Final answer:
The board of directors is responsible for approving the internal audit risk assessment and related audit plan, as well as the annual compensation and salary adjustments for the Chief Audit Executive (CAE). This emphasizes the role of the board in maintaining corporate governance and oversight.
Step-by-step explanation:
The student's question pertains to the responsibilities of the board of directors in relation to an organization's corporate governance structures. The Chief Audit Executive (CAE) should report functionally to the board of directors to maintain an independence from the management, which they are auditing. The board is responsible for various oversight activities which include:
- Approval of the internal audit risk assessment and the related audit plan, which outlines the audits the internal audit department will conduct to manage and mitigate risks within the organization.
- Approval of annual compensation, bonus plans, and salary adjustments for the Chief Audit Executive (CAE), thus ensuring the CAE is remunerated fairly and independently of the influence of the executives they audit.
These responsibilities emphasize the board's role in overseeing the proper functioning of the internal audit function, which serves to provide independent assurance to the board that the company's risk management, governance, and internal control processes are operating effectively. In the context of corporate governance, the Lehman Brothers case exemplifies the failure to provide accurate financial information to investors, highlighting the critical nature of the board's oversight role.