Corporate Governance and Internal Audits Role - Essay Example

whether internal or external,and have led to evolution of a new systemic structure of the audit function.In the foregoing paragraphs we examine these aspects in some details.To begin with we look at some of the corporate governance policy developments and follow them up with contributions they make towards a more robust audit function. The Financial Services Authority has evolved a refurbished code on corporate governance replacing the1998 intending that the new Code will apply for reporting years beginning on or after 1 November 2003.

This Code supersedes the earlier Combined Code issued by the Hampel Committee on Corporate Governance in June 1998.The highlight feature of the new code is the leveraging on the work of Derek Higgs on the role and effectiveness of non-executive directors and a review of the structure and functions of audit committees by a group led by Sir Robert Smith. The Code as it had evolved permitted no room for further consultations and was considered final and applicable in the stated form. The Code essentially evolved around main and supporting principles and provisions.

The UK company Listing Rules requires corporates to make a disclosure statement in two parts in reference to the prescriptions of the Code. In the first free format part of the disclosure statement, the company reports as to how it applies the corporate governance principles stated within the Code. This report covers the main as well as the supporting principles. This first part reporting has been left free of any particular format with the specific intention of letting the corporates have a free hand in expressing their corporate governance policies and compliance with the Code.

The second part, however, is structured and the concerned corporate has to report categorically if it complies with the provisions of the Code or not. In case it does not comply then structured explanation for the same has to be furnished. The Code specifies that smaller companies outside FTSE350 may find some of the Code provisions not entirely relevant to their circumstances. Similarly the investment companies have been excepted as they tend to have a distinct board structure. Lastly the Code carries this laudable flexibility further in not assessing mechanistically corporate deviations from the Code and advises shareholders to assess the characteristics, size and risk profile of the corporates before concluding on inadequacy of corporate disclosures.

The flexibility of the Code itself reflects a desire of the regulator to