The Transparency Debate: How Does It Affect Internal Audit?

Richard Chambers, CIA, CGAP, CCSA, CRMA, shares his personal reflections and insights on the internal audit profession. 

  

For years, investors, global regulators, the media, and others have been clamoring for greater transparency in the corporate sector. Following the global financial crisis in 2008, the chorus reached a crescendo. It was argued that lack of corporate transparency (particularly in the financial sector) was a direct factor in the crisis, and that failure to ensure greater transparency in the future would doom the global economy to further disasters. While the message was pretty clear a couple of years ago, today the noise around transparency is becoming a bit more muddled. Some still favor greater transparency, and others think the current requirements are already too great.

The European Financial Advisory Group and the International Financial Reporting Standards Foundation and International Accounting Standards Board are exploring disclosure reform initiatives. A July 2013 report by the CFA Institute argues that while most disclosure reforms focus on reducing the quantity of disclosures, reform should instead focus on improving disclosures.

Some governments are taking action. At an Open Government Partnership summit held in London last month, Prime Minister David Cameron announced that a registry of shell companies — where firms keep money offshore — would be made public. Since the summit, the Open Government Partnership has held ongoing discussions about company ownership transparency.
 
A recent Fortune magazine article by my friend Eleanor Bloxham, CEO of The Value Alliance, echoed the need for improved disclosures by sounding an alarm about the U.S. Securities and Exchange Commission’s disclosure reduction initiative to combat “information overload.” Bloxham solicited feedback from investment industry executives who opined that they would like to see more information, not less. I couldn’t help but notice that much of the information cited by executives relates to governance, risk management, and control — and could be fulfilled in part through internal auditing’s emerging role in integrated reporting.
 
According to the article, executives identified the following needs:
  • More information from management and the board about their assessment of strategies and risks.
  • Greater insights on governance and risk management processes.
  • More disclosure of key performance indicators.
  • More information on environmental and social disclosures, including risk areas such as carbon emissions, water scarcity, political spending, and corporate lobbying.
  • Information about the real reasons for executive departures.
  • Information on the CEO-to-worker pay ratio.
As internal auditors, we do not typically deliver assurance directly to shareholders and the public. However, the assurance we provide to management and the board on our organizations’ governance, risk management, and control often does serve as a basis for public disclosures. Decisions about the future of transparency may lie outside of our mandate. But we should never lose sight of the fact that we play an essential role in ensuring the quality of the information that is subject to debate.
 
Like a stage hand in a theater production, our hands are on the lights. It is up to others to decide when the curtain rises. I welcome your thoughts. 

Posted on Nov 18, 2013 by Richard Chambers

Share This Article:    

  1. Although I see the need for higher transparency from some, I wonder if theese demands will ever be considered withing sectors with the primary goal of maximazing profit? In Sweden we have, in my opinion, come quite far as to the transparency of the governmental sector but even here the conflict beteween the need for secrecy and the principle of public access to official records can be difficult. I saw somewhere that in american English the principle of public access is called "the sunshine laws". Might this be a humerous way of saying that the thought is unrealistic and "up-in-the blue"?

     

Leave a Reply