Good corporate governance doesn’t happen automatically, even when a great board and senior management are in place.
Effective corporate governance is the result of several elements and functions coming together, including organizational policies, processes, and cross-functional interactions. And internal audit has an important job to do to ensure those elements are functioning correctly. Now a new report, issued jointly by the Institute of Internal Auditors (IIA) and the International Federation of Accountants (IFAC), provides some guidance for internal auditors on how to do that job better.
“United, Connected, and Aligned – How the Distinct Roles of Internal Audit and the Finance Function Drive Good Governance,” includes input from governance experts and leaders to examine the crucial roles both internal audit and the finance function play in maintaining a sound system of corporate governance.
The report identifies several key requirements for effective governance, including:
- An ethical corporate culture that empowers effective leaders throughout the organization to carry out good governance processes;
- Effective communication and collaboration among the various roles; and
- Requisite competencies for internal audit and the finance and accounting functions to earn stakeholder support and respect.
“Collaboration and cooperation between internal audit and the finance function is crucial to ensuring good governance,” said IIA President and CEO Richard Chambers. “Only by recognizing their distinct roles and the value in their successful interaction can organizations fully leverage the services they provide,” he added.
IFAC’s president, Rachel Grimes, also stressed the benefit of the relationship. “There is a deep need to pursue actions and preserve cultures that drive good governance,” said Grimes. “Professional accountants play a key role in governance at every line of defense, and abide by a global Code of Ethics that exemplifies the profession’s public interest mandate.”
The report notes that, because the two functions have complementary roles, their overlapping duties may help to avoid gaps in governance. Importantly, the experts demonstrate the need for both internal audit and the finance function to have champions within and outside the organization who advocate for their importance and value.
Chambers added, “Internal audit needs to be its own champion and work to articulate the benefits of including internal audit in the governance process. Stakeholders ([executive management and the board) who understand the complex interactions and relationships that influence governance are best positioned to help their organizations succeed.” 