Effective governance is the outcome of a mosaic of organizational policies, processes, and cross-functional interactions, according to experts featured in a new report from The Institute of Internal Auditors (IIA) and IFAC (the International Federation of Accountants).

“United, Connected and Aligned – How the Distinct Roles of Internal Audit and the Finance Function Drive Good Governance,”  takes the pulse of 11 governance experts and thought leaders to examine the crucial roles both internal audit and the finance function play in maintaining a sound system of corporate governance.

The report identifies several key requirements for effective governance, including:

• An ethical corporate culture that empowers effective leaders throughout the organization to carry out good governance processes;
• Effective communication and collaboration among the various roles; and
• Requisite competencies for internal audit and the finance and accounting functions to earn stakeholder support and respect.

The governance experts who shared their knowledge and experiences include the leaders of the international professional associations that produced the report.

“Collaboration and cooperation between internal audit and the finance function is crucial to ensuring good governance,” said IIA President and CEO Richard F. Chambers, CIA, QIAL, CGAP, CCSA, CRMA. “Only by recognizing their distinct roles and the value in their successful interaction can organizations fully leverage the services they provide.”

IFAC’s President also stressed the benefit of the relationship.

“There is a deep need to pursue actions and preserve cultures that drive good governance,” said Rachel Grimes, IFAC President. “Professional accountants play a key role in governance at every line of defense, and abide by a global Code of Ethics that exemplifies the profession’s public interest mandate.”

The report notes that, because the two functions have complementary roles, their overlapping duties may help to avoid gaps in governance. Importantly, the experts demonstrate the need for both internal audit and the finance function to have champions within and outside the organization who advocate for their importance and value.

Chambers added, “Internal audit needs to be its own champion and work to articulate the benefits of including internal audit in the governance process. Stakeholders [executive management and the board] who understand the complex interactions and relationships that influence governance are best positioned to help their organizations succeed.”

“United, Connected and Aligned – How the Distinct Roles of Internal Audit and the Finance Function Drive Good Governance” represents an important collaboration between IFAC and The IIA, whose members represent a significant and vital segment of professionals who contribute to good governance. The organizations have a long, mutually supportive relationship, which includes a Memorandum of Understanding that promotes collaborative works and serve on each other’s boards and committees.

About The Institute of Internal Auditors
The Institute of Internal Auditors (IIA) is the internal audit profession’s most widely recognized advocate, educator, and provider of standards, guidance, and certifications. Established in 1941, The IIA today serves more than 190,000 members from more than 170 countries and territories. The IIA’s global headquarters are in Lake Mary, Fla. For more information, visit www.theiia.org.

About IFAC
IFAC is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. IFAC is comprised of over 175 members and associates in more than 130 countries and jurisdictions, representing almost 3 million accountants in public practice, education, government service, industry, and commerce.

A good deal of constructive thought, consultation with key stakeholders and analysis has gone into the Monitoring Group’s review of international standard setting since the process began in early 2015.

Informed by these analyses, consultations and roundtables, IFAC developed a paper, “Perspectives on the Way Forward for Strengthening the Oversight and Operations of the International Audit & Assurance and Ethics Standards Boards” that aims to identify concerns and propose improvements.

The SMP Committee supports the concept that professional skepticism should be applicable to all professional accountants and supports IESBA in giving greater consideration to the characteristics which should be expected of all professional accountants when complying with the fundamental principles. However, the term professional skepticism, as currently conceptualized by IAASB, is not suitable to be applied by all professional accountants.

The IFAC Professional Accountants in Business (PAIB) Committee has submitted a comment letter in response to the IESBA's consultation paper, Professional Skepticism - Meeting Public Expectations.  

The IFAC Small and Medium Practices Committee welcomes the opportunity to provide input to the International Auditing and Assurance Standards Board future strategy and supports the planned work to explore what more can be done for audits of smaller or less complex entities. Worldwide, small- and medium-sized entities, representing over 90% of business, rely primarily on SMPs as their preferred advisers. It is important for the IAASB to give greater consideration to matters relating to SMEs and SMPs in all of its activities.

The IFAC Small and Medium Practices Committee has submitted feedback to the International Ethics Stanards Board for Accountants' proposed five-year strategy and work plan. The committee is generally in agreement with the proposed criteria to determine the IESBA's actions and priorities over the next five years. The committee also recognizes that the IESBA is committed to developing high-quality, principles-based standards and strongly believes this is of critical importance when revising the International Code of Ethics for Professional Accountants going forward.

IFAC believes it is still appropriate that the European IAS Regulation prevents the European Commission from modifying the content of International Financial Reporting Standards, and recommends the EU endorse the existing IFRS Conceptual Framework rather than an alternate European Conceptual Framework that could create unnecessary complexity and fragmentation. IFAC also recommends a more integrated approach to public financial and non-financial reporting focusing on long-term value creation, strongly supporting integrated reporting as a basis for this approach.

IFAC strongly supports IOSCO’s emphasis on the role of audit committees in audit quality, and efforts to enhance the coherence and quality of applicable regulation, oversight, and practices internationally.