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The Role of the CAE

The Role of the CAE. Dr. Margaret Christ J.M. Tull School of Accounting. Agenda. 2 research studies examining the roles and responsibilities of the chief audit executive How the role is expanding into other areas

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The Role of the CAE

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  1. The Role of the CAE Dr. Margaret Christ J.M. Tull School of Accounting

  2. Agenda • 2 research studies examining the roles and responsibilities of the chief audit executive • How the role is expanding into other areas • How the use of IA as a training ground for management can affect the organization • Questions/Answers/Discussion

  3. The role of the CAE • What are the common roles & responsibilities of CAEs today? Is the role expanding? • What are the causes for an expanded role? • What are the benefits to expanded roles? • What are the costs/risk when CAEs take on multiple roles? • How are multiple roles managed?

  4. Ongoing Research Conducted by researchers from UGA with support from the IIARF, Frazier & Deeter, and PKF. • Phase 1 : Review of existing literature • Phase 2 : Interviews with CAEs • Phase 3 : Survey distributed by the IIA • December 2015

  5. Different models for expanding the CAE’s role

  6. CAEs with Multiple Roles • Most common expanded responsibilities: • Risk Management • Compliance • Execution varies • IA does a little of everything • CAE oversees multiple departments • IA Coordinates different functions • Temporary v. permanent

  7. Risk Management Compliance Internal Audit

  8. Benefits to expanded roles • Improve coordination of activities • Improve communication • Capitalize on IA’s existing expertise • Enhance IA’s reputation, visibility, and respect within the organization • Increase IA’s expertise • Reduces monotony • Provides advancement opportunities**

  9. Risks/ Costs to Expanded Role • Impaired independence… • We’ll get back to this one. • Insufficient resources • Insufficient expertise • Insufficient attention to traditional audit activities • Personal stress/ exhaustion

  10. Impaired Independence??

  11. IA & Compliance • In some sectors (e.g., Healthcare & Higher Ed) IA and Compliance are often combined • Several of the companies interviewed had combined functions (a some point) • Both functions perform audit/ monitoring functions • BUT, Compliance is responsible for developing policy…

  12. IA’s role in ERM

  13. IA & Risk Management • Academic research suggests that IA can be more involved in ERM without a breakdown in objectivity & independence. • Key issue is whether IA assumes any management responsibilities • Risk assessments • Integrated? Separate? Coordinated?

  14. How do CAEs mitigate those risks? • Outsourcing • Communication • Oversight • Education & Training • QAR • Reporting/Disclosure

  15. The financial industry • Heavily regulated • Required to follow three lines of defense guidance from the IIA • Evidence of stronger IA departments in response to regulation • More resources • More board exposure

  16. Next Research Steps • Widespread survey administered by the IIA (December 2015) • We’ll consider industry, geographic, company size differences • Research report issued by the IIA in the late spring

  17. Adding Value • Strategy • Consulting • Training (rotational programs)

  18. Using IA as a Management Training Ground • Over 60% of Fortune 500 firms use IA as a management training ground • Prior literature suggests: • This may impair IA objectivity • External auditors think it impairs IA objectivity • No real evidence of an effect on competence

  19. Using IA as a Management Training Ground • Does using IA as a management training ground impair financial reporting quality? • Are there compensating controls that could reduce this risk?

  20. Research Results • Using IA as a management training ground ISassociated with higher accounting risk. • However, this effect is diminished when: • The CAE does not rotate • The Audit Committee is “effective” • Management directs IA to focus on financial issues

  21. Conclusion • Ongoing research on evolving role of the CAE finds: • Many CAEs are performing various “other” duties • Compliance and ERM are most common & most controversial • Some are finding enhanced reputation/respect • Strategy setting & “a seat at the table”

  22. Conclusion • IA is often used as a management training ground • There is risk of impaired financial reporting quality (i.e., accounting risk) • Risk can be mitigated with appropriate “oversight”

  23. Additional Questions??

  24. Thank you Contact: Margaret Christ mchrist@uga.edu 706-542-3602

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