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Why our financial services sector needs guidance on internal audit

by Tony Rasman | Jun 26, 2019

The Hayne Royal Commission and APRA’s Prudential Inquiry into the Commonwealth Bank of Australia switched the spotlight on internal audit, highlighting the   important role the function can play in the governance structure of an entity.

“There are numerous examples of governance failures arising from evidence presented to the Royal Commission. The lesson for the private sector is a more thorough examination of the ‘governance eco-systems’ in which, for example, internal auditors operate in”, says Mr Peter Jones, Chief Executive Officer of The Institute of Internal Auditors-Australia.

Australia should look to the UK for guidance to ensure governance ‘eco-systems’ are properly structured to deliver the best results.

After the fall-out from a series of financial crisis such as the Libor scandals in the UK and a Parliamentary Commission into Banking Standards, the Chartered Institute of Internal Auditors (UK) in 2012 worked with local industry and regulators to develop an “Effective Internal Audit Guide in the Financial Services Sector (‘the Code’)”.

The ‘Code’ was developed as a result of the financial services sector and regulators committing to provide an industry benchmark for best practice in internal auditing complementing the International Standards for the Professional Practice of Internal Auditing.

Two years after the ‘Code’ was introduced in the UK in 2013, a survey into its effectiveness found that heads of internal audit (HIA’s) in the banking sector had a much higher level of access to audit committee papers, board and executive committee material.

The survey also found that the introduction of the ‘Code’ boosted the position and status of HIA’s, and secondary reporting lines also changed significantly with boosts to HIA’s reporting directly to the CEO.

IIA-Australia is also applying the combined lessons from the UK and the Hayne Royal Commission to establish a committee of industry experts to develop our own version of an “Internal Audit Best Practice Guide” specifically for the financial services sector in Australia.

Our regulators ASIC and APRA have both given the green light to this project acknowledging it’s a step forward for the industry.

IIA-Australia is currently in the process of identifying an eminent Audit Committee Chair who might be willing to lead a Committee on Internal Audit Guidance for Financial Services.

The Committee will be seeking enthusiastic and experienced senior internal audit practitioners from the financial services industry to be involved in this ground-breaking venture.

If you think you can contribute to the Committee in developing our own best practice internal audit guide for banking, insurance, superannuation and financial services firms please contact tony.rasman@iia.org.au

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