Government has just months to restore trust in audit and corporate governance, warns Chartered IIA

• The Chartered IIA urges the government to act quickly to deliver proposals set out in the audit and corporate governance white paper
• The government must urgently put the audit regulator on a statutory footing
• Introduce the need for new Audit and Assurance Policies and deliver stronger internal company controls
• Organisation representing 10,000 internal audit professionals urges early delivery of these changes to help prevent future corporate collapses

The Chartered Institute of Internal Auditors (Chartered IIA) is today warning that the government has only months to bring forward a number of changes to the way in which major companies are audited if trust in audit and corporate governance is to be restored.

In its response to the Department for Business, Energy and Industrial Strategy’s consultation on its audit and corporate governance white paper, which closes today, the Chartered IIA - which represents 10,000 internal audit professionals working in the UK and Ireland - urged the government to act quickly in the following areas over the coming months to restore trust and prevent future corporate collapses:

• Fast-track legislation to put the audit regulator on a statutory footing with the legal powers it needs to do its job effectively, and funded by a statutory levy
• The introduction of Audit and Assurance Policies, particularly the requirement that companies will have to provide a description of their internal auditing and assurance processes and future plans to strengthen these
• Implementing stronger internal company controls, adopting a Sarbanes-Oxley lite approach, which in time the Chartered IIA would like to see expanded to other areas such as cybercrime, environmental, social and governance issues and IT

Going beyond the changes envisaged in the white paper, the Chartered IIA are re-iterating our previous calls for the government to take additional measures to strengthen audit and corporate governance. This includes strengthening the audit regulator to act decisively in dire circumstances, such as having the ability to impose life-time bans on individuals becoming company directors should they persistently or severely breach their duties.

Whilst the Chartered IIA welcomes a number of the proposals included in the white paper, the introduction of some measures should be re-considered to avoid unintended consequences on industry quality and effectiveness:

• Plans to change the scope and purpose of external audit, in a way which would duplicate the role and responsibilities of internal auditors
• Proposals to establish a corporate audit profession which, in light of the professional body which already exists for internal auditors, could lead to unnecessary duplication
• The Chartered IIA remains sceptical as to whether managed shared audits are the right approach to increase competition in the statutory audit market, specifically whether they will contribute to increasing statutory audit quality and effectiveness

John Wood, Chief Executive of the Chartered IIA, said:

“Restoring trust in audit and corporate governance has to be a priority and, as this consultation ends, the Chartered IIA would support the government in going further and faster on this. We needed a new audit regulator (ARGA), that is properly funded with a statutory levy and armed with enhanced powers, yesterday frankly, but realistically this must now happen in months not years.

The Business Secretary is on the right track, but we urge him to commit to a prompt and transparent timeline that sees him tick off some of his ‘to do’ list before he hits his second year in the job. Stronger internal company controls are vital to prevent future corporate collapses and enjoy wide support from internal audit professionals across the country.”

Notes to editors

1. The Chartered IIA’s full response to the Department for Business, Energy and Industrial Strategy’s consultation on its audit and corporate governance white paper can be found here
2. The Chartered IIA represents over 10,000 internal audit professionals in organisations spanning all sectors of the economy, across the UK and Ireland. It champions the contribution internal audit makes to good corporate governance, strong risk management and a rigorous control environment leading to the long-term success of organisations, including those in the public sector
3. For further information, please contact Holly Mahon of Atlas Patners. You can reach her on email at holly.mahon@atlas-partners.co.uk or via mobile on 07593 441993