Spring 2007 issue of Horizons

GENERAL TOPICS

Audit Committee Interaction with Internal Audit Commitment + Communication = Effective Corporate Governance

In recent years, the time and energy commitment required from audit committee members has significantly increased. They spend their time and effort and many sleepless nights focused on the accuracy of a company’s financial statements, effective risk management, assessment of internal control processes (including fraud detection), effective use of internal audit resources, and provide oversight of the external auditors. Audit committees are more proactive, informed, investigative and accountable. Responsibility for corporate governance is spread among the audit committee, executive management, internal auditors and external auditors. These four groups provide the cornerstones of corporate governance within an organization. In order to be effective in their expanded oversight and corporate governance role, there must be a strong commitment to communication between the audit committee and the internal auditor. “Today more than ever, audit committees need to work closely with internal auditors to ensure strong internal controls, accurate financial reporting, and adequate risk management in every company they serve. To work effectively with internal auditors, audit committee members need to know best practices for this vital function. By understanding internal audit standards, audit committees can strengthen their own work of oversight.” Roger Raber, CEO National Association of Corporate Directors Internal auditors provide independent assurance that internal controls are in place and effective, that governance processes are adequate, and that organizational goals and objectives are met. The audit

committee and the internal auditors are interdependent and should be accessible to one another. The following chart highlights the relationship and required commitment to communication.

AUDIT COMMITTEE INTERNAL AUDITORS

Ensure internal audit function is independent and adequately staffed. Ensure internal audit is properly placed within the organization to provide for an effective oversight of management. Review risk assessment results and the internal audit plan. Obtain periodic updates from internal audit on progress of internal audit plan. Evaluate whether internal audit department follows a continuous improvement plan.

Ensure more frequent com- munication than quarterly meetings. Provide advice, counsel and training to the audit committee. Periodically evaluate audit committee performance.

Solicit input from audit committee when conducting risk assessment.

Responsibility to monitor and oversee management activities.

Report internal audit findings, recommendations and follow-up actions to management and the audit committee.

ONGOING COMMUNICATION

11 u summer 2007 issue