The business risk of M&A activity and the role of internal audit function in the risk management process

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The business risk of M&A activity and the role of internal audit function in the risk management process

Nikolaos Dounis, Senior Internal Auditor, Cosmote Mobile Telecommunications S.A., Greece

Mergers and acquisitions represent a dynamic process of corporate culture and strategy. Empirical evidence indicates a high rate of failure of M&A’s to create value for the shareholders of the firms. M&A projects encounter a great number of risks and often end up in failures and loss of shareholder wealth. These exposures are often the reasons that lead to major failures in the financial or operational area for the recently constructed entity. On the other hand, internal audit has evolved significantly during the last years from its traditional role of control orientation to a more proactive, risk based and consultancy role. But despite this evolution, internal audit function has no effective contribution during the M&A activity. Mergers and acquisitions tend to represent the ambition of adding value to the new company and internal audit function can prove that is a “value added activity” during the process and the various stages of a merger or acquisition. This paper will analyze the various risks that are present during the various stages of an M&A project and the role of internal audit activity, taken also into consideration the evolution of internal audit profession to a pro-active risk based function. The increasing importance of merger and acquisition activity to corporate strategy and the record of failure of such strategies in creating value gave the motivation to further analyze the role internal audit function possibly can play in the process.

Nikolaos P. Dounis (BBA, Msc, PhD) is a Senior Internal Auditor at Cosmote Mobile Telecommunications S.A., Athens, Greece. Prior to joining Cosmote he was at PriceWaterhouseCoopers, Athens, Greece working as internal audit consultant. His Master's and PhD degrees were awarded at Cass Business School, City University, London. His main research areas are internal auditing, risk management and corporate governance and his working experience is mainly in Sarbanes-Oxley compliance projects and operational audits. In 2005, he received a PhD colloquium award for distinctive performance and best presentation at the Third European Academic Conference in Internal Auditing & Corporate Governance by the IIA - UK & Ireland and his research was partly funded by the Institute of Internal Auditors Research Foundation.

Cosmote Mobile Telecommunications S.A. is the leading mobile operator in Greece. It is a member of OTE Group of Companies and the market leader in Greece and also has a major market share in the Southeast Europe mobile telecommunications subscribers.

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