Insolvency Code of Ethics – internal audit
IPA Insolvency Practitioner newsletter, October 2022
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Please note the following helpful statement on the Insolvency Code of Ethics in relation to prior relationships, jointly issued by the Recognised Professional Bodies (RPBs). For the purpose of this article, references within the Code of Ethics will be identified using the number in the IPA Insolvency Code of Ethics .
It has been indicated to the RPBs that there continues to be confusion amongst Insolvency Practitioners and other stakeholders on the meaning of the phrase ‘audit related work’ as set out in the Insolvency Code of Ethics (‘the Code’).
Specifically, it has been questioned whether within section 510.1 of the Code it is intended that internal audit is captured by the phrase ‘audit related work’.
The Code sets out fundamental principles and a conceptual framework for the application of these principles. These are the primary and overarching requirements. The fundamental principles need to be applied to each and every situation.
Sections 500-540 set out examples of the application of the framework to specific situations. It is the RPBs’ reasonable expectation that insolvency practitioners clearly understand that the examples provided are, as stated in the Code, “not exhaustive, and the substance of the circumstances and relationships should be considered”.
The scope and objectives of internal audit activities vary widely. Internal audit services comprise amongst others:
- Financial (non statutory) audit
- Systems audit
- Management audit
- Value for money audit
- Contract audit
- Operational audit
- Post-implementation reviews
- Inspection and quality control
- Culture audit
The scope and objectives of the work will impact to a greater or lesser extent (along with a range of other factors such as the length of time passed, whether it was a one-off or part of a series of engagements, value of the work, etc) on the strength of threat to the fundamental principles.
The RPBs reaffirm that the term ‘audit related work’ within this section does not include internal audit or other assurance related work. The terminology of audit is in this context limited to statutory audits – audits required by legislation or other regulation.
For the avoidance of doubt, while the prior involvement in internal audit may not be covered by this example within the Code, the prior involvement of an insolvency practitioner or their firm in internal audit or other work must always be assessed against the fundamental principles and should be considered in accordance with Section 310 – Conflicts of interest and personal and professional relationships. A written contemporaneous record should be kept in accordance with the record keeping requirements set out in section 130 of the Code.
 The Chartered Institutes’ (CAI, ICAEW and ICAS) numbering of their Code of Ethics is generally reached by adding a leading 2 to each IPA reference, e.g. 510.1 becomes 2510.1.