Ian Pickering How can Internal Audit help to address the top priorities of the Audit Committee?

2 Interactive session

How can Internal Audit help to address the top priorities of the Audit Committee? 3 Ian Pickering Deputy Chairman and Chair of the Board Risk Committee of Coventry Building Society Chair of the Audit Committee of Latchways plc

How can Internal Audit help to address the top priorities of the Audit Committee? 4 Coventry Building Society Third largest UK building society with assets of over £25 billion Net mortgage lending equivalent to 45% of all net mortgage lending in the UK in six months to June 2012 Maintained strong ‘A’ credit ratings throughout ‘credit crunch’; Fitch (A) and Moody’s (A3) Core tier 1 capital ratio of 21.9% Latchways plc Is the world leader in the design, manufacture and sale of engineered fall protection safety systems, which offer continuous protection to individuals working at height

How can Internal Audit help to address the top priorities of the Audit Committee? 5 Audit Committee responsibilities –Monitoring the financial reporting process –Monitoring the effectiveness of internal controls and risk management systems –Monitoring the effectiveness of internal audit –Appointing the statutory auditor and monitoring their independence –Monitoring the performance of the statutory audit

How can Internal Audit help to address the top priorities of the Audit Committee? 6 Some current Audit Committee priorities –Going concern evaluation –Valuation of assets (and liabilities) –Effective narrative reporting –Are all risks being identified, reported and managed? –Evaluation of risks to the implementation of strategic plans –Management over-ride of internal controls –Regulatory compliance –Fraud –Audit quality and auditor independence

How can Internal Audit help to address the top priorities of the Audit Committee? 7 Does the Audit Committee set its priorities and document and communicate them effectively? Does internal audit participate in this process? Should internal audit be addressing all of them? How can internal audit provide assurance to the Audit Committee that it is working effectively to address the priorities?

How can Internal Audit help to address the top priorities of the Audit Committee? 8 Are internal audit involved enough in external financial reporting or is this left to external audit and the finance function?

How can Internal Audit help to address the top priorities of the Audit Committee? 9 Does internal audit have enough knowledge of macro economic trends to question going concern assumptions? Is this part of internal audit’s role?

How can Internal Audit help to address the top priorities of the Audit Committee? 10 Should internal audit try and second guess the board’s view of fair values of assets or liabilities? Does it have the expertise to understand the valuation techniques used?

How can Internal Audit help to address the top priorities of the Audit Committee? 11 Does internal audit have a good enough view of the “big picture” to evaluate whether narrative reporting is balanced?

How can Internal Audit help to address the top priorities of the Audit Committee? 12 Are the entity’s risk management systems effective enough at identifying risks to form the basis of the internal audit programme?

How can Internal Audit help to address the top priorities of the Audit Committee? 13 Are the respective responsibilities of risk, compliance and internal audit functions well defined and understood? Do they work effectively together to provide the overall level of assurance the Audit Committee needs?

How can Internal Audit help to address the top priorities of the Audit Committee? 14 Is internal audit involved enough in reviewing strategy and the robustness of the evaluation of strategic plans?

How can Internal Audit help to address the top priorities of the Audit Committee? 15 Is internal audit used effectively as part of any due diligence work or in evaluating its results?

How can Internal Audit help to address the top priorities of the Audit Committee? 16 How will internal audit know if internal controls are subject to management over-ride?

How can Internal Audit help to address the top priorities of the Audit Committee? 17 Does internal audit have the right tools to identify fraud? Does it know the types of fraud it should be looking for?

How can Internal Audit help to address the top priorities of the Audit Committee? 18 Can internal audit help the Audit Committee evaluate the quality of the external audit? Does external audit place too much reliance on the work of internal audit?

How can Internal Audit help to address the top priorities of the Audit Committee? 19 Is Audit Committee reporting effective enough in highlighting the results from internal audit to the Board as a whole? Does the quality of internal audit reporting to the Audit Committee help achieve this?

How can Internal Audit help to address the top priorities of the Audit Committee? 20 Is internal audit doing enough to identify tomorrow’s problems while grappling with today's?

Ian Pickering How can Internal Audit help to address the top priorities of the Audit Committee?