logo-newlogo-newlogo-newlogo-new
  • Home
  • Blog
  • Audit Trail Academy
  • Advisory Services
  • Books
✕
  • Home
  • Chambers on Internal Audit
  • Uncategorized
  • An “Executive Session” Does Not Mean Every Executive Is Invited!

An “Executive Session” Does Not Mean Every Executive Is Invited!

Five Events That Defined the Decade for Internal Auditors
December 22, 2009
New SEC Proxy Disclosure Rules: What Do They Mean For Internal Auditing?
January 26, 2010
January 12, 2010

One of the most significant developments of the internal audit profession in the past decade has been its rise in stature relative to audit committees. A decade ago, a chief audit executive (CAE) with a functional reporting relationship to the audit co​mmittee was considered a “leading practice.” Today, it’s the norm.

Along with enhanced reporting relationships have come a number of other practices reinforcing the value audit committees place on a strong, independent, and effective internal audit function. One of these practices has been regular and frequent “executive ​​sessions” between the audit committee and CAE. The IIA has long recognized and advocated the value of executive sessions. The IIA’s Practice Advisory (PA​​) 1110-1 on organizational independence states that, “Functional reporting to the board typically involves … communications from the CAE on the results of the internal audit activities or other matters that the CAE determines are necessary, including private meetings with the CAE without management present …”

A November 2009 IIA Audit Executive Center Knowledge Report, Audit Committee Trends and Activities (PDF) (available to AEC members), went even further in asserting:

Presence of executive sessions with the audit committee. CAEs can increase the lines of communications with the audit committee by holding executive sessions. These sessions should be held at least quarterly or as needed to discuss items of​ importance between regularly scheduled meetings and to keep the audit committee apprised of issues as they occur. CAEs also can hold executive sessions during every regularly scheduled meeting to allow for an open discussion of management issues without the presence of other senior managers.

With the apparent universal recognition of the value of executive sessions, one would naturally conclude that these sessions are widely conducted in an appropriate manner. However, I am becoming increasingly concerned that this is not the case. I have spoken with several CAEs in recent months who have shared some troubling examples of abuses in the way executive sessions are actually conducted. The most alarming trend is the frequency with which other executives are being invited (or simply electing) to sit in on the CAE’s executive sessions with the audit committee. It is difficult to determine how widespread the practice of “executive session crashing” really is; however, even one is too many from my vantage point.

The most commonly cited executive session intruder is the chief financial officer (CFO). I am fairly certain that very few CFOs sit in on CAE executive sessions. However, I have heard enough examples cited in recent months to conclude that it is worth addressing. When these abuses occur, it would be easy to place all of the blame on CFOs. After all, they should know better, and would certainly not sit in on the executive session between the external auditor and the audit committee. However, I also have to question the logic of the audit committee in permitting outsiders to sit in on these sessions. Why host an executive session at all if there is not going to be an expectation of confidentiality or privacy associated with the discussions that unfold? As an audit committee member, are you willing to assume the risk that the CAE may possess knowledge or insights on risks and controls, or the behavior and practices of corporate executives, that the CAE is unwilling to discuss in their presence?

Ultimately, however, I also have to assess some blame on the CAE for permitting the faulty executive sessions to take place. I recognize that some CAEs are often caught in difficult situations. To object to the CFO or other executive(s) presence in the room during an executive session may be awkward or appear accusatory or defensive. In many instances, the practice of expanded executive sessions may have already been in place prior to the CAE assuming his or her role. However, holding executive sessions with other executives in the room serves no real useful purpose in my opinion. In fact, I believe it’s a dangerous practice that engenders a false sense of security.

If you are a CAE facing the challenge of reversing this practice, I suggest that you share a link to IIA Practice Advisory (PA) 1110-1 or this blog with your audit committee chairman immediately. Schedule a private conversation with the chairman and share some of The IIA’s guidance and thought leadership on this important topic. You will be doing your audit committee a valuable service if you point out to its members the risk they assume by not holding genuine executive sessions with you. ​​​​​​​​​

Share

Related posts

March 13, 2023

New IIA Report Is a Timely Benchmarking Resource for Internal Auditors


Read more
May 16, 2022

THE STAGGERING TOLL OF COVID RELIEF FRAUD: WHERE WERE THE THREE LINES?


Read more
February 3, 2022

To Live a Life in Color, You May Have to Change Channels


Read more

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

What’s Trending

03-20-23

New Report Reveals Surprising Insights from Internal Audit Executives


03-13-23

New IIA Report Is a Timely Benchmarking Resource for Internal Auditors


03-02-23

6 Things Audit Committee Members Often Won’t Say to Internal Audit


Read More

Archive

  • March 2023
  • February 2023
  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • October 2010
  • September 2010
  • August 2010
  • July 2010
  • June 2010
  • May 2010
  • April 2010
  • March 2010
  • February 2010
  • January 2010
  • December 2009
  • November 2009
  • October 2009
  • September 2009
  • August 2009
  • July 2009
  • June 2009
  • May 2009
  • April 2009
  • March 2009
  • February 2009

Contact Us

PO Box 1441
New Smyrna Beach, FL 32170

+1-407-463-9389
rchambers@richardchambers.com

About AuditBeacon.com

AuditBeacon.com is a resource center for internal auditors and risk professionals from around the world. In addition to more than 500 blogs authored by Richard Chambers, the site includes links to news and insights on internal audit and other information that illuminates the value of this important profession. AuditBeacon.com is provided as a service by Richard F. Chambers and Associates, LLC.

Copyright © 2023 Richard F. Chambers & Associates. All Rights Reserved.
  • Home
  • Blog
  • Audit Trail Academy
  • Advisory Services
  • Books