engleski

INTERNAL AUDIT FUNCTION IN CORPORATE GOVERNANCE CODES: ANALYSIS OF CURRENT PROVISIONS IN CEE

In a modern business environment, corporate governance mechanisms that enable governing structures to implement external demands for greater accountability, transparency and control have an increasingly important role. In this context, internal audit function (IAF) is an inevitable corporate governance mechanism and the necessity for its regulation arises from that role. Regulating an IAF presence, defining its core responsibilities and providing normative assumptions of its activity is necessary in order to empower its position in the company. Emphasizing the importance of an IAF as an internal corporate governance mechanism can also be achieved throughout the country corporate governance codes that provide guidelines for good practices for the listed companies. A review of pertinent literature identified a research gap on regulatory requirements regarding IAF in corporate governance codes, especially in the context of Central and Eastern European (CEE) countries. We consider this to be particularly relevant due to the recent trends regarding the revision of the country corporate governance codes in Europe. Therefore, this paper provides comparative analysis of the current provisions of an IAF in corporate governance codes on a sample of CEE countries. This can be considered as a contribution to previous findings, within the context of existing literature, since this paper undertakes analysis of certain topics that are considered important for the regulation of an IAF. For better understanding of an IAF regulation in country corporate governance codes, we operationalized corporate governance code provisions through five categories. These being: existence of the Definition of internal auditing (or its scope), requirements regarding IAF independence (defined through reporting lines and Board responsibilities regarding an IAF), conformance with International Standards for the Professional Practice of Internal Auditing (International Professional Practices Framework), an IAF right to unrestricted information access and provision for establishing an IAF. Based on the results of the comparative analysis of corporate governance codes provisions of an IAF on a sample of CEECs, it can be concluded that they do not represent guidelines of "best" practice when it comes to an IAF regulation. They take into account necessary IAF attributes that are important for its establishment, but not the ones that are also important for its functioning.

internal audit ; corporate governance ; codes of corporate governance ; CEECs

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