By Huw Jones
LONDON, Jan 8 (Reuters) - Internal auditors should have
direct access to top company bosses to help avoid
Carillion-style corporate crashes, a new industry code said on
Wednesday.
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% from 48%, the CIIA said. The
CIIA's 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 from 54% to 93%.
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.
(Reporting by Huw Jones. Editing by Jane Merriman)