Corporate boards from all business sectors should heed one of the key lessons of the financial crisis and be more demanding of their internal audit departments, said the Chief Executive of the Institute of Internal Auditors at the profession's annual UK conference in London.
His views were echoed by those of Roger Marshall, a director of the Financial Reporting Council (FRC). Marshall, who also serves as Audit Committee Chairman for Old Mutual, was instrumental in drawing up the Institute's guidance on 'Effective Internal Audit in the Financial Services Sector' published earlier this year.
The guidance was developed in response to concerns from the Bank of England, regulators and other stakeholders that expectations of internal audit have been too low, and aims to ensure internal audit functions are more effective in their role of protecting their organisations from the major financial and other risks that could damage their profitability and their reputation.
Dr Ian Peters said: 'The new guidance makes a number of recommendations to increase the scope and influence of internal audit. But internal audit cannot deliver its true value to corporate governance unless it is harnessed effectively by stakeholders such as boards, audit committees, chief executives and accounting officers. They cannot harness internal audit effectively unless they are clear about the outcomes they need and want from it.'
He added that boards need better education from internal auditors about risk and control, to help boards make better informed decisions: "that's why one of the key questions for internal audit and for boards across all sectors needs to be 'what does good internal audit look like?'
In its response to the public consultation on the new guidance on internal audit in the Financial Services Sector, the FRC said that it would consider what implications the guidance has for the UK Corporate Governance Code as part of the review of the Code due early next year.
Marshall said: 'Internal audit was not in the headlines in the immediate aftermath of the credit crunch, but in the last year its role has come under much greater scrutiny, and that has been good news for the profession.'
'The recommendations made in the Institute's guidance on internal audit in the financial services sector give those who have ultimate responsibility for businesses in that industry a much clearer idea of what they should demand of their internal audit departments - for example that internal audit needs to have a proper understanding of a business's particular risks, and that its remit needs to be unrestricted. Clearer expectations of internal audit will help internal audit teams to do their job better.'