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Basel Committee report ‘ups ante’ on internal audit, says IIA

28 June 2012

New guidelines from the Basel Committee 'up the ante' on internal audit in banks, says the Chartered Institute of Internal Auditors (IIA). The IIA says that the new guidelines increase the profile of internal audit in banks and call for a much stronger relationship between bank boards and the internal audit function.

"Today's Basel Committee report ups the ante on internal audit in banks," says Dr Ian Peters, IIA chief executive. "Internal audit is there to ensure that risks are managed effectively - whether it's rogue traders, operational malpractice, or poor corporate governance. It's an absolutely vital function in banks, but it hasn't always had the attention it needs."

"The Basel guidance is particularly timely. Part of the remedies proposed by the US Commodity Futures Trading Commission in response to the recent LIBOR scandal is improved internal auditing."

He adds: "Ethics and culture in banks are set at the very top; this guidance helps internal auditors build better relationships with those at board level. It forces bank boards to take their internal audit functions seriously.

"Internal audit is only as good as the board allows it to be: whether it's resourcing or actually listening to what internal audit has to say."

The Institute believes that the new guidance sets the basis for a more effective relationship between internal audit, the board, and the regulator.

Dr Peters concludes: "Internal audit is there to protect the bank and the board, but the board has to want to be protected. This guidance should raise the bar for internal control, risk management, and corporate culture. It's not compulsory but it sets much higher standards for boards to live up to."