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The Green Brim Personal Rant: Internal Audit Independence?

The Green Brim Personal Rant: Internal Audit Independence?

by Rick Turoczy on August 7, 2006

Let’s talk about the concept of an internal audit department being “independent” of the organization within which it exists. Can this ever really be the case? The Institute of Internal Auditors (“IIA”) has produced standards (International Standards for the Professional Practice of Internal Auding) which detail certain things like reporting relationships and such that, in theory, should help to ensure that the department is not conflicted in its association with management. For example, the Standards and/or practice advisories recommend that the Audit Department report directly to the Audit Committee of the Board of Directors while maintaining administrative reporting lines to a level of management sufficient enough to convey the important of the function (i.e. the CFO). In theory may be solid and it is certainly a position which should be upheld under the current paradigm of internal audit….but let me pose a question: What happens if the CEO of the company is also the Chairman of the Board? Then the audit committee’s boss is the the CEO. Doesn’t this compromise the independence of the audit committee and thus the internal audit department?

The Green Brim Personal Rant: Internal Audit Independence?

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