Internal audit and committee relationship

How internal audit works with the audit committee | Audit committees | Resources | IIA

internal audit and committee relationship

Conversely, a poor relationship between management and internal audit is Limiting internal audit's access to the board or audit committee. Explores the need for a close working relationship between the internal auditor and the audit committee. Examines: (1) the evolution of both internal auditing and . Citation: Al-Baidhani AM () The Nature of a Dynamic Relationship between Audit Committee and Auditors, both Internal and External. Bus Eco J doi.

Usually the audit committee should be composed of three to six members. The European Union requires that there should be an audit committee for each publicly held company; however, each member state has the power to decide on the composition of these committees i. Since it is critical for the audit committee to be independent, the NYSE requires that at least three audit committee members should be independent and have no relation with the company.

internal audit and committee relationship

Similarly, the SEC issued rules to exclude any member who is not independent i. In addition to independence, competency is also taken into consideration as regards the composition of audit committee members. Consequently, we will be looking at three features of such meetings, as follows: Even though it is very important for the audit committee meetings to be frequent, it is noted that most of the organizations do not meet frequently [ 15 ].

Many committees meet on a monthly basis, while others meet on a quarterly basis or even a semi-annual basis. According to the American Bar Association codes ofthe minimum number of meetings is twice a year but this number has been increased to four times a year according to the BRC codes of [ 4 ].

In Europe, the codes are silent on this issue; however some European States, such as the United Kingdom and the Czech Republic, recommended that these meetings are to be times per year. The frequency and duration of these meetings have to be according to the size of the organization and the number and size of issues to be discussed during such meetings. Consequently, while four times a year could be too much for some organizations, twelve times a year could be just sufficient for others.

However, what is more important than the frequency of the meetings is the content and results of such meetings [ 16 ].

What is the relationship between internal audit and the audit committee? - Specialties

In addition to the less-frequent meetings held by many audit committees, it is noticeable that not all of the members attend these meetings. However, the attendees should not be limited to the committee members. The audit committees invite CEOs, internal auditors, external auditors, regulatory bodies, finance directors, and relevant others, to attend such meetings, with whom the committee members discuss issues related to the organization.

The minutes of the meetings should be noted by a specified person describing the issues that have been discussed, the results the attendees reached to, and the relevant decisions that have been made. Additionally, the audit committee participates fully in determining the fees that would be paid to the external auditors.

How internal audit works with the audit committee

Appointing or terminating the head of the internal audit department, or at least issuing relevant recommendations, is also part of the committee activities. The scope of the internal and external audit functions are also determined by the audit committee. However, in this section of the paper, I would focus only on its relationships with internal auditors and external auditors [ 25 ]. Relationships with internal auditors Listing all the tasks of the internal auditors is beyond the scope of this paper.

internal audit and committee relationship

However, I would refer to the tasks that are directly related to the audit committee activities as follows: The relationship between the audit committee and the internal auditors is important for both parties to fulfill their job commitments [ 26 ]. The audit committee is concerned with recruiting and terminating the head of the internal audit, and the frequency and duration of the meetings with the internal auditors [ 27 - 29 ], as well as ensuring that the internal auditors, especially their head, can communicate directly with the audit committee anytime.

internal audit and committee relationship

Whereas the oversight of financial reporting and the monitoring of the internal audit performance are two of the main activities of the audit committee, it is mandatory that the audit committee members, or at least one of them, should have the financial or accounting expertise in order to understand the technical and control issues related to the internal audit to enable the audit committee to review the internal auditors activities and the results they reach to.

Whenever there are problems or obstacles, the audit committee performs the necessary investigations using internal feedback, its expertise, and external consultations if needed. Two important related issues i. Relationships with external auditors Likewise, listing all the tasks of the external auditors is beyond the scope of this paper.

Corporate Governance and Ethics by Zabihollah Rezaee

Let's examine what most would consider healthy and poor relationships between management and internal audit and what it says about the organizations in which they coexist.

Ideally, internal audit should operate in an atmosphere that allows it to function independently. It should have the resources to do its job well. It must have separate administrative and functional reporting lines to the CEO and board or audit committee respectively.

An organization in which management treats its internal audit function in such a way reflects much about its culture.

internal audit and committee relationship

It suggests management has the confidence to have its actions and decisions routinely undergo scrutiny from an informed and independent outside perspective. It reflects that management understands its role and that of the board and audit committee, and one that is eager to identify risks and control weaknesses and improve on those areas. Most importantly it sets a tone at the top that signals unequivocally that doing things right are hallmarks of its culture.

internal audit and committee relationship

Conversely, a poor relationship between management and internal audit is defined by efforts to undermine internal audit's ability to do its job. This signals leadership that shuns scrutiny and will take steps to obstruct or avoid feedback from an independent internal audit function.

Attitude toward internal audit: Management's response to internal audit's inquiries is to circle the wagons and limit access to information.

Carousel of chief audit executives: Management cycles through a number of CAEs seeking one it can most easily control or manipulate.

​​​Internal Audit's Relationship With Management Can Say a Lot About Organizational Culture

Pressure to change or hide findings: Management makes clear it doesn't want to hear the truth. Redirecting or misdirecting internal audit: Management manipulates the choice of audits based on an agenda other than one based on the organization's risk. Manipulating internal audit's budget: