Building Strong Relationships with Audit Committees

Building strong relationships with audit committees is essential for the success of internal audit functions and the overall governance of an organisation. A robust relationship fosters trust, enhances communication, and ensures that the audit committee can effectively oversee the organisation’s financial reporting, risk management, and internal controls. This article explores various strategies and best practices for internal auditors to build and maintain strong relationships with audit committees.

Understanding the Role of the Audit Committee

This might be stating the obvious but many auditors forget about the role of the audit committee. The audit committee is a subcommittee of the board of directors responsible for overseeing the organisation’s financial reporting process, internal controls, and the audit function. Its primary duties include:

• Reviewing financial statements: Ensuring accuracy and compliance with accounting standards.

• Overseeing internal controls: Monitoring the effectiveness of internal control systems.

• Supervising the internal audit function: Evaluating the performance and independence of internal auditors.

• Liaising with external auditors: Facilitating communication between the organisation and external auditors.

Understanding these responsibilities is crucial for internal auditors to align their activities with the audit committee’s expectations and priorities.

Establishing Clear Communication Channels

Effective communication is the cornerstone of a strong relationship with the audit committee. Internal auditors should establish clear and open communication channels to ensure that information flows smoothly between both parties. Here are some key practices:

1. Regular Meetings: Schedule regular meetings with the audit committee to discuss audit plans, findings, and recommendations. These meetings provide an opportunity to address any concerns and ensure alignment on key issues.

2. Transparent Reporting: Provide clear and concise reports that highlight significant findings, risks, and recommendations. Avoid jargon and ensure that reports are easily understandable by committee members.

3. Proactive Updates: Keep the audit committee informed about emerging risks, changes in regulations, and significant developments within the organisation. Proactive communication helps build trust and demonstrates the internal audit function’s commitment to transparency.

Building Trust and Credibility

Trust and credibility are fundamental to a strong relationship with the audit committee. Internal auditors can build trust by demonstrating their competence, integrity, and independence. Here are some strategies:

1. Professionalism: Maintain high standards of professionalism in all interactions with the audit committee. This includes being punctual, prepared, and respectful during meetings.

2. Independence: Ensure that the internal audit function remains independent from management. This independence is critical for providing unbiased and objective assessments.

3. Competence: Continuously develop and update auditing skills and knowledge. Demonstrating expertise in auditing standards, regulations, and industry practices enhances credibility with the audit committee.

Understanding the Committee’s Expectations

To build a strong relationship, internal auditors must understand the audit committee’s expectations and priorities. This understanding can be achieved through:

1. Engagement: Engage with audit committee members to understand their concerns, expectations, and areas of interest. This can be done through formal meetings, informal discussions, and surveys.

2. Feedback: Seek feedback from the audit committee on the performance of the internal audit function. Use this feedback to make improvements and address any concerns.

3. Alignment: Align the internal audit plan with the audit committee’s priorities. This ensures that the internal audit function is focused on areas that are most important to the committee and the organisation.

Enhancing Collaboration and Support

Collaboration between internal auditors and the audit committee is essential for effective governance. Here are some ways to enhance collaboration:

1. Joint Planning: Involve the audit committee in the planning process of the internal audit function. This includes discussing the audit plan, scope, and objectives to ensure alignment with the committee’s expectations.

2. Shared Goals: Work towards shared goals and objectives. This can be achieved by aligning the internal audit function’s activities with the organisation’s strategic objectives and the audit committee’s priorities.

3. Support: Provide the audit committee with the necessary support and resources to fulfil their responsibilities. This includes providing training, access to information, and administrative support.

Addressing Challenges and Conflicts

Challenges and conflicts are inevitable in any relationship. Internal auditors should be prepared to address these issues constructively. Here are some strategies:

1. Open Dialogue: Encourage open and honest dialogue with the audit committee. Address any concerns or conflicts promptly and professionally.

2. Problem-Solving: Adopt a problem-solving approach to address challenges. This includes identifying the root cause of the issue, exploring potential solutions, and implementing corrective actions.

3. Mediation: In cases of significant conflict, consider involving a neutral third party to mediate and facilitate resolution.

Leveraging Technology and Data Analytics

Technology and data analytics can enhance the effectiveness of the internal audit function and strengthen the relationship with the audit committee. Here are some ways to leverage technology:

1. Data Analytics: Use data analytics to identify trends, anomalies, and risks. Presenting data-driven insights to the audit committee can enhance their understanding of key issues and support decision-making.

2. Audit Management Software: Implement audit management software to streamline audit processes, improve efficiency, and enhance reporting. This technology can facilitate better communication and collaboration with the audit committee.

3. Cybersecurity: Address cybersecurity risks and provide the audit committee with insights into the organisation’s cybersecurity posture. This is increasingly important as cyber threats continue to evolve.

Continuous Improvement and Professional Development

Continuous improvement and professional development are essential for maintaining a strong relationship with the audit committee. Here are some strategies:

1. Training: Provide ongoing training and development opportunities for internal auditors. This includes technical training, soft skills development, and industry-specific knowledge.

2. Benchmarking: Benchmark the internal audit function against best practices and industry standards. Use this information to identify areas for improvement and implement changes.

3. Feedback Loop: Establish a feedback loop with the audit committee to continuously assess and improve the performance of the internal audit function.

Conclusion

Building strong relationships with audit committees requires a combination of effective communication, trust, collaboration, and continuous improvement. By understanding the committee’s expectations, demonstrating professionalism and competence, and leveraging technology, internal auditors can enhance their relationship with the audit committee and contribute to the overall governance and success of the organisation.