Internal Audit Role in the External Aspects of Corporate Governance

[Question contributed with permission from Professor Andrew Chambers, Management Audit LLP]

‘Corporate governance’ as a term also includes the accountability of the Board to the owners

(and perhaps also to other stakeholders) so that the shareholders and others can exercise effective external control over their stakes in the business. For some parties, these external aspects of corporate governance are as important, or even more important, than the internal governance processes.

Internal audit findings often relate to issues which may impact the reliability of financial statements that will be published – and this is not new: internal audit may draw the attention of the audit committee to inadequate accounting which impacts upon the reliability of financial statements. Internal audit may assist the external audit in the statutory audit of the published financial statements. Internal audit is now assisting the board and the audit committee in formulating its public report on internal control and risk management. More generally, internal auditing is giving assurances to the board on other operational published analyses, especially those not subject to other independent attestation. Internal audit sometimes also now has direct relationships with regulators.

Are internal auditors key players in the external aspects of corporate governance, or only in the internal aspects of corporate governance? Should internal auditors be key players in the external aspects of corporate governance, and in what ways?
Do you consider that internal auditors may contribute to the external side of corporate governance, in the following ways? Tick each box that applies. Can you suggest other ways?
 Assisting the board in formulating their published reports on internal control under the UK Turnbull guidance, and similar guidance elsewhere.
 Under the Sarbanes–Oxley Act (Section 302), assisting CEOs and CFOs in their groundwork to be able to certify that each annual or quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances in which such statements were made, not misleading – i.e. internal control over disclosures.
 Under the Sarbanes–Oxley Act (Section 404), assisting CEOs and CFOs in the groundwork necessary to certification of the effectiveness of internal control over financial reporting.
 Contributing to the reliability of financial statements through some of the routine work that internal auditors do.
 Contributing to the reliability of financial statements through the results of fraud investigations undertaken by the internal audit activity.
 Involvement in environmental/sustainability audit and reporting.
 Assurances to the board on other published operational analyses, especially those not subject to other independent attestation.
 Advising the audit committee on the quality of external audit.
 Providing secretarial services to the audit committee.
 Other. List and address in the same context as above.
For those boxes that you tick do you have any cutting edge internal auditing resources and practices in your organization to provide these services? If not, why not?