Webinar highlights: UK corporate governance & audit reform: Ensuring accuracy, transparency & best practices
The recent webinar on UK Audit Reform and Governance, featuring expert insights from Carolyn Clarke, co-founder of Brave Within, discussed crucial aspects of the upcoming changes in corporate governance. This blog provides a concise summary of the key highlights from the webinar.
Understanding the UK Audit Reform
Carolyn Clarke began the discussion by shedding light on the upcoming UK audit reform and its potential implications for transparency, accountability, risk management, and internal controls in corporate governance. She acknowledged that there is widespread confusion about the reform's timelines and implementation.
Primary legislation is expected to grant the Financial Reporting Council (FRC) greater authority to hold organizations accountable. The secondary legislation covers various aspects, including audit and insurance policies, resilience statements, fraud risk assessments, and disclosures related to capital adequacy and dividend distribution.
One significant change is the strengthening of the UK corporate governance code's focus on internal controls. Directors will be required to declare the effectiveness of these controls. The FRC also aims to promote "comply or explain" practices, encouraging organizations to provide explanations when full compliance isn't feasible.
Challenges Around Internal Control Declarations
One of the primary concerns raised during the webinar was the scope and nature of internal control declarations. The consultation for audit reform encompasses financial and non-financial controls, as well as reporting, compliance, and operational controls. While financial services companies may be better prepared, organizations with complex engineering and process elements may find compliance more challenging.
Impact on the Role of Internal Audit
The webinar delved into how these changes might affect the role of internal audit within organizations. Carolyn emphasised the importance of good governance, highlighting the three lines of control: those responsible for control, those monitoring controls, and independent perspectives. Internal audit plays a crucial role in providing an independent perspective within the organization.
Internal audit may need to step up its role, ensuring a proportional focus alongside a risk-based audit plan. The focus is on directors' accountability and judgment, and collaboration with other parts of the organization is crucial to provide assurance and insights.
Collaboration with Audit Committees
Effective collaboration with audit committees was another key topic. Audit committee chairs are under increasing pressure due to expanding obligations. They may require expertise beyond financial matters, as their responsibilities extend to non-financial reporting. Trust and transparency are vital between internal auditors and audit committee chairs, and regular interactions are essential.
Strategies for Interaction Between Internal Auditors and Audit Committees
The webinar emphasized strategies for facilitating productive interactions between internal auditors and audit committees. A meaningful relationship between the head of internal audit and the audit committee chair is essential. Trust is built on the understanding that issues and tensions will be openly discussed. While formal audit committee meetings are important, interactions outside these meetings can address more sensitive matters.
Connecting the dots and conducting root cause analysis are crucial for the head of internal audit to understand underlying issues and provide valuable insights.
Questions About Internal Audit for Listed Organisations
The webinar addressed questions about internal audit for listed organizations. It's expected that listed companies should have an in-house internal audit capability, even if it's a single individual providing an independent perspective. While the internal audit code of practice requires an in-house function, it doesn't prescribe its size or complexity.
The need for internal audit shouldn't solely be driven by regulation; it should ensure responsible risk mitigation. The requirement for large private entities (pies) to have internal audit departments remains uncertain, pending future legislation.
Ensuring Proportionate Internal Control Requirements
Another question asked for advice on keeping the new internal control requirements at a proportionate level in terms of the amount of work required to set up a framework covering all financial, operational, compliance, and non-financial controls. Carolyn advised starting with a focus on financial controls and gradually expanding to broader areas. Prioritize controls related to commitments made in the annual report and other critical areas. Ensure that controls align with ethical and compliance standards.
In conclusion, the webinar highlighted the evolving landscape of UK audit reform and the critical role of internal audit and audit committees in ensuring transparency, accountability, and effective governance within organizations. The challenges and opportunities presented by these changes underscore the need for proactive adaptation and collaboration in the corporate governance arena.
Are you eager to explore these topics further and engage with experts in the field? Join us for our upcoming event:
"From Compliance to Competitive Advantage: Preparing for UK Corporate Governance and Audit Reform Breakfast Briefing"
Date: 5th October
Location: RSA House, Durham House Street, London, WC2N 6HG
This event will provide you with valuable insights and strategies to navigate the evolving landscape of corporate governance and audit reform in the UK. Don't miss this opportunity to stay informed and gain a competitive advantage.
Register now to secure your spot!
