Draft code launched in bid to reduce risk of corporate collapses

A draft code to strengthen corporate governance and help reduce the risk of further major corporate collapses has been launched today.

The Internal Audit Code of Practice aims to create an internal audit industry standard and boost the ‘status, standards, scope and skills’ of internal audit following a string of high-profile corporate collapses, such as that of Carillion, where auditors from Big Four companies failed to warn of the impending collapse.

The Internal Audit Code of Practice is being developed by an independent Steering Committee set up by the Chartered Institute of Internal Auditors, chaired by Brendan Nelson, audit committee chair of BP.

Mr Nelson said: “One of the best ways to help organisations better protect their assets and manage risk is to boost the status, standards, scope and skills of internal audit.

“The draft Internal Audit Code of Practice contains 30 recommendations to strengthen corporate governance including unrestricted access for internal audit, full access for internal audit to senior meetings and full access for internal audit to key management information.

“The draft Code offers invaluable guidance about raising internal audit performance to help businesses and other organisations protect their assets, reputation and sustainability.”

The draft makes 30 recommendations to strengthen corporate governance, including:

• Unrestricted access for internal audit. Internal audit should not be stopped from looking at any part of the organisation it serves.
• Full access for internal audit to senior meetings including the right to attend executive committee meetings.
• Full access for internal audit to key management information.

The code aims to build on the Chartered Institute of Internal Auditors’ work in developing a Financial Services Code in 2013.

The Financial Services Code has helped to raise the scope and standing of internal audit in financial service, with the number of chief audit executives attending executive committees raising from 48% to 84%, and the number of organisations carrying out audit work on risk culture rising from 54% to 93%.

Dr Ian Peters MBE, chief executive of the Chartered Institute of Internal Auditors said: “The draft Internal Audit Code of Practice will build on the success of the Financial Services Code we launched in 2013.

“We want to hear what businesses and other organisations would like to see in the first-ever Internal Audit Code of Practice and encourage them to take part in the public consultation we have launched today.”

The draft has been published along side consultation questions to seek the opinions of industry professionals.

In the foreword to the report, Mr Nelson writes: “Once agreed and published, the new Code will provide an industry benchmark for best practice internal audit.

“It will also provide a gauge by which boards, audit committees and where appropriate UK regulatory authorities can assess the role, function and effectiveness of internal audit functions.”