A Strategic Player: Hiring and Inspiring a Chief Audit Executive

Abstract

EXECUTIVE SUMMARY * Many companies are raising the expectations for their chief audit executives (CAEs) to include operating at more strategic levels of risk management and corporate governance. Successful CAEs must partner effectively with the audit committee and other members of the senior management team to achieve their objectives. * To be effective, CAEs need to demonstrate a solid understanding of the company's business, core strategies, risk appetite and risk tolerance. CAEs must be willing to raise difficult issues with senior management and the audit committee-even if such actions prove unpopular. * The CAE should maintain an ongoing dialogue with the audit committee. This will build a relationship and help the committee stay on top of significant risk and control issues. * One of the chief attributes of an effective CAE is the ability to attract and develop talent and build a high-quality staff, In many organizations internal audit is a source of management talent for other departments. ********** Internal audit traditionally has been a behind-the-scenes player, helping audit committees perform their duties and serving as a management watchdog. But today it plays a vital role in efforts to improve corporate governance and internal controls. To fulfill this role, the chief audit executive (CAE) needs to provide assertive leadership that strengthens the organization's commitment to tough internal controls. CAEs must partner with senior management and the audit committee to help them fulfill their broad responsibilities for effective governance, risk management and control. This article offers a broad view of the skills and qualifications CAEs need and information that management and audit committees will find useful when filling this critical position. Audit committees, whose governance responsibilities have expanded significantly since the Sarbanes-Oxley Act, are turning to internal audit for strategic and tactical support. The same is true for senior management. PCAOB Auditing Standard no. 2, An Audit of Internal Control Over Financial Reporting Performed in Conjunction with An Audit of Financial Statements, has sharpened the focus on the internal audit function and its ability to help senior management, audit committees and external auditors achieve their reporting objectives. At the same time, internal audit cannot sacrifice its long-standing role in promoting risk management and using operational audits to improve organizational efficiency. THE IDEAL CANDIDATE When hiring a CAE, companies should look for someone who combines strong management and leadership skills with solid technical expertise. This ideal candidate is more than just a technical auditor. When looking for a new audit chief--or evaluating the performance of an existing one--the audit committee and senior management should focus on three critical qualifications: The candidate's ability to earn the respect of the audit committee and senior management. Because internal auditors must be comfortable operating at a strategic level, a CAE must be perceived as a trusted adviser to both the audit committee and senior management. However, because internal control goes beyond financial reporting, operational managers need to accept internal audit as leaders in addressing risk and governance in a way that goes beyond mere policing and testing of internal controls. Sample questions to ask a candidate: In what kind of situations have you advised management or the audit committee on a strategic issue? How would you reconcile the sometimes divergent roles of auditor and adviser? What activities would you initiate to position yourself as an adviser to the audit committee? The range of skills, including personal independence and objectivity. An effective CAE needs to demonstrate a solid understanding of the company's business, core strategies, risk appetite and risk tolerances. …

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