Internal audit has become an important tool in helping an organization to achieve its objectives. Organizations with internal audit activities are capable to identify business risks, and system inefficiencies and ineffectiveness, take appropriate corrective actions, and ultimately support continuous improvement. And with regards to Audit Committee, its roles and responsibilities are established by board and formalized within its terms of reference, with the result of its work reported to and considered by the board. A key responsibility will be the appointment of auditors, approval of audit plans, monitoring of assurances received and implementation of actions by management to ensure that the internal control environment is operated within the risk appetite established by the board.
Role of Internal Audit
The internal audit function plays a critical role in organizations, perhaps even more so today given their broad business ecosystems, which can present a host of extended enterprise risks. For these and other reasons, the audit committee’s oversight of the internal audit function is as important as its role vis-à-vis the external auditor. When the internal audit function reports to the audit committee, it allows the internal auditors to remain structurally separate from management and enhances objectivity. This reporting relationship also encourages the free flow of communication on issues and promotes direct feedback from the audit committee on the performance of the chief audit executive (CAE). Ideally, their relationship will be characterized by open communications, respect and trust. To achieve and maintain such a relationship demands ongoing attention by both parties. For their part, members of the audit committee should continually ask themselves how they might enhance their relationship with internal audit, particularly with regard to informal communications.
One way to enhance Audit Committee/ Chief Audit Executive (CAE) relationships is joint training involving the audit committee chair and chief audit executive. In another example of effective relationship building, a CAE’s direct reports meet periodically with the audit committee chair and are invited to make presentations to the audit committee. Such interactions provide opportunities for the audit committee to see key members of the internal audit staff in action, a factor contributing to effective succession planning for the CAE.
An open relationship helps build an effective and efficient internal audit activity that provides assurance to the audit committee and the Board of Directors about the organization’s risk management framework and internal controls and can help the organization reach its strategic goals and objectives.
-Sandip Chand, ShineWing India