Update on the current board issues: September 2015

Audit committee issues

IIA: SEC should require internal audit function for all public companies

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As part of its response to the SEC’s audit committee disclosure project, the Institute of Internal Auditors (IIA) called on the SEC to require internal audit functions for all publicly traded companies.

“In the best interest of the investing public and continued efforts toward restoration of investor confidence, an independent, objective and competent internal audit function is basic and fundamental to effective corporate governance,” wrote IIA President and CEO Richard F. Chambers.

The call for an internal audit mandate was precipitated by the SEC’s expressed interest in receiving comments pertaining to the audit committee and audit committee reports. [Read PwC’s BoardroomDirect July 2015.]

More than a decade ago, the New York Stock Exchange recognized the value of an internal audit function, who generally have a direct reporting line to the audit committee. All NYSE-listed companies are required to have an internal audit function in place, upon or within a year of listing, depending on the circumstances. NASDAQ also considered instituting such a rule in 2013, but withdrew it three months later after receiving comments about costs concerns.

The IIA’s proposal would require a company’s internal audit function to conduct audits that comply with globally recognized standards. The letter also advocates that the audit committee disclosure the internal audit function’s stature, independence, and resources and comment on the internal audit function’s performance.