​​​Should the Chief Audit Executive Report to the Audit Committee or the Full Board?

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​Recent writings, including by Professor Andrew Chambers, discuss the potential for chief audit executives (CAEs) to have a real or perceived problem with their reporting relationship — even where they report functionally to the audit committee (or equivalent) and only administratively to a member of executive management.

Do you believe any of these could result in either a real or perceived limitation on the objectivity or the performance of the CAE and the internal audit function?

  • The CAE receives a bonus based primarily on corporate performance. While even a substantial part of the bonus may be based on individual or team performance, typically no bonus is paid unless the entity achieves financial or operating targets.
  • The CAE has the title of "vice president" or similar, which sounds like a member of the management team.
  • The CAE's compensation is set by management, with the concurrence of the audit committee.
  • ​​The CAE reports to the audit committee, but has no formal relationship with any other board committee (e.g., risk or governance) — or the full board.
  • Although CAEs are hired only after an interview with the chair of the audit committee of the board, the only candidates presented are those selected by the finance organization.​​

 

 

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