A CODE that sought to drive and improve the behaviour of internal audit functions for boards, audit committees and regulators, appears to be harvesting the cultural and governance fruits of its labour, two years after its launch.
That’s the finding of a survey of heads of internal audit (HIAs) and interviews with audit committee chairs on the way the financial services sector has learnt to deal with risk and governance issues.
The Chartered Institute of Internal Auditors’ (IIA) financial services code was launched in July 2013 to “help firms improve their management of risk as they respond to intense public, investor and regulatory pressure to improve corporate governance”.
Among the bigger shifts in corporate behaviour was access to the board. The code recommends the primary reporting line of internal audit departments should be to the board, to which the survey found that 72% of heads of internal audit (HIA) are line-managed by their audit committee chair, up from 56% in 2013.
It made a dramatic impact on the status of audit chiefs with over eight out of ten (84%) taking part in executive committee meetings, compared to just 48% in 2013. All respondents have full access to audit committee papers (89% in 2013), 90% to board papers (69% in 2013) and 84% to executive committee papers (69% in 2013).
The code also recommended that the internal audit’s scope should encompass risk and control culture as well as the setting of risk appetite, some 93% now carry out audit work on risk culture compared to 54% in 2013. And 90% now carry out work on the setting of risk appetite, significantly up from 59% two years ago.
Ian Peters, IIA chief executive, said: “Two years since the code was introduced, we can see real change in how the financial services sector views internal audit. The results reveal the extent to which financial services institutions are embracing the code’s recommendations, the opportunities the Code presents, and the challenges it poses.
“The code has driven change in the area of corporate culture. Our report Culture and the role of internal audit – looking below the surface released last year found that the audit of corporate culture and tone at the top are now priorities for financial services firms.”
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