An investigation by UK regulators into the
role and scope of external audit in relation to the regulation of
financial services companies should also consider the role played
by internal auditors, according to the UK chapter of the Institute
of Internal Auditors (IIA).
A consultation by the UK Financial Services
Authority (FSA) and the Financial Reporting Council (FRC)
criticised external auditors for falling short of expectations for
professional scepticism. It also questioned how their contribution
to prudential regulation could be enhanced.
IIA chief executive Ian Peters said that while
the discussion paper focuses on external audit, the context of the
consultation should focus more on the role of internal
“Internal audit is, like external audit, a key
component of good governance,” Peters said. “If this latest
consultation is not also mindful of the role and scope of internal
audit, opportunities for the regulator to drive and monitor good
governance could be missed.”
The role of internal audit is to provide the
board with ongoing assessment of the effectiveness of controls in
place to identify and manage a range of risks, including financial
Peters said external auditors alone cannot
deliver ongoing assurance to support good corporate governance.
“The regulator, as part of its prudential
regulatory function, should also consider the extent to which the
firm’s internal audit function is engaged and utilised across all
functional areas of the firm, including in the area of financial
control, when making their assessments on the effectiveness of a
firm’s risk management and governance activity,” Peters said.