March 2016

March 28, 2016

Five Attributes of Extraordinary Audit Committee Chairs

In the 21st century, corporate audit committees have become the sentries charged with guarding corporate financial integrity on behalf of weary shareholders. Their significance is not lost on legislators, regulators, and equity listing exchanges, who have charged them with the important task of safeguarding against the financial shenanigans that have severely shaken confidence in equity markets over the past generation. Like any platoon of sentries, audit committees need strong and capable leaders who inspire confidence and do not shrink from the critical tasks at hand.

As internal auditors, our responsibilities are carried out under the watchful eyes of our audit committees.…

March 21, 2016

When Boards Are Absent on CAE Pay, Reporting Relationships Are Window Dressing

I have written about the importance of the CAE’s reporting lines, but this can be a meaningless structure if not supported with substance. While a strong functional reporting relationship with the board or audit committee is critical to protect heads of internal audit from undue management influences, this arrangement is only as strong as their will to be involved.

I noted in an earlier blog that many boards are not involved in the hiring and firing process, which can lead to management having a hand-picked – and potentially malleable – CAE running the audit function. The same holds true for boards and audit committees that abdicate their responsibility regarding CAE performance and compensation.…

March 14, 2016

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

I have been spending a great deal of time lately focusing on corporate culture. The number of high-profile corporate scandals in the past year made very clear for me just how much a toxic culture can undermine good governance, and ultimately destroy shareholder value. This makes it imperative for our profession to “follow the risks” and address culture when carrying out our responsibilities.

I believe many of my colleagues agree that the time has come to assess culture, based on the positive response to my keynote address, When Culture is the Culprit, delivered at last week’s IIA GAM conference. This is especially gratifying considering that auditing culture will place a burden on most practitioners to operate outside of their comfort zones.…

March 7, 2016

Too Many Boards Sit on Their Hands as CAEs Are Hired and Fired

Independence and objectivity are ​hallmarks of great internal audit functions and the professional men and women who lead them. Against this backdrop, the prevailing model for the profession mandates the establishment of separate functional and administrative reporting lines that foster that independence and impartiality.

From my experience, heads of audit are less likely to be unduly influenced by management when they have a strong functional reporting relationship to the board or audit committee. Without such a relationship, it is very easy for management to confine the scope of internal audit’s work and to suppress any unfavorable results.

Recent data from the 2015 Common Body of Knowledge Global (CBOK) Practitioners Survey offers encouraging news about the progress being made along this front, with more than 70 percent of respondents having a functional reporting line to an audit committee or the board of directors.…