Power source: strengthening internal audit

If recent corporate failures have taught us anything, it is that getting corporate governance right is fundamental to the long-term success and sustainability of organisations. That is true in the case of Carillion, of BHS before it and, more recently, of Patisserie Valerie. The failures of all these companies revealed serious corporate governance deficiencies.

The presence of a strong internal audit function can play a pivotal role in ensuring organisations have a robust corporate governance framework. But as readers of this column will know all too well, the success of any internal audit function relies upon having an excellent relationship and strong partnership with the audit committee, non-executive directors and senior management.

That is why at the institute we are committed to doing all we can to support internal auditors in fostering strong working relationships with their audit committees, along with executive and non-executive directors. Engaging audit committee chairs and helping them to better understand how they can get the most from their internal audit functions and strengthen their corporate governance is therefore now a top priority for us. 

One means by which we hope to increase our engagement with audit committee chairs is our new series of Presidents’ Dinners. The first of these was held in December in Westminster and was attended by audit committee chairs from FTSE 100 companies.

The next is scheduled to take place at the end of March. While over the road in Parliament our MPs continued to have heated discussions about Brexit, we instead had a great roundtable discussion on the future role of internal audit in promoting good corporate governance. One of the main messages from the audit committee chairs who attended was that what they would value most highly is guidance on best practice, along with resources to help them get the most out of their internal audit functions.

We see it as vital to promote internal audit best practice, not just among those in the profession, but also among business leaders such as the ones who attended the Presidents’ Dinner in December. We are therefore delighted that, in partnership with the Institute of Directors, we have launched a new guide on how boards and audit committees can optimise their relationship with internal audit: “Harnessing the power of internal audit: a guide for audit committees, non-executive directors and senior management”.

This provides food for thought and guidance on how directors can enhance the role of their internal audit function in order to strengthen their corporate governance framework and mitigate the risk of corporate failures. It takes into account recent corporate governance upgrades, including the new UK Corporate Governance Code which came into effect on 1 January 2019.

It also takes into account the fact that in recent years the scope of internal audit has continued to change, expand and develop rapidly – with far greater focus on auditing a broader range of risks such as cyber security, workplace culture, political uncertainty and communications risk – all of which featured prominently in “Risk in Focus 2019”.

In particular, audit committees and senior management need to recognise that the days when internal audit functions merely audited bread-and-butter risk areas such as financial controls, compliance and governance are long gone. Modern internal audit functions can play a far greater role in providing assurance on a plethora of new and emerging risks – indeed it is vital that they do so if the potential of internal audit is to be maximised.

I urge you to read “Harnessing the power of internal audit”, which is now available on the institute’s website. Then share it with your audit committee and senior management. 

This article was first published in March.