The interaction between internal auditors and audit committees : a Maltese perspective

Abstract

Purpose: The aim of the study was to observe the relationship between two vital functions necessary for a company to succeed, namely the audit committee and the internal audit function. The main objectives were to identify the perception of chief audit executives and audit committees towards the extent of interaction between them and what issues may facilitate or hinder their relationship in order for them to bring out measures aimed at strengthening their relationship. Design: Face-to-face, semi-structured interviews were conducted with a number of chief audit executives and audit committee chairpersons. These interviews had the aim of examining both views vis-à-vis this common relationship. In the case of companies having an audit committee and no internal audit function, interviews were held with the audit committee chairpersons so as to gain knowledge on the impact of such internal audit absence. Findings: Results from these findings show that the audit committee has diverse expectations from the chief audit executive as to what is the role of the internal audit function in the organisation. Moreover, most internal audit functions enjoy a high degree of independence, since they are accountable solely to the audit committee. This can be seen in the appointment and termination of the chief audit executive position, the preparation by the chief audit executive and approval by the audit committee of the internal audit charter and audit plan and the direct reporting to the audit committee. Besides, a two way communication process based on trust and confidence forms the fundamental basis for a strong audit committee and internal audit function relationship. Even though, there was mutual consent and satisfaction on the degree of interaction between the two functions, a number of difficulties and improvements were identified. If such difficulties are overcome, this would allow the relationship to grow stronger and the company?s governance will be strengthened. Conclusion: It is evident that internal auditors and audit committees foster a strong and healthy relationship between each function. However, its success depends on each side?s effort to engage and maintain effective and open communication channels. Furthermore, they should put aside any differences and collaborate in order to eliminate the difficulties identified that may hamper their work to achieve their intended aims and objectives.