Mandatory External Reporting of Internal Controls

The case for the mandatory external reporting of internal controls and risks

1. Disclosure allows for accountability. Had investors been aware of the internal control failures and business probity risks earlier, it may have been possible to replace the existing board before events deteriorated to the extent that they sadly did. In addition, however, the need to generate a report on internal controls annually will bring very welcome increased scrutiny from shareholders and others. It is only when things are made more transparent that effective scrutiny is possible.


2. Secondly, I am firmly of the belief that more information on internal controls would enhance shareholder confidence and satisfaction. It is vital that investors have confidence in the internal controls of companies they invest in and increased knowledge will encourage this.


3. Furthermore, compulsory external reporting on internal controls will encourage good practice inside the company. The knowledge that their work will be externally reported upon and scrutinised by investors will encourage greater rigour in the IC function and in the audit committee. This will further increase investor confidence.


4. Internal controls and risks are simply too important an issue to allow companies to decide for themselves or to interpret non-mandatory guidelines. It must be legislated for because otherwise those with poor internal controls will be able to avoid reporting on them. By specifying what should be disclosed on an annual basis, companies will need to make the audit of internal controls an integral and ongoing part of their operations.



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