with operational efficiency, fraud detection, and risk management. Auditors weren’t just compliance enforcers; they were business partners, collaborating across functions such as supply chain, IT, HR, sales, and customer service. The profession also attracted talent from diverse backgrounds—including operations specialists, engineers, and process improvement experts—bringing a well-rounded perspective beyond traditional accounting and finance.

These multidisciplinary teams developed versatile skills, such as process mapping, root cause analysis, and business-focused data analytics. Audit committees regularly balanced discussions of financial controls with operational risks and efficiency improvements, making internal audit a key driver of business success. 

The corporate scandals of the early 2000s led to necessary regulatory reforms, and SOX introduced critical improvements to financial reporting, while the PCAOB increased audit oversight and accountability. These measures delivered real benefits—more reliable financial reporting, stronger financial controls, and greater audit committee independence, all of which enhanced investor confidence and market integrity. 

 However, as PCAOB scrutiny intensified, companies shifted more resources toward SOX compliance. What started as a necessary adjustment quickly became the dominant focus, with many public companies now dedicating 60-70% of internal audit resources to SOX compliance. This shift has constrained the capacity for operational audits, gradually reshaping internal audit from a balanced risk function to a compliance-driven role. 

For many auditors who entered the profession post-SOX, the compliance-heavy focus has created gaps in key areas: 

• Business Acumen & Operational Knowledge – Internal auditors often view business operations through a financial control lens, limiting their ability to assess efficiency, resilience, and strategic risk 
•  Root Cause Analysis – The compliance framework emphasizes control deficiencies rather than systemic process improvements, making audits reactive instead of preventive 
•  Audit Judgment in Complex Scenarios – SOX’s structured frameworks leave fewer opportunities to navigate ambiguous risks, leading to a gap in professional judgment development 
•  Value-Added Insights – Internal audit often prioritizes control enhancements over operational efficiency recommendations, limiting its strategic business impact 
•  Stakeholder Collaboration – The emphasis on compliance can position internal auditors as enforcers rather than business advisors, affecting engagement with key stakeholders 

 These challenges are not theoretical—they have real business implications. Many organizations face supply chain disruptions, customer experience gaps, and missed efficiency opportunities that go beyond compliance but directly impact performance. 

As the business landscape grows more complex, organizations need internal auditors who provide insights across the full risk spectrum—from operational efficiency to emerging technology risks. That’s why internal audit must broaden its scope—and this shift will require C-suite support to invest in and enable internal audit’s evolution. 

To expand internal audit’s impact, we must: 

• Broaden Risk Assessments – Evaluate operational risks alongside financial reporting risks to create a holistic risk perspective 
• Develop New Skills – Introduce rotational programs, process analysis training, and mentoring to build operational expertise 
• Reallocate Resources Wisely – Maintain SOX compliance excellence while gradually increasing focus on operational risks with specialized teams 
• Diversify Talent – Bring in professionals from operations, engineering, and process improvement to complement compliance auditors 
• Leverage Technology – Use automation and AI for SOX testing to free up resources for higher-value operational audits 
• Advocate for Regulatory Evolution – Encourage the PCAOB and SEC to explore principles-based approaches that support broader risk management without compromising financial integrity 
• Enhance Academic Preparation – Universities can integrate operational risk management into internal audit education to better equip future auditors. 

The internal audit profession has a critical opportunity to evolve—building on its strong compliance foundation while expanding into operational risk management and strategic advisory. But this shift won’t happen without executive leadership. 

The C-suite must recognize that internal audit isn’t just about mitigating downside risk—it’s about protecting business viability and creating a competitive advantage. That means investing in skills, expanding audit scope, and embracing a more holistic approach to risk. 

The path forward depends on audit executives who can build on compliance strengths while expanding operational audit capabilities. By equipping auditors with new skills and tools, they can foster a more holistic approach to risk—one that balances financial controls with broader business strategy. 

By taking these steps, we can empower today’s auditors to expand their impact—helping organizations navigate risk, drive operational improvements, and unlock new opportunities for resilience and growth.  

Want to explore how your internal audit function can go beyond compliance and drive business impact? Let’s talk about how our expertise can help expand your team’s capabilities. Reach out to learn more.