LONDON (Reuters) - Britain’s top listed companies should be required to hire internal auditors to ensure good governance in the wake of the collapse of builder Carillion and other firms, an industry body says.
Britain’s code of corporate governance should be strengthened to require about 1,400 “premium” listed firms to have internal auditors, Paul Manning, president of the Chartered Institute of Internal Auditors (CIIA), said in a speech at the CIIA’s annual dinner on Thursday.
Many holding companies that are listed do not have internal auditors, and others companies like Carillion outsourced the function.
The code currently says a company’s audit committee should review the effectiveness of an internal audit, if there is one, or consider annually whether there should be one.
Internal auditors are one of a company’s lines of defence, assuring the board that controls on risk are being adhered to.
The CIIA beefed up its own standards for financial firms in 2013 after Andrew Bailey, then head of the Bank of England’s supervisory arm, asked “where was internal audit” in the runup to the financial crisis that saw banks being bailed out.
In the first two years of the CIIA’s stronger standards, the number of heads of audit attending meetings of a company’s main executive committees rose from 48% to 84%, Manning said, a sign that internal auditors were being taken more seriously by top management.
The CIIA will consult on whether these tougher standards for internal auditors at financial firms should be applied across all industries, Manning said.
Bailey, now head of the Financial Conduct Authority, told the CIIA dinner that the culture at many financial firms led to a disregard of internal auditors in the runup to the crisis, and that the changes introduced since then were a major step forward.
“We can’t ever take it for granted,” Bailey said.
Reporting by Huw Jones; Editing by Susan Fenton