Audit Contribution to Governance

Question 1

How may the board and senior management enhance the ability of the internal audit function to identify issues with the firm’s risk management and internal control system?

Answer 1

• Encourage auditors to adhere to national and international professional standards e.g. Institute of Internal Auditors.
• Promote the independence of the internal auditor by ensuring it has direct access to the Audit Committee.
• Recognise and communicate the importance of the audit function throughout the firm.
• Use the findings of internal audits to correct issues in a timely manner.
• Engage internal auditors to judge the effectiveness of the risk management and compliance function, including the quality of risk reporting to the board and senior management.

Question 2

What are the responsibilities of the board and senior management in relation to audit’s contribution to corporate governance?

Answer 2

1. Preparation and fair presentation of financial statements in accordance with applicable accounting standards in each jurisdiction.
2. Establishment of effective controls on financial reporting.
3. Contribute to the effectiveness of external auditors to ensure that the firm’s financial statements are fair and accurate by including in engagement letters that they expect external auditors to comply with standards of professional practice.

Question 3

How might the board be able to oversee senior management’s implementation of the board’s policies?

Answer 3

The NEDs can meet with external auditors and head of internal audit and compliance.

Question 4

What can senior management do when conflicts of interest arise?

Answer 4

Ensure segregation of duties.

Question 5

Which areas have senior management historically not held effective control over employees?

Answer 5

Failing to question employees who generate high revenues or returns out of line with reasonable expectations e.g. low risk, low-margin trading generating high returns.