As an external auditor, your main client is the company that you are auditing, relationships and at the same time, earn the respect of clients and colleagues. Sometimes, internal and external auditors can have a hard time. the relationship between clients accounting staff and external audit team .. and gain the industry and market knowledge, the junior auditor needs internal. The relationship between the audit committee and both external and internal auditors . illegal acts by clients (SAS 54), and internal control structure (SAS 60) .
Consequently, while four times a year could be too much for some organizations, twelve times a year could be just sufficient for others. However, what is more important than the frequency of the meetings is the content and results of such meetings [ 16 ].
In addition to the less-frequent meetings held by many audit committees, it is noticeable that not all of the members attend these meetings. However, the attendees should not be limited to the committee members.
The audit committees invite CEOs, internal auditors, external auditors, regulatory bodies, finance directors, and relevant others, to attend such meetings, with whom the committee members discuss issues related to the organization.
7 Areas to Focus on to Improve Your Relationship with Audit Clients
The minutes of the meetings should be noted by a specified person describing the issues that have been discussed, the results the attendees reached to, and the relevant decisions that have been made. Additionally, the audit committee participates fully in determining the fees that would be paid to the external auditors. Appointing or terminating the head of the internal audit department, or at least issuing relevant recommendations, is also part of the committee activities.
The scope of the internal and external audit functions are also determined by the audit committee.
7 Areas to Focus on to Improve Your Relationship with Audit Clients
However, in this section of the paper, I would focus only on its relationships with internal auditors and external auditors [ 25 ]. Relationships with internal auditors Listing all the tasks of the internal auditors is beyond the scope of this paper. However, I would refer to the tasks that are directly related to the audit committee activities as follows: The relationship between the audit committee and the internal auditors is important for both parties to fulfill their job commitments [ 26 ].
- Position paper: Internal audit's relationship with external audit
The audit committee is concerned with recruiting and terminating the head of the internal audit, and the frequency and duration of the meetings with the internal auditors [ 27 - 29 ], as well as ensuring that the internal auditors, especially their head, can communicate directly with the audit committee anytime. Whereas the oversight of financial reporting and the monitoring of the internal audit performance are two of the main activities of the audit committee, it is mandatory that the audit committee members, or at least one of them, should have the financial or accounting expertise in order to understand the technical and control issues related to the internal audit to enable the audit committee to review the internal auditors activities and the results they reach to.
Whenever there are problems or obstacles, the audit committee performs the necessary investigations using internal feedback, its expertise, and external consultations if needed. Two important related issues i. Relationships with external auditors Likewise, listing all the tasks of the external auditors is beyond the scope of this paper.
Changing the external auditors also requires direct interference by the audit committee. The AICPA requires that external auditors communicate with the audit committee formally as a main part of the audit performance [ 32 ]. Additionally for independence purposes [ 33 ], the audit committee may review any non-audit service agreements with the external auditors to understand the nature and magnitude of relevant fees paid. Most, if not all, of the aforementioned audit committee activities and relationships are related directly or indirectly to the audit committee roles in corporate governance [ 34 ].
The increasing demand on the corporate governance and accountability related to the board of directors, particularly the recent lawsuits and investigations made the creation of audit committees an extremely necessary step. The SEC confirmed its interest in audit committees by: Inthe National Committee on Fraudulent Financial Reporting the Treadway Commission was created to identify factors that can lead to fraudulent financial reporting and recommend procedures to reduce fraud incidences.
The Treadway report identified audit committees as effective means for corporate governance and suggested a list of objectives for audit committees to consider. As a corporate governance monitor, the audit committee should provide the public with correct, accurate, complete, and reliable information, and it should not leave a gap for predictions or uninformed expectations.
Sarbanes-Oxley Act of which was passed mainly to protect the investors has a big impact on the corporate governance and accountability, as well as on corporate disclosure. In order to be accepted in most of the Stock Exchange Markets, an organization should have good corporate governance.
Regulators rightly recognise that the role of internal audit in supporting the work of external audit needs to be strictly controlled in order to ensure quality and objectivity.
But they also need to recognise that internal audit work has a much broader remit, covering risk and governance as well as internal financial control, and that this wider work can also require internal audit to make judgements about the work of external audit.
Additional points Audit committees have a vital role to play in supporting internal audit quality. The International Standards for internal audit [ 1 ] require internal audit functions to develop and maintain a quality assurance and improvement program that covers all aspects of the internal audit activity.
The quality assurance and improvement program must include both internal and external assessments.
External assessments must be conducted at least once every five years by a qualified, independent assessor or assessment team from outside the organisation.
Working with internal audit also creates an environment in which the external auditor can be informed of significant matters that may affect its work. But where this occurs it is vital that internal audit does not simply become a tick in the external audit box, or that internal audit is distracted from its core roles. External audit must also assure itself on the objectivity and quality of the internal audit function. We believe this practice is detrimental to the work of both auditors and reduces the assurance that the audit committee obtains from either source.
It is also a false economy. Internal auditors are likely to be fully qualified whereas the staff they would replace on the external audit can often be student accountants. The potential breadth and scope of the internal audit function should mean that it has a significant role to play in supporting improvements in corporate governance and overseeing the management of risk.
Audit Committees need to recognise that the value of internal audit goes beyond financial control. Similarly regulators should give greater recognition to the assurance that they can take from the work of a professional internal audit function.
It is vital to the quality of their work that they focus on this customer group. Internal auditors, in contrast, provide assurance within the governance boundary, to the audit committee, the board in general and to senior management. Purpose of the assurance The external audit opinion, and the work that the external auditor performs in order to provide it, exist to add verification, credibility and reliability to reports from the company to its shareholders.
Internal auditors provide members of the board and senior management with assurance that they can use to fulfil their own duties to the company and its shareholders. Coverage or nature of work External audit provides an opinion on financial statements and the related disclosures, on other forms of reporting from the company to shareholders as well as on financial reporting risks and their management.
Internal audit covers all categories of risks and their management, starting from their identification, taking in various responses to risks, including traditional internal financial and non-financial controls, and including the flow of information around the company about risk. Internal auditors also cover governance processes. Internal auditing should be a permanent and ongoing presence in a company. Much of its work will be in the form of engagements scheduled in advance.