| 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
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
- “Raising the game: The AC-internal audit relationship” by David Toh. (47KB)
- “How can the internal auditor be more effective” by Ho Yew Kee. (373KB)
- “Where in the world is internal audit in the revised Code?” by Irving Low. (145KB)