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What is a Chief Audit Executive?

Jim B.

Last Modified Date: January 31, 2024

The chief audit executive is an independent auditor hired by an organization to inspect and make observations on all aspects of its business operations. This executive works in conjunction with the management of a company and makes suggestions to improve the business. Two main responsibilities of the chief audit executive are improving business efficiency while managing risk and maintaining internal controls in terms of accurate financial reporting and proper legal compliance. It is important that this executive stay objective despite his relationship as a hired employee of the organization he serves.

Corporate transparency is the goal of many organizations, considering they wish to seem trustworthy to both customers and investors. Ideally, this function should come as a direct result of the efforts of the management of a specific company, a group of people who work every day to assure that high standards are being kept. Most businesses require a second set of eyes to watch out for problems or issues that the management team might be overlooking. For that reason, a company will open up its operations to the oversight of a chief audit executive (CAE).

Based on the title of the job alone, it is obvious that a chief audit executive will have an impact on the financial reporting of the company. The CAE can spot accounting practices that may fall into shady territory and could raise red flags for tax officials. In addition, the CAE watches out for any other areas of the organization's operations that might not be in complete compliance with either standard laws or accepted business practices.

A chief audit executive may recommend ways in which a company can do business more efficiently.

Aside from such oversight, the chief audit executive is also responsible for conducting a thorough examination of a company's business operations and finding out the areas in which the company may be lacking. The CAE can recommend ways in which the company can do business more efficiently, thus improving its bottom line. She can also perform risk assessment, judging where the company may be vulnerable either in the present or at some point in the future.

Ideally, the chief audit executive will perform these duties in an objective manner, even though he is hired by the company that he is examining. The CAE must take all precautions necessary to avoid even the appearance of a conflict of interests, which could undermine any work for the company she might do. There is no regulatory board that oversees the work of these independent auditors, so a company should diligently do its research before deciding which CAE to hire.

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Discussion Comments

anon162516

March 23, 2011

Unfortunately the definition here is exceptionally closed-minded and bordering on being incorrect completely. The primary focus of the CAE is most definitely not financial reporting and compliance with laws.

To understand what a CAE is, one needs to take a step back to see what is the roles and responsibilities of the board. The board is accountable for the effective oversight of an organization in the achievement of its objectives. To do this depends upon the assertions of management that among other things, that effective risk management practices are in place.

The internal audit function is accountable to the Board (not management) usually through an audit committee. The internal audit function is there to give assurance to the Board that the risk management practices (primarily the controls) are working as intended. What is important to keep in mind is that these controls are not only the financial and compliance controls.

For appropriate definitions of the CAE and internal audit, refer to the Institute of Internal Auditors and the International Standards for the Professional Practice of Internal Auditing.