SEC Chairperson Lilia R. Bautista said internal auditors are expected to provide assurance that policies and procedures are being followed throughout the organization and that management and the board are meeting organizational goals and objectives.
Bautista said a strong audit committee insulates the internal auditors and prevents them from becoming too beholden to the managers they are examining.
She said international audit teams should go beyond their traditional role as corporate "risk police" and take the more challenging role of acting as the conscience of corporations.
"Give your internal audit teams the mandate to act as the conscience of the corporation, and assure them that they can fulfill this role without fear of reprisal. Be the catalyst for change in your corporate culture so that at every level within your corporation, internal auditors will not be seen as instruments of censure but as integral partners in your quest for better corporate governance," Bautista said.
Bautista said expecting internal audit teams to become the conscience of corporations is a very tall order because internal audit teams are traditionally expected to work with rather than against management in carrying out their duties, Bautista said.
The SEC chief said that unlike external auditors, internal audit teams have very little room to maneuver if they work within a management structure "that stifles them from reporting dubious business transactions and practices."
Bautista said internal auditors should have free and full access to all the company’s records, properties and personnel so that they can freely raise questions and concerns outside management’s presence.
"In the aftermath of corporate debacles such as Enron and Worldcom, investors will pay closer attention to internal control mechanisms. We want to see corporations that are willing and able to police their own ranks. Clearly, having an effective internal audit department is the first thing we will look for, Bautista said.
The SEC’ s Code of Corporate Governance requires the establishment of an audit committee, composed of at least three board members, preferably with accounting and finance background, one of whom shall be an independent director and another should have related audit experience.
The audit committee’s main responsibilities are to provide oversight over the senior management’s activities in managing credit, liquidity, operational, legal and other risks of the corporation; to monitor and evaluate the adequacy and effectiveness of the system of internal controls; and to review the financial reports before submission to the board.
It shall also serve as direct channel of communication to the board for the internal auditors, compliance officers and the general counsel.
The audit committee is not required for Philippine branches or subsidiaries of foreign corporations covered by the Code. Instead, the local audit head for such entities should be independent of the Philippine operations and should report to the regional or corporate headquarters.