Position paper: Corporate auditing

August 2021

Corporate auditing profession

The establishment of a ‘corporate auditing’ profession, accompanied by a new professional body for corporate auditors, was first proposed by Sir Donald Brydon in his final report of the Independent Review into the Quality and Effectiveness of Audit. In essence he suggested that external audit should be an independent profession in its own right, and not just an extension of the accounting profession.

This new corporate auditing profession would have a broader scope and encompass all ‘corporate auditors’ including statutory auditors of financial statements, as well as auditors of other corporate information such as cyber security, ESG and culture.

In addition, the role of the proposed new audit regulator – the Audit, Reporting and Governance Authority (ARGA) - would be to facilitate the establishment of the new corporate auditing profession and establish its governance, principles and qualifications.

In March 2021, the Department for Business, Energy and Industrial Strategy (BEIS) published its ‘Restoring trust in audit and corporate governance’ white paper, which agreed with the recommendations of the Brydon Review in relation to the establishment of the corporate auditing profession and a new professional body for corporate auditors.


Chartered IIA’s position

The Chartered IIA believes that it is not necessary or desirable to set up a new corporate auditing profession with a new dedicated professional body. We believe that establishing such a profession could have some unintended policy consequences for the internal audit profession.

The scope of the new ‘corporate auditing’ profession

Notably, our main concern for this new profession is about the scope of corporate auditing going beyond the traditional role of external audit work of providing assurance over the financial statements. Indeed, it is proposed that the scope of the profession would also include providing assurance on areas that internal audit is engaged in such as culture, cyber security and ESG. This means that the establishment of a new corporate auding profession could have unintended consequences for the internal audit profession by duplicating the remit and responsibilities of internal audit i.e. the provision of independent assurance.

As a result, there is a risk that this could cause a conflict between the work of internal audit and proposed corporate audit work that could possibly erode the boundaries between the two assurance functions. In particular, we would want to ensure that the current separation between the two assurance functions is maintained. We would also want to ensure that the new profession does not result in a significant overlap or duplication of work between external audit, and internal audit.

The role of internal audit is to provide assurance on the effectiveness of risk management, internal control and governance across the business. On the other hand, external audit’s mandate is limited to providing assurance on financial statements and therefore is of limited use in assessing how well senior management is managing the organisation’s wider business risks.

Both assurance functions are vital for the effective governance of an organisation, and it is crucial that they remain independent and objective, as well as having their own clear roles and responsibilities. It is imperative that the establishment of the new ‘corporate auditing’ profession does not erode or diminish the scope and status of internal audit.

A new professional body for corporate auditors

The white paper contained a proposal for establishing a new professional body for auditors of all corporate information which could help to elevate the status of auditors and reinforce their ethical and public interest obligation. The Chartered IIA does not currently support the proposal for a new professional body, and we believe that more time is required to fully consider this proposal and its unintended policy consequences, including the impact on the internal audit profession.

In this context it is worth noting that internal auditors already have a dedicated Chartered professional body, professional practices, are governed by codes and standards and possess many of the skills outlined for the corporate auditing profession.

Alternative delivery model

The Chartered IIA believes that setting up a new corporate auditing profession with a new dedicated professional body would require substantial time commitment and financial resources, and we do not see it as either necessary or desirable to set one up.

We believe that there is a more effective and pragmatic approach to help the government to achieve their objectives in delivering better statutory/external audit. Namely, the government could engage with the existing professional bodies to explore how they could help to achieve some of the desired outcomes. For example, if there is a need for a qualification for corporate auditing then that would be best supported and provided by existing relevant professional bodies. Further, given that existing professional bodies already have the infrastructure in place for providing such qualifications, this would significantly reduce the time commitment and financial resources needed to achieve the government’s objectives. Therefore, removing the need to create an entirely new professional body.

The Chartered IIA has made clear to government that it would be happy to be involved in those discussions and play a leading role in this work, alongside the main accountancy bodies.


Appendix

Chartered IIA response to the Restoring Trust in Audit and Corporate Governance white paper, July 2021

Department of Business, Energy & Industrial Strategy – Restoring Trust in Audit and Corporate Governance white paper, March 2021

Report of the Independent Review into the Quality and Effectiveness of Audit, December 2019

Government urged to take swift action on audit reform following Brydon Review, December 2019

Chartered IIA response to the Independent Review into the Quality and Effectiveness of Audit, June 2019