Many Australian listed companies are neglecting fundamental governance standards by failing to establish independent internal audit functions, a new survey has revealed.
The 2009 Internal Audit Benchmarking Study, conducted by Protiviti and the Institute of Internal Auditors Australia (IIAA), found that many internal auditors ultimately answered to management rather than company boards, with two in ten decisions made by the company's chief financial officer, a company statement said.
The survey highlighted that communication channels between internal auditors and audit committees were also poor, with 27 per cent of listed company respondents stating that their internal auditors did not meet privately with the audit committee in the absence of management.
"Access to the audit committee without the potential for management interference is crucial if boards are to have full and frank information about the state of the organisation," IIAA technical and policy director Todd Davies said.
"Senior management can become prone to conflicts of interest at times where the need for transparency is greatest, such as where the company is being poorly or dishonestly managed," Davies said.
"Without a direct reporting line to the board, internal auditors will simply not be able to do their fundamental job of advising boards without fear or favour, and free of coercion from management."
According to Australian Council of Superannuation Investors manager of strategy and engagement Phil Spathis, the history of many collapsed listed companies shows there is no guarantee audit reports are ever fully accurate as many organisations have gotten away with misleading the public with false information.
A dotted reporting line from auditor teams to company boards would be a step in the right direction, Spathis said.
According to the survey, just 33 per cent of listed companies reported that their internal audit function fully complied with the International Standards for the Professional Practice of Internal Auditing.
