Should Internal Audit Report to the Audit Committee Directly?

IIA President and CEO Richard Chambers explains the significance of these findings, “The higher up in the organization a CAE reports, the more objective that individual can be in overseeing audits of tough areas of responsibility and the more independent the internal audit function becomes in the eyes of stakeholders. It enhances the credibility of the CAE and the internal audit function across the rest of the organization.”

The survey also showed that 32 percent of Fortune 500 companies who participated had one or more senior officers let go for ethical/conduct issues. The IIA encourages companies continue to improve their red-flag systems, by conducting ethic trainings not only for new hires, but for the entire staff as often as possible.

We at Vibato have witnessed the impact of reporting directly to the Audit Committee firsthand and we can attest to the effectiveness of this approach. It has been our experience that companies who require us to report directly to the management team under audit typically experience higher audit fees because their external auditors do not consider us independent and therefore will not rely on our work. Additionally, in 100% of these cases, the management team has tried to edit our audit reports to lessen the severity of the issues identified prior to escalating the final report to the Audit Committee themselves. We find this approach defeats the effectiveness of having an unbiased third-party perform an audit. Please share your experiences on this topic with us!

A free copy of the survey from the IIA can be found here: http://www.theiia.org/cae/news-releases/