Transformation of methodology by auditing fashion retailers

Abstract

Fashion retailers are facing unprecedented pressure to address sustainability risks, comply with evolving regulations, and satisfy stakeholder expectations. This Master’s thesis investigates how the internal audit methodology in a large Germany-based fashion retail company is transforming to meet these challeng-es. A comprehensive literature review explores key concepts including internal audit transformation, sustainability risks (ESG – Environmental, Social, Govern-ance), regulatory compliance (e.g., the Corporate Sustainability Reporting Di-rective and supply chain due diligence laws), and stakeholder expectations in the fashion industry. The empirical component comprises five qualitative interviews with internal audit professionals of the case company, providing insights into cur-rent practices and anticipated changes. Findings reveal that internal audit func-tions are broadening their scope beyond traditional financial controls to encom-pass sustainability-related areas such as ethical sourcing, environmental impact, and social compliance. European regulations are a major catalyst, pushing inter-nal auditors to develop expertise in sustainability reporting and supply chain oversight. Stakeholder pressures – from consumers to investors – further drive internal audit to act as both assurance provider and trusted advisor on sustaina-bility matters. The thesis proposes a revised internal audit framework integrating ESG risk assessment, agile auditing techniques, and cross-functional collabora-tion. This framework, along with case-based insights from the interviews, leads to practical recommendations for internal auditors and fashion retail executives. The study highlights the originality of applying internal audit in a sustainability context, ensures methodological reliability through careful qualitative analysis, and addresses ethical considerations such as anonymity and data integrity. Ulti-mately, the research demonstrates how transforming internal audit methodology aligns with circular economy principles and broader sustainability goals, enabling fashion retailers to enhance transparency, accountability, and sustainable per-formance.