THE IIA has published new guidance for the internal audit of banks and other financial institutions that it hopes will improve the effectiveness of auditors within such organisations.
Laid out in the wake of the of the recent report of the Parliamentary Commission on Banking Standards, which was highly critical of external auditors’ role in the banking crisis and internal auditors’ lack of influence, the new rules will extend their and influence within the sector.
The new code will provide UK financial services firms with a sector-specific benchmark against which boards and regulators can assess the effectiveness of their internal audit functions.
To boost internal audit’s role the new code states that the chief internal auditor should have sufficient standing and authority to challenge the executive – a particular area of concern raised by the PCBS.
Other recommendations in the code include that internal auditors are able to assess the management of any risk in any part of the business, changes to the primary reporting line of internal audit and requirements that internal auditors are better resourced, skilled and quality assured.
The new code builds on the IIA’s existing standards and responds to concerns of many including the financial services regulators, that expectations of internal audit have been too low and takes account of guidance issued last year by the Basel Committee and earlier this year by the US Federal Reserve Bank.
The code has been produced by an independent committee established by the IIA and chaired by Roger Marshall, Audit Committee chair at FTSE 100 insurer Old Mutual, with representation and observers from leading banks, insurers, the Financial Conduct Authority, the Prudential Regulation Authority and the Bank of England.
“The new code gives internal audit the potential to play a much more significant role in supporting better management of risk in financial services organisations. The importance of this role is recognised by the Banking Standards Commission and others, including the financial services regulators, who see the need to strengthen internal audit’s independence, role and scope,” said Ian Peters, Chief Executive of the Chartered Institute of Internal Auditors.
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