The role of the internal auditor in the corporate governance of Maltese listed companies

Abstract

Corporate Governance principles were developed to promote accountability, transparency and openness in the information disclosed by companies to outsiders. By themselves, corporate governance principles could not ensure that shareholders' money was being safeguarded. Thus among other recommendations Cadbury committee suggested the introduction of an independent professional - the internal auditor whose main function was to monitor the effectiveness of internal controls and ensure their adequacy. Having a well-monitored system of internal controls made sure the company was well governed. The Institute of Internal Auditors changed its definition of internal auditing to encompass these new roles in governance and risk management. The scope of the internal auditor has thus been widened once again to meet the emerging business developments. The aim of this dissertation is to examine the roles internal auditors are playing within the Maltese listed companies. This is done in the light of the Cadbury Committee recommendations. This study also seeks to establish the roles which the internal auditors are playing in reporting upon the integrity and accountability of the Board to shareholders and in financial statement reporting. The study has sought to address certain issues through 13 interviews with companies listed on the Malta Stock Exchange. Interviews were carried out with 6 internal auditors and 7 representatives of the Board of Directors. The study finds indicate that: • Maltese internal auditors already specialise in monitoring internal controls and recommending any necessary improvements. They are expected to be involved in the implementation of corporate governance principles and in monitoring the compliance procedures set in place to this effect. • Internal auditors are expected to report to outsiders on issues related to recommendations on internal controls that are not complied with. • Internal auditors have only an indirect involvement in financial reporting. The study includes a number of recommendations and areas for further studies linked to this study.