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December 15, 2010

Internal audits are essential: HoL

Internal audits should not be made mandatory as that would increase the chance of it becoming an inefficient box-ticking process, internal auditors told a House of Lords Economics Affairs Committee inquiry this week.

Institute of Internal Auditors member Sarah Blackburn said that making internal audit compulsory could decrease its value in the market.

“We can’t do internal audits on the basis of cost as that can lead to poor quality,” Blackburn said.

Institute of Internal Auditors chief executive Ian Peters said more than 90% of FTSE 350 companies have internal auditors and audit committees.

“By regulating it only makes it a box-ticking process and it doesn’t say anything about audit quality and effectiveness,” Peters said.

When asked about the effectiveness of internal audits, the witnesses said there is a clear need for new expertise among internal auditors, audit committees and risk committees.  “Internal auditors have to understand where the business is going and where it suppose to be going and have a broad strategic understanding in order to ask the right questions from the board and management,” Blackburn said.

In terms of internal auditor independence, Aviva non-executive and former KPMG chairman Lord Sharman said internal auditors will never be independent, but they have to be objective.

The witnesses expressed serious concerns over external auditors conducting internal audits.

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