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A recent publication by KPMG's Audit Committee Institute provides a "top ten" list for audit committees, indicating actions that they should take as they carry out their agendas for 2009. 1 In this column, we explore KPMG's recommendations (listed in boldface below) and provide commentary on how internal auditors can best assist audit committees in completing these actions.
Two key elements of the corporate governance process of any organization are its audit committee and its internal auditors. Given the current, and likely continuing, impact of the financial crisis on many organizations, it is imperative that the relationship between audit committees and internal auditors be emphasized in a way that will help to ensure that organizations weather these challenging times.
The IIA's International Standards for the Professional Practice of Internal Auditing indicate that:
The chief audit executive should report periodically to the audit committee. . . . Reporting should include significant risk exposures and control issues, corporate governance issues, and other matters needed or requested by the audit committee.
Our perspective in this column goes beyond the periodic reporting requirements outlined by the IIA. Rather, we view the internal audit function as a major source of information, analysis, and assurance for the audit committee on internal controls, broad risk management activities, and quality financial reporting. In each of the areas below, we call on internal audi- tors to serve as a source of objective, reliable information to the audit committee, so that the audit committee does not over-rely solely on management information.
KPMG's "top ten" list and related implications for internal auditors
1. Closely monitor the impact of tho financial crisis/recession on the company; focus on financial forecasts and early-warning indicators. In these changing times, KPMG indicates that audit committees need to monitor key indicators of trouble for their organizations. Internal auditors can employ and share with the audit committee various forecasting and measurement techniques that can be used to monitor business performance in changing and challenging times. Forecasting techniques can help to guide efforts to manage cash, risk, supply-chain operations, other processes in the business, and overall financial performance. Audit committees that understand the value of forecasting can use forecasting as an element of strategic planning and can help to govern the organization in...