PwC_Survey_highlights_need_for_marriage_guidance
Author: Rosemary Murdie - 24 January 2006A new survey issued recently by PricewaterhouseCoopers highlights the rocky relationship between some audit committee chairmen and internal audit, comments the Institute of Internal Auditors – UK and Ireland (IIA).
With increasing demands being placed on both audit committees and internal audit due to the changes in UK corporate governance, the survey revealed that audit committees are uncertain about their own expectations of internal audit and are not clearly driving the assurance agenda.
Jackie Cain, Technical Director of the Institute of Internal Auditors comments:
"Internal audit and audit committees are cornerstones of governance together with external audit and executive management. Weakness in any of these functions means that the edifice of governance is shaky."
"We welcome this survey, which raises important questions about the contribution internal audit can make to organisations. We call upon audit committee chairs and heads of internal audit to take action to improve their working relationship. If audit committee chairs feel that internal audit is not delivering the right quality of assurance, they must invest more energy in getting to know their internal audit functions and asking the questions that interest the audit committee."
"Audit committee chairs should ensure their organisations are recruiting heads of internal audit who possess specific qualifications and skills in internal audit, rather than choosing candidates from purely accountancy backgrounds. The head of internal audit should as a minimum requirement be practising internal audit in accordance with the IIA's International Standards for the Professional Practice of Internal Auditing as recommended by the combined code guidance on audit committees." [1]
"We recommend that all heads of internal audit and audit committee chairs make a new year's resolution to have lunch to kick off the process of getting to know their needs and expectations. And both should remember, as with any successful marriage, there are times when you just have to work at it."
Notes to Editors
The IIA is the only professional body in the UK and Ireland solely dedicated to the profession of internal auditing. They are part of the global Institute of Internal Auditors, which sets the International Standards for the Professional Practice of Internal Auditing, and the Code of Ethics, which all members agree to follow.
What is internal audit?
Internal auditors look at the major risks facing their organization, and provide their audit committee with an independent view of how well these risks are being managed. They are different to external auditors because they do not focus only on financial statements or financial risks: much of their work is looking at reputational, operational or strategic risks.
Internal audit may be provided by in-house staff, or an outsourced team. Either way, they report directly to the audit committee, and this independence gives them a unique and valuable perspective on the risk management and internal control processes. Internal audit is an integral part of an effective corporate governance framework.
Recommended resources for audit committee chairs
'In Control – views of audit committee chairmen on the effectiveness of internal audit', PWC
available for download from www.pwc.com/uk
The following guidance from the Institute of Internal Auditors is available for download from www.iia.org.uk
International Standards for the Professional Practice of Internal Auditing
IIA Code of Ethics
Audit Committee briefing – Appraising Internal Audit
Audit Committee briefing – Working with Internal Audit
Audit Committee briefing – Internal Auditing Standards – Why they matter
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[1] Guidance on audit committees (The Smith Guidance) on page 43 onwards of the current Combined Code on Corporate Governance
http://www.frc.org.uk/corporate/combinedcode.cfm
This guidance is based on the January 2003 report from Sir Robert Smith, designed to assist company boards in making suitable arrangements for their audit committees and to assist directors who serve on audit committees in carrying out their role.