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05 January 2012

ECIIA's special edition on European Governance


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ECIIA's special edition on European Governance highlights the important news that arose from its recent international conference in Madrid. By its title, "In Search of Stability", this publication captures the debate and the comments of key speakers from a wide governance arena.


Internal audit is playing an increasingly important role in the new corporate governance “world order” that is beginning to emerge in Europe. While the European Union is still consulting on its initiatives to achieve more stability in businesses listed on the zone’s stock exchanges, the direction of reform is becoming clear: better corporate governance.

“We have a corporate governance model starting to emerge that makes a lot more sense in terms of stability”, said president and chief executive officer of Global IIA, Richard Chambers, speaking at the recent annual conference of the European Confederation of Internal Auditors in Madrid.

“We are starting to see boards hold the chief executive officer and management to account more strongly”, he said. “Internal audit is playing a role in supporting the board in that move.”

In its most recent consultation document, 'The European Corporate Governance Framework', the European Commission focused on how corporations should manage and report on risk following recent financial and economic crises.

The model of corporate governance favoured by the ECIIA and put forward to the EC during the body’s recent consultation on its Green Paper is the “three lines of defence model”. This sees an organisation’s internal control and operational management picking up risks and control issues in the first line of defence; followed by risk management, compliance and essential monitoring functions in the second; with internal audit acting as global assurance in the third line of protection.

Chambers said that this model sat nicely with the new world order and that internal audit is professionally prepared. “Internal audit is the last and ultimate line of defence the board wants to identify internal control issues – beyond that lays the abyss of regulators”, he told the conference. If regulators found something wrong, the consequences are likely to be more severe than if it had been identified in-house and sorted.

José Manuel Muries, chairman IIA Spain and conference organiser, said that internal audit was well placed to rise to the challenge. “Globalisation is making countries more interdependent”, he said. “Internal audit has a role to play in the current crisis because its core values of objectivity and independence are more important than ever.”

He said that value, or “valor,” had two meanings in Spanish, both of which were important. First, he said, internal audit terms created value by providing consistent insight into the organisation’s activities and giving it the confidence that risk was being managed properly. Second, it pointed to a state of mind, one that, for example, was prepared to go against the flow and to make an objective analysis and judgement of a situation that could run counter to the view of management, if necessary.

Cristina Martínez, board member of FERMA, the Federation of European Risk Management Associations, also said that internal audit should contribute to the corporate governance of a company, and that risk management should be seen as a real tool for decision-making processes. But in a panel discussion at the conference she expressed concern that the EC’s recommendations might lead to further burdensome regulations. “FERMA welcomes the EC’s recommendations as they go beyond mere superficial compliance and box-ticking”, said Martínez. “There is no need for further regulation, but there is a need to strengthen the existing rules in places.”

Full paper



© ECIIA


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