Question

What is the relationship between internal control,internal audit , audit committee and corporate governance ?

Answer 1

Internal audit has been acknowledged as the main driver of corporate disclosure which aims to increase the quality of financial information, to ensure the transparency in financial reporting and to increase the confidence between managers and shareholders. The need for developing strong governance structures has led many researchers to examine the new framework of corporate governance and to explore its relationship to the internal audit process. Regarding Greece, there is a lack of research evaluating the relationship between corporate governance and internal audit. This study examines the above relationship in companies listed in the Athens Stock Exchange. In the present research, internal audit is examined in terms of audit quality and the consulting role of internal audit, in order to highlight the new management-oriented and value adding scope of internal audit. Data was collected via a survey questionnaire methodology and was analyzed using regression analysis. The results show that corporate governance is positively associated to the consulting role of internal audit, to internal audit quality and to the audit committee.

Internal controls are part of governance process. Internal control system has five components which are control environment, risk management, information and communication, control activity and monitoring.

All these components they touch the governance process where control environment address the leadership by example, tone at the top, how management behave and encourage ethical behavior within the organization, management philosophy and operating style, Board of directors and audit committee, assignment of authority and responsibility etc. Risk management play important role in governance where the Board of Directors have to ensure the risk profile is well defined, all critical risk are mitigated and risk awareness exist within the organization. In governance, communication and information has bigger impact in order to have good governance within the organization there must be a two way traffic communication i.e top down and bottom up. Control activities addresses the issue of segregation of duties, performance review, physical controls and proper authorization. All of these play important role in governance process. The role which is undertaken by the Board of Directors in the governance process is to oversee the management which is a part of Monitoring process as a component of internal control. All controls have to be monitored to check their operating effectiveness and if any weakness are discovered corrective action can be take.