By Ian Peters, chief executive of the IIA.

We have created a new committee to produce guidance for internal audit in the financial services sector, to support the application of our International Standards.

While the International Standards should not be tinkered with, it is clear that guidance is needed on how they should be interpreted and applied consistently across the sector. Industry-wide agreement on the role that internal audit should play in financial services is crucial if the problems of poor risk management and corporate governance are to be avoided in future. This is a view shared by many within the sector, including the chair of our new committee, Roger Marshall.

Roger is an audit committee chair as well as a director of the Financial Reporting Council and chair of its accountancy council. He believes internal audit should be at the heart of corporate governance, with internal audit’s relationships with boards, executives and regulators in a more effective balance. The importance of internal audit has also been emphasised by the Financial Services Authority and the Bank of England.

Andrew Bailey, who is poised to head the Bank of England’s new Prudential Regulatory Authority when it’s set up in the spring, has said that the proposed guidance is crucial to improving what internal audit can contribute to good corporate governance and risk management.

My own discussions with senior practitioners have also pointed to the need for clearer interpretations of the standards. So there’s a lot of support for the idea of sector-based guidance developed by the profession and the industry for the profession and the industry. There are also high expectations of it. A similar board that we established with the Chartered Institute of Public Finance and Accountancy to develop sector-agreed guidance on the standards in the public sector, which recently produced its own draft proposals for consultation, sets a useful precedent.

The guidance will focus on systemically significant financial institutions. Getting internal audit’s relationships and activities right in these organisations will go a long way towards setting the right template for the wider industry. If we can achieve this, the profession will have reached another important milestone in its development. 

In the meantime, you can read about this important new initiative on our website at www.iia.org.uk/fscommittee.