Internal audit chiefs urged to grasp nettle

Internal audit chiefs urged to grasp nettle

Professor Mervyn King calls for internal auditors to seize a more hands-on role and ‘put their neck on the block’ at the Institute of Internal Auditors annual conference

mervyn king

Hands-on call: Mervyn King

One of the world’s foremost corporate governance experts has called for
internal auditors to seize a more hands-on role and ‘put its neck on the block’
at the Institute of Internal
Auditors
annual conference.

Addressing 250 of the UK’s top in-house auditors Professor Mervyn King said
end-users of accounts were not getting a true reflection of a company from the
bare bones of the balance sheet and urged them to make inroads into the areas of
strategy, sustainability and foresight.

‘We are now dealing with foresight and undecided future events,’ said King.
‘Intangibles have become more valuable than tangibles. The true economic value
of a company is not included in its book portfolio [on the balance sheet].

‘It’s a photo of a moment in time of what’s happening. Internal auditors need
to provide more forward-looking information. Report only on the financial
aspects of annual reports and you’re not giving stakeholders what they need to
make informed decisions.’

King said that there was no company employee better-placed to understand
risks and opportunities than internal auditors.

‘Internal audit can no longer be divorced from strategy.’

During the past year, there have been high-profile cases of companies looking
inwards after problems emerged on the back of the credit crunch.

The scandal at Societe Generale saw questions being raised about the internal
controls at the investment bank. King made the point that of the 100 largest
organisations in the world in terms of employees, 51 were multinationals and 49
were governments. The scope of these multinationals, operating in many different
countries, with a range of languages and currencies reflected the importance of
the internal auditors’ role, putting their remit for transparency at the top of
the list. ‘Transparency is the cornerstone of good governance. It has a
withering effect on misconduct.’

King added that internal auditors should go on the front foot and push for a
seat on company boards, with their appointments controlled by the audit
committee.

‘The days of internal audit being “compliance-centric” are dead. This is no
longer a backroom activity. It now has the most critical, critical function,’
King said.

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