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New UK audit code aims to prevent Carillion-style corporate crashes
INTERNAL auditors should have direct access to top company bosses to help avoid Carillion-style corporate crashes, a new industry code said on Wednesday. UK construction giant Carillion had gone into liquidation in 2018 after its huge financial debt pile of £1.5 billion (S$2.6 billion) finally overwhelmed it.
The code from the Chartered Institute of Internal Auditors (CIIA) aims to restore credibility in internal auditors' ability to be the "eyes and ears" of boards to stamp out poor governance and misconduct.
Companies hire internal auditors to check for compliance with regulations. They are different from external auditors or outside accounting firms that independently endorse company financial statements.
The code, which CIIA members voluntarily sign up to, says internal auditors should have unrestricted access to any part of a company and be able to attend and observe executive committee meetings. They should also have a direct line to the company's chief executive and to the company's external audit committee.
Internal auditors should share information with external auditors, the code said, implementing a recommendation from a government-backed review of auditing in December.
Every company should have a chief internal auditor, even when internal auditing is outsourced as in the case of Carillion, the code said.
The CIIA hopes the new code will make it harder for company management to stonewall internal auditors' concerns.
Andrew Bailey, head of Britain's Financial Conduct Authority and governor-designate of the Bank of England, said in 2012 that boards of banks had regarded internal auditors as a "nuisance" not be taken seriously. This led to the creation of a code for internal auditors specifically for financial services companies, which has resulted in an increase in chief audit executives' attendance of executive committee meetings to 84 per cent from 48 per cent, the CIIA said.
CIIA members are drawn from most of Britain's biggest listed companies.
The number of financial firms carrying out audit work on risks from poor culture has risen to 93 per cent from 54 per cent.
The CIIA hopes the changes resulting from the financial services code can be replicated by the new, separate code for companies in other sectors.
The new code was written by a committee of officials from companies like oil group BP, energy firm Centrica , supermarket Tesco, and InterContinental Hotels Group, along with the Financial Reporting Council, which regulates accounting. REUTERS