In January the Chartered Institute of Internal Auditors published its new Internal Audit Code of Practice. This provides guidance for internal auditors in both the private and third sectors, writes Brendan Nelson, chair of the independent steering committee that developed the code.
We were delighted that the publication was welcomed by the IoD’s director general, Jon Geldart, as well as the chief executives of the UK’s main accountancy bodies.
This guidance is needed because we’ve seen a string of high-profile corporate collapses, including those of Carillion and Thomas Cook, which have led to calls for the UK’s audit and corporate governance frameworks to be strengthened.
While the quality of external auditing has attracted more criticism, we must also improve the effectiveness of internal auditing. Well-resourced internal audit teams working to this new code will, I believe, play a vital role in ensuring that directors are properly managing the risks to their enterprises.
Why do I think this document will make a difference? It’s because we’ve been here before. We developed a similar code for internal auditors in the financial services industry after the profession drew criticism following the financial crisis.
That guidance increased the skills, scope and status of internal audit teams working in the sector, thereby boosting their effectiveness. Within two years of its publication, for instance, the proportion of internal audit functions scrutinising risk culture in financial services leapt from 54 per cent to 93 per cent.
We want to build on that success and achieve similar results beyond the financial services industry. For the new code to make internal audit a more effective profession and so strengthen corporate governance in business more widely, it’s crucial that the new code is supported at board level.
Directors need to work with their internal audit teams to ensure that its principles are applied appropriately. If you’re a director who has yet to read the code, I urge you to do so.
Brendan Nelson is a non-executive director at BP and chair of its audit committee