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/ Canadian Government Executive
// April 2016
T
he vast majority (88 percent)
of Chief Audit Executives in
North America report function-
ally to an Audit Committee or
its equivalent. These Audit Committees
typically perform an oversight function:
they approve the Internal Audit Charter
and the audit plan and they also evaluate
and assess the compensation of the Chief
Auditor. It is a critical relationship, and it
can be fragile. For those reasons it is im-
perative to build and maintain an effec-
tive relationship.
It may be argued that without oversight,
strategic guidance or support from the
Audit Committee, it is very difficult for
an Internal Audit department to be suc-
cessful in its mandate. Likewise, an Audit
Committee can be more effective in car-
rying out its mandate with the support of
a high performing Internal Audit depart-
ment.
Bruce Webster dedicated three of his
20 Questions Directors Should Ask about Internal
Audit
(CPA Canada, 2016) to this topic. Spe-
cifically, Webster addresses the question
“How can the Board optimize its relation-
ship with the Chief Audit Executive?” He
provides improvement opportunities and
goes on to say “The relationship between
the Chair of the Audit Committee and the
CAE is critical for Internal Audit to maxi-
mize its value to the Board.”
Every relationship is a dance and, like-
wise, the rapport between an Internal Au-
dit department and the Audit Committee
is dynamic and requires on-going atten-
tion. Here are three key steps a proactive
Internal Audit department can take to in-
crease the effectiveness of their relation-
ship with the Audit Committee:
1
Provide a clear
understanding of Internal
Audit’s role to ensure
alignment with the needs
and expectations of the
Audit Committee.
• Educate the Audit Committee on Inter-
nal Audit’s Charter, role & activities
• Review the Audit Committee Charter,
activities and processes
• Encourage discussion on strategic direc-
tion of the Internal Audit department
• Ensure Internal Audit understands and
supports the needs and responsibilities
of the Audit Committee
• Have a clear understanding of the Audit
Committee expectation of Internal Au-
dit.
Ask them what they would consider a
best-in-class or high value Internal Audit
function and align Internal Audit’s pro-
cesses and activities accordingly.
• Discuss with the Audit Committee how
Internal Audit fits into the overall gover-
nance design of the organization and co-
ordinated assurance activities. As an im-
portant aspect of its mandate, Internal
Audit can provide the Audit Committee
with a means of monitoring the controls
that management has put in place are
functioning reliably and sufficiently to
address the key risks of the enterprise.
Refer to IIA Position Paper: The Three
Lines of Defence in Effective Risk Manage-
ment And Control.
Internal Audit
Gurmit
Aujla
Cindy
Kailly-
Smith
Care toWaltz?
Developing an Effective Relationship between
Internal Audit and the Audit Committee