Forge cooperation between internal audit, external audit, audit committee
Although internal audit, external audit and audit committees have different roles, their functions often overlap.
External auditors may use the work of internal auditors to the extent permitted by auditing standards and regulators. The audit committee, on the other hand, engages the external auditor and often supervises the internal audit work.
The intersection is sometimes difficult. PCAOB inspection reports over the past few years have pointed to occasions when the external auditors have relied on the work of the internal auditors without a sufficient basis to do so.
Therefore, external auditors may not want or be able to rely on the work of internal auditors. And audit committees may be reluctant to have internal audit work much as an extension of the external auditors by performing tests on internal controls when internal audit has many other tasks to perform.
These challenges are explored in a report released jointly on Tuesday by the Center for Audit Quality (CAQ) and the Institute of Internal Auditors (IIA). The CAQ is affiliated with the AICPA.
According to the report, all three play a role in enterprise risk management (ERM). Internal audit can defend, defend and facilitate ERM without losing its independence. External auditors can also provide the audit committee with support and training on the ERM, and audit committees can provide top-to-bottom support for the ERM, the report says.
The report also suggests that:
- Early and frequent communication between external and internal auditors can eliminate duplicate work and improve audit quality. Formal and informal communication channels between the audit committee, the external auditors and the internal auditors are necessary.
- Internal auditors receive training on the audit evidence that the external auditors may want.
- Audit committees can act as intermediaries in managing the expectations of external and internal auditors and can facilitate communication between them.
- The role of internal audit in external audit should not overshadow the other services that internal audit provides to the organization.
- In circumstances where the external auditors frequently engage with internal audit, they are well placed to share with the audit committee their observations on internal audit performance.
Ken tysiac is a
JofA Managing Editor.