Hi,
I Analyse the intercation between Audit committee, intarnal Audit and statutory Auditor in Audit process. Internal Audit is a function subordinated to the Management. Otherwise Audit committee and statutory Auditor doesn't have a direct acces to the work of the internal Audit.
Please could you tell me, how to improve the effectiveness of internal audit in the audit process for a better Corporate governance in Two-Tier and One-Tier Systeme?
Dear Nadine,
In my opinion, if you need to improve the effectiveness of the internal audit proces, the objective of the internal audit should be clearly established. If it is fault finding in the processes and reports to the audit committee, then it will not get the support of the processes in the forthcoming audits.
I strongly feel, corporate governance should be examined for compliance in the internal audit as well as possible suggestions for improvement in the processes needs to be advocated as an outcome of the internal audit.
In many organizations, internal audit department does the police man job and eventually it fails to serve the purpose it is meant for.
Effectiveness in general is the outcome measure for the purpose it is intended for. If the internal audit team does not understand and does the police man job and uses blame culture, the effectiveness will derail for sure.
Hope this helps.
Regards.
Dr. Sekar Gopal.
You may want to read the following relevant paper. Meanwhile, I have a number of papers published in this regard; you may want to check them out.
Effectiveness of internal audit as instrument of improving public Sector managementAO Unegbu, MI Kida - Journal of emerging trends in economics and …, 2011 - journals.co.za
It is interesting. You need to consider how the internal audit structure affects its performance. Specially it is important to consider Independence of the internal auditors from different perspective. It may be helpful to look into the COSO framework too.
Internal audit is the part of the corporate governance. Internal audit must be conducted based on written procedures. It is important to note that each major function of the company has to have written procedures otherwise internal audit can not be effective. Audit committee is responsible for the smooth functioning of the internal controls and financial reporting. Accordingly internal audit reports are an important feedback for the audit committee. This feedback and with the help of internal auditors external audit procedures and costs can be reduced.
Dear Nadine,
I believe the answer to your question relies on the definition of the
effectiveness of the internal audit. Can we measure it ?
Effesctieness from the high level managemrnt point of view ?
Dr Hertzel Cohen
Nadine:
Great topic. Two points:
1. Compensation of Management must be impacted by performance on internal audits and responsiveness to internal audit findings.
2. Through internal reports and performance metrics, management should be performing continual risk assessments of their own business units. The internal audit group should be included as a recipient of this report. This way, performance can be improve prior to the enventual internal audit.
I hope these ideas are helpful.
Richard Ross
Dear Nadine:
I think that the implementation of the three lines of defense (3LoD) model is determinant. Internal audit must be organized as a quasi-separated body , clearly distinguished from the management departments. Within this framework, it is convenient that the internal audit unit depends on a non executive chairman and directly reports to the board of directors.
Best Regards.
José Domínguez
University of Málaga (Spain)
It isan independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.
Based on my view that there are some factors influence the internal audit function effectiveness such as :
1. Internal audit quality ( full supporting from top management)
2. Internal audit team competencies
3. Independence of internal audit function
4. Audit committee member quality
I believe that there is a difference between the effectiveness of internal auditing and the effectiveness of internal auditors. the first is about the effectiveness of the function and the second is about the effectiveness of an employee. For each one there different factors that can improve this effectiveness.
Another important thing, you need to identify exactly what type of effectiveness because each one has special measurement.
In the traditional two-tier board structure, a separate board of supervisory directors supervises the board of managing directors and gives advice to the managing directors. In a one-tier board structure, the executive directors and non-executive, supervising, directors are all members of one and the same board, i.e. they jointly form a single corporate body.
I will add to all answers the supportive CEO and board of directors. Also, changing the attitude of the whole organization regarding internal audit function is essential.
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