The primary reporting line of the internal audit function is to the AC, which also decides on the appointment, termination and remuneration of the head of the internal audit function. The internal audit function has unfettered access to all the company's documents, records, properties and personnel, including the AC, and has appropriate standing within the company.
 
A. Explanation

This Provision states that the internal auditor reports to the AC, and that it should have the standing and unfettered access to perform its work.

An effective and independent internal auditing function is integral if the AC is to effectively discharge its responsibilities on internal controls and risk management.

To that end, the internal audit function should be adequately resourced, and have an appropriate standing and authority in the company to allow it to conduct its work in an unfettered manner.

The primary role of the internal auditor is to conduct routine and ad hoc internal control reviews of the company and its staff. To do this effectively, he should be independent of the management of the company, including the CEO.

Hence, the internal audit head should report directly to the AC and its Chairman, and have full access to the AC. Key decisions about the hiring, removal, evaluation and compensation of the internal audit head should lie with the AC and not management. Where the internal audit function is outsourced, the AC should decide on the appointment and compensation of the outsourced firm.

That said, the company provides the administrative support for an in-house internal audit function, and thus the internal audit function has to work within the structure and processes of the company from a human resource standpoint.

 

B. Practice Guidance

 

C. Related Rules and Regulations
  • MR 719(3) and CR 719(3): Internal Audit.

 

D. CG Guides
  • AC Guide 4.3: Scope of Internal Audit [Internal Audit].
  • AC Guide 4.4: Establishing an Internal Audit Function [Internal Audit].
  • AC Guide 4.5: The AC’s Engagement with the Internal Auditor [Internal Audit].
  • AC Guide 4.7: The Internal Auditor’s Independence and Standing [Internal Audit].
  • AC Guide Case Study 4B-5: Independence of IA [Internal Audit].
  • AC Guide Appendix 4D: Sample Internal Audit Charter [Internal Audit].
  • AC Guide Appendix 4J: Internal Audit Reporting [Internal Audit].

 

E. Related Articles

 

 

 

eGuide to CG Code
Overview
Preamble
Definition of Corporate Governance
History and Structure of the Code
Role of the Board
Role of the Chair
Focus on Long Term and Sustainability
Revised Code Structure and Approach
Mandatory Principles
Provisions and Variations
Thoughtful and Meaningful Application
Board Matters
Principle 1
Provision 1.1
Provision 1.2
Provision 1.3
Provision 1.4
Provision 1.5
Provision 1.6
Provision 1.7
Principle 2
Provision 2.1
Provision 2.2
Provision 2.3
Provision 2.4
Provision 2.5
Principle 3
Provision 3.1
Provision 3.2
Provision 3.3
Principle 4
Provision 4.1
Provision 4.2
Provision 4.3
Provision 4.4
Provision 4.5
Principle 5
Provision 5.1
Provision 5.2
Provision 5.3
Remuneration Matters
Principle 6
Provision 6.1
Provision 6.2
Provision 6.3
Provision 6.4
Principle 7
Provision 7.1
Provision 7.2
Provision 7.3
Principle 8
Provision 8.1
Provision 8.2
Provision 8.3
Accountability and Audit
Principle 9
Provision 9.1
Provision 9.2
Principle 10
Provision 10.1
Provision 10.2
Provision 10.3
Provision 10.4
Provision 10.5
Shareholder Rights and Responsibilities
Principle 11
Provision 11.1
Provision 11.2
Provision 11.3
Provision 11.4
Provision 11.5
Provision 11.6
Principle 12
Provision 12.1
Provision 12.2
Provision 12.3
Managing Stakeholder Relationships
Principle 13
Provision 13.1
Provision 13.2
Provision 13.3
Practice Guidance
Board Roles and Director Duties
Board Composition and Guidance
Chairman and CEO
Board Membership
Board Performance
Procedures for Developing Remuneration Policies
Level and Mix of Remuneration
Disclosure on Remuneration
Risk Management and Internal Controls
Audit Committee
Shareholder Rights and Engagement
Engagement with Shareholders
Managing Stakeholder Relationships
eGuide Glossary

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