Who should the internal audit leader functionally report to?

Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness risks management, control and governance processes.

The above is the definition of internal audit and this definition should be included in the internal audit charter that required the board, audit committee, or entity’s managements that have a similar responsibility to acknowledge the definition of internal audit at least annually.

Working and reporting independently and objectively is the key that could help the auditor to play their role effectively and really added value to the entity.

If internal audit activities are not performed independently and objectively, then not only their jobs are not added value to the organization, but their activities will subsequently discredit by other functions and departments. Organization reputation may then be subsequently adversely affected.

1100 – Independence and Objectivity, independence must be managed at the individual auditor, engagement, functional, and organizational level.

Functional reporting is a very important factor that determines the independence of internal audit activities.

For functional reporting, the internal audit leaders should report to the board, audit committee, or equivalent level.

The key functional reporting that internal auditors should report to the board or audit committee are:

  • Approving the internal audit charter.
  • Approving the risk-based internal audit plan.
  • Approving the internal audit budget and resource plan.
  • Receiving communications from the chief audit executive on the internal audit activity’s performance relative to its plan and other matters.
  • Approving decisions regarding the appointment and removal of the chief audit executive.
  • Approving the remuneration of the chief audit executive.
  • Making appropriate inquiries of management and the chief audit executive to determine whether there are inappropriate scope or resource limitations.
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