An internal audit function provides assurance of the effectiveness of the organization’s risk management. The realization of the function’s strategic role depends on its independence. How does corporate governance impact internal audit independence?
The internal audit function is the central point of interest for management and the board of directors as its role is to help the organization accomplish its objectives by improving its governance, risk management, and internal control processes. Internal audit independence lays the foundation for its assurance services. Although the Institute of Internal Auditors (IIA) requires that chief audit executives (CAE) report to the board to ensure internal audit independence, regulations are silent on this requirement. The variances of governance models added complexity. CAEs’ relationship with the board differs depending on the organization’s board structures.
Tradition, history, culture, and legal systems have created the world’s diverse corporate governance models. The three typical representations of governance models are the Anglo-American, the Germanic, and the Japanese (Clarke, 2016). The Anglo-American model, also known as the one-tier board model, is widely adopted in the publicly traded companies in the United States (US), United Kingdom (UK), Canada, Australia, and New Zealand. The Germanic model, also called the two-tier board model, is widely adopted in the publicly traded companies in Germany, Austria, Switzerland, Sweden, and Denmark. The Japanese model, called the hybrid board model in this paper, is adopted in the publicly traded companies in Japan and China.
Authors: Lily Bi
Cite as: Bi, L. (2020). The complexity of corporate governance and its impact on internal audit independence. Muma Business Review 4(13). 133-134. https://doi.org/10.28945/4588