The independence of the internal audit function in selected Maltese companies

Abstract

In these past years internal auditing has developed and spread considerably within companies. However, the setting up of an internal audit function within a company is not enough. Its success and effectiveness is closely linked to its independence from decision-takers. Independence has become a main prerogative in the whole debate confronting the role of the internal audit function within an organisation. Independence is of vital importance for internal auditors in order that they can fulfil a professional obligation, render an unbiased and unrestricted opinion and draw irrefutable conclusions. The objective of this dissertation is to assess the extent to which the internal audit function is independent from management within selected Maltese companies. This study examines a number of issues that affect the independence of the internal audit function. Personal interviews were carried out with eight internal auditors and seven top management personnel within eight Maltese companies. The study finds that: The primary role of the internal audit :function is focused on internal control assurance and risk identification. The consultative role that is being adopted by internal auditors worldwide and which is deemed to affect the independence of the internal audit function is at present quite limited within the selected companies. )P>- The majority of internal audit functions are quite restricted with regards to human resources. This might impinge on the independence of the internal audit function by limiting its capabilities and desired audit coverage. However, the increased importance being given to such a function is putting pressure on company boards in reviewing this scenario. )P>- Internal auditors enjoy a high level of organisational status within the selected companies. In fact the appointment and removal of the chief internal auditor is mainly the responsibility of the board of directors or of the audit committee. The chief internal auditor also reports to the highest levels of the company and has access to the audit committee. A good working relationship exists between the internal audit function and the audit committee. The study also includes a number of recommendations and areas for further research linked to this study.