The case for an independent reporting line

Internal audit is a key element of good governance, providing assurance, insightful challenge and transparent information. Independence is a strong differentiator that facilitates the ‘internal’ element of internal audit. Audit leaders may, for whatever reason, find themselves without an independent reporting line. Should this be accepted?

We take a practical look at the importance of the reporting line for chief audit executives. For some, these may be discussion topics to generate change, and, for others, a reminder not to take the status quo for granted.

Are you independent within your organisation?

Why does independence matter?

There have been many high-profile scandals in recent years: Carillion, BHS, Oxfam, Patisserie Valerie and Grenfell Tower. All very different scenarios yet with a common thread of poor governance.

An organisational culture that values governance and oversight will ensure that its internal audit function has uncompromising independence and authority to perform its work and report its results.

Yet, internal audit’s role requires careful balance.

Being internal to the organisation enables auditors to gain understanding, knowledge and insight, to build relationships and observe what is really going on. But it also risks being institutionalised and too closely aligned to the organisation.

Independence is the difference between internal audit and all other business functions. For the board, internal audit without independence is like driving a car on worn out tyres. Getting from A to B without issue when conditions are good but dangerous when it rains or you need to do an emergency stop.

Independence must be present at all levels: in the thought process of individual auditors, setting the scope of engagements, running the function and its reporting line.

The importance of a reporting line

There are many elements to independence and arguably, none more so than the reporting line of the chief audit executive…