Internal audit in Lithuanian commercial banks : an important part of corporate governance or just another department? 

Abstract:

Purpose: the purpose of the thesis is to find out how Lithuanian commercial banks position their internal audit function within their organizational structure to overcome the tension of working with the management and keeping the distance to be able to report on them at the same time; and is internal audit function considered as one of the cornerstones of corporate governance. Moreover, comparison of banks is made to inspect any patterns, differences and similarities concerning the origin of the capital.

Method: to answer the research question a qualitative approach was chosen: analysis of audited financial reports in the period of 2008-2011, organizational statutes and all available public information in 7 Lithuanian commercial banks is performed. Moreover email-interviews were held with all chief internal auditors.

Findings: the internal audit function in Lithuanian commercial banks is not considered as one of the cornerstones of corporate governance – the function only participates in the corporate governance through the audit committee. Threats for independence are mitigated by giving the responsibility to the audit committee to appoint and dismiss the chief internal auditor and to approve the annual audit plan; and by composing the audit committee with at least one financial expert. Moreover, there is no clear pattern or distinction between internal audit positioning in foreign-capital and Lithuanian- capital banks.

Concluding remarks: the need for improved controls is a very important issue in the public debate. The position that internal auditors are put in nowadays is very challenging – internal auditors are expected to provide both assurance and consulting services and maintain their independence at the same time – and organizations handle it differently.