3 key insights for improving internal audit and board interactions
The relationship between audit committees and internal audit functions is more important than ever. As regulators and shareholders expect more, companies need to have strong governance structures in place.
Keeping up with the evolving role of corporate governance
It’s no secret that corporate governance is shifting quickly, and beyond mere profitability; companies must now also demonstrate integrity, transparency and accountability. This shift requires organisations to re-evaluate their governance practices to ensure they meet new demands. A good working relationship between the audit committee and internal audit is key to effective corporate governance.
Diligent recently hosted an insightful roundtable event with corporate governance recruitment firm IAC on the evolving role of internal audit, delivering fresh perspectives into the landscape of this role. Throughout the session, we explored topics including internal audit as a critical partner to the board, the importance of building trust to strengthen the advisory role of internal audit, challenges facing the audit committee chair, and strategies for internal audit to manage conflicts with the business.
Here are three key takeaways from the event.
1. There must be a strong, proactive relationship between internal audit and the audit committee
A robust working relationship between the audit committee and internal audit functions is crucial for effective corporate governance. The audit committee’s strategic oversight and external perspective complement the detailed, operational insights provided by internal audit. Regular, candid conversations between the two can help to build trust and improve decision-making quality.
Internal audit must present its findings in a way that aligns with the audit committee’s strategic objectives, while the audit committee should provide constructive, forward-looking feedback. This two-way dialogue strengthens the relationship and fosters a culture of continuous learning and improvement. A proactive approach ensures that governance processes focus on identifying and managing risks, not just compliance.
2. Internal audit must cultivate effective partnerships across the business and support the audit committee chair
A successful partnership between internal audit and the business is built on respect and clearly defined responsibilities. This ensures accountability and effective governance strategies. Open communication is the key to finding, evaluating, and fixing risks quickly. Resources, like skilled talent and new technologies, are needed to help with these tasks.
Alongside these resources, establishinga framework to evaluate the internal audit function's performance will help to ensure that it meets the high standards needed for effective governance. Regular performance reviews and feedback mechanisms can help to identify areas for improvement and support continuous growth.
3. Understanding the complexities of the audit committee chair role is critical
The role of the audit chair is critical and multifaceted, requiring a careful balance between the board's broader expectations and the audit committee’s specific needs. This role involves a deep understanding of the company’s operations to effectively identify and mitigate risks, ensuring alignment with strategic goals. The audit chair must navigate a complex landscape of operational considerations, industry dynamics, and regulatory requirements.
Beyond a thorough understanding of the business, the audit committee chair will excel at building strong relationships with key executives and board members. This includes maintaining open lines of communication and fostering a culture of collaboration, respect, and trust. Effective leadership in this role means helping the audit committee do its job. It also means making sure all members are well-informed and have enough resources, including oversight of the IA function, external auditors, and financial reporting processes, as well as staying current on emerging risks and regulatory changes.
The audit committee chair is responsible for ensuring that the audit committee operates with independence and objectivity. This means challenging management when needed and making sure all financial and operational matters are open and accountable. The role requires a high level of professional integrity and the ability to make tough choices for the organisation and its people. This role also plays a key part in setting the tone for the audit committee's culture and ethics: They create a culture of improvement and encourage people to find and fix problems early. To do this effectively, audit committee chairs must stay current on corporate governance best practices and ensure that the audit committee’s activities align with industry standards and regulatory expectations.
Evolving from a compliance exercise to a driver for excellence
Creating an environment where people can keep improving is important for making governance and risk management better. This approach ensures that all stakeholders in the internal audit process see it not just as a compliance exercise, but as a driver for organisational excellence. By embracing the insights and recommendations of internal audit, organisations can consistently strengthen their governance structures, improve resilience, and achieve sustained success.
Find out more about how internal audit and governance can work together to navigate risks effectively in this short video.
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