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It depends on structure of corporate governance. Auditor might not report to each of them. Instead, the report should be submitted to the audit committee which is part of a board of directors.
The internal auditor should not report to CFO/ CEO since it will jeopardize the independence of internal auditors had there been any fraud committed by such officials.
Hence, internal auditors must report only to the independent Audit Committee of the Board of Directors since in most cases frauds committed by CFO’s also include collusion with the CEO – WorldCom, Enron, Crazy Eddie, etc.
CEO
Internal Auditor should report to the CFO
The consultants present a case that excludes the most knowledgable and experienced Accountant in the company from managing the IA function. It also creates a competative/ adversarial relationaship between these two functions. If the head of IA wants the CFO position it would be easy for them to take out the CFO with a bad report to the audit committe. It would be better if the head of IA was structured so that the CEO and the Audit committe were the Internal Audit departments customer and their compensation and performance reviews were based on how happy the customers were with the services provided. This allows every one under the CFO to work as a team, which means recommendations from the IA department can be implemented by the time the audit reports are presented to the Audit committe. This is win win.
As per IIA statndard1110 there should be a Dual Reporting Relationship.
The Chief Internal Auditor/ CAE should report functionally to Board so that independence and objectivity is not impaired ... and for that CAE must have direct access to the Board.
And the CAE should report administratively to CEO for day to day activities such as budgets, hiring practices or to inform CEO for non compliance of laws.
In case of conflict of of opinion between CAE and CEO the matter will anyway be reported to Board by the CAE and Board will take the decision it considers best for the organization.
to BOD, Audit committee of BoD, & CEO,
reporting to CFO is not suggested
to the audit committee to be discussed in the Board of Directors in the presence of CFO , CEO
The Internal Auditor must report to the Chairman/Board/Shareholders, if the absence of them he can report to CEO.
Functionally to Audit Committee of the Board
Administratively to CEO
