Which document defines the purpose authority and responsibility of internal audit?



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Terms in this set (28)

Internal Audit Charter

A formal written document that defines the internal audit function's purpose, authority, and responsibility. The internal audit charter is subordinate to the audit committee's charter.

Important starting point of managing internal audit

Topics of the Charter

1) Establishment of Internal audit function
2) The goal or objective of audit function
3) Authority granted to department
4) scope of work authorized
5) Organizational Status
6) Acceptable Standards of performance
7) Department's administrative and reporting relationships
8) Responsibility of follow up
9) Approval of Charter by board and senior management

Who is responsible for establishing the charter/mission and plan along with maintaining independence, objectivity, proficiency, and due professional care?


IIA Standard 1120: "Individual Objectivity"

Internal auditors must have an impartial, unbiased attitude and avoid any conflict of interest

IIA Standard 1130: Impairment to Independence or Objectivity

If independence or objectivity is impaired in fact or appearance, the details of the impairment must be disclosed to appropriate parties. The nature of the disclosure will depend upon the impairment

IIA Standard 1220: Due Professional Care

internal auditors must apply the care and skill expected of a reasonably prudent and competent internal auditor. Due professional care does not imply infallibility

Who's responsibility is it to ensure that internal audit resources are appropriate, sufficient, and effectively deployed to achieve the approved plan?


Typical internal audit hierarchy

1. CAE
2. Audit director (usually only big companies)
3. Audit manager
4. senior auditor (in-charge auditor)
5. staff auditor

Right Sizing

important concept in the staffing and scheduling internal audit.

having the right amount of people without wasting resources to achieve audit without putting stress on team for being understaffed

Strategic Sourcing

Supplements the in-house internal audit function through the use of third-party vendor services for the purposes of gaining subject matter expertise for a specific engagement or filling a gap in needed resources to complete the internal audit plan

IIA Standard 2040: Policies and Procedures

The Chief audit executive must establish policies and procedures to guide the internal audit activity

IIA Standard 2050: Coordination

The CAE should share information and coordinate activities with other internal external providers of assurance and consulting services to ensure proper coverage and minimize duplication of efforts

Planning and Budgeting

The CAE must have senior management and the board annually the internal audit plan and budget

IIA Standard 2030: Resource Management

The chief audit executive must ensure that internal audit resources are appropriate, sufficient, and effectively deployed to achieve the approved plan.

CAE Responsibilities while managing personnel

-Prepare Job description
-initial training
-CPE credit
-evaluating performance annually
-counseling professional employees and staff

Issues Addressed in Policy and Procedures

-Department organizational chart
-Job description
-internal audit philosophy and approach
-description of audit tools used
-audit reporting guidelines
-consulting engagement guidelines
-quality control procedures
-relationships with clients
-code of conduct
-travel and expense procedures
-personnel evaluation procedures

IIA 2060-1: Reporting to Senior Management and the Board

CAE must report periodically to senior management and the baord on the internal audit activity's purpose, authority, responsibility, and performance relative to its plan.

-CAE should agree with the board about the frequency and nature of reporting on the internal audit activity's charter
-Senior management and the board make decisions on the appropriate action to be taken regarding significant issues.
-when the CAE thinks senior management has accepted risk the organization would consider unacceptable, the CAE must discuss with senior management
-if the CAE and senior management cannot reach agreement, the CAE must inform the board.
-For financial reporting matters, the CAE should consider telling external auditors

Implementation Guidance 1000

Charters usually include:
-Authority: says the access power
-Organization and reporting structure:
-Independence and Objectivity:
-Quality Assurance and Improvement:

Quality Control Review is the responsibility of

the CAE

Quality Assurance and Improvement Program is made up of

Internal Assessment and External Assessment

Internal Assessment

1)Ongoing Internal Assessment
2) Periodic Reviews (done within company)

External Assessment

1) Full external review (preferred)
2) External Assessment: Self-Assessment with independent validation

Practice Advisory 1311-1: Internal Assessments

The CAE is required to develop and implement a QAIP

Ongoing Monitoring: determines whether processes are delivering quality on an engagement-by-engagement basis

Periodic Self-Assessment: if performed within a short time before an external assessment can serve to facilitate and reduce the level of effort and time required to complete an external assessment

Practice Advisory 1312-1: External Assessments

External Assessments must be conducted at least once every five years by a qualified, independent assessor or assessment team from outside the organization. The CAE must discuss with the board the form and frequency of external assessment and the qualifications and independence of the external assessor

Qualifications of Assessor:
-competent and certified
-at least 3 years of recent experience in the practice of internal auditing at a senior level

--You can get external review from other internal audit team outside company but you cannot review them. Need at least 3 companies

Practice Advisory 1312-2: External Assessments: Self Assessment with independent validation (SAIV)

CAE can determine SAIV is more practical or beneficial than a full external assessment

Need to see the conformance with definition of internal auditing, code of ethics, and standards

Practice Advisory 1320-1: Reporting results of the quality assurance and improvement program

The CAE must communicate the results of the QAIP to senior management and the board

-Should be done at least annually
-Can have one report (combined external and CAE) or have two separate reports

Practice Advisory 1321-1: Use of "Conforms with the international standards for the professional practice of internal auditing"

The CAE may state that the internal audit activity conforms with the International Standards for the Professional Practice of Internal Auditing only if the results of the QAIP support this statement:

IA conforms with the 3 major mandatory guidance: definition, code of ethics and standards

If internal assessment demonstrate conformance during first five years of an IA activity's existence, and this has been communicated to the board, the CAE may state that the audit activity conforms with the Standards

Practice Advisory 1322-1: Disclosure of Non conformance with the International Standards for the Professional Practice of Internal Auditing (Standards)

When nonconformance with the Definition of Internal Auditing, the Code of Ethics, or the Standards impacts the overall scope or operation of the internal audit activity, the chief audit executive must disclose the nonconformance and the impact to senior management and the board.

typical examples of non-conformance:
-Assigning non-objective auditors
-Failing to consider risk in the prep of the annual audit plan
-undertaking engagements beyond the collective knowledge, skills, and experience of the internal audit activity

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What is the responsibility and authority of an internal auditor?

ASSESS CONTROLS – Internal auditors evaluate control efficiency and effectiveness and provide management and the board assurance that the controls in place are adequate to respond to the risks that threaten the organization. ENSURE ACCURACY – Internal auditors ensure financial statement accuracy.

Which document defines the purpose authority and responsibility of internal audit function Furthermore Who should approve the document?

Therefore, the internal audit activity should have a mandate through a written audit charter that establishes its purpose, authority, and responsibility to support its independence and objectivity within an organization.

What is the purpose of internal audit in ISO 9001?

The purpose of an ISO internal audit is to assess the effectiveness of your organization's quality management system and your organization's overall performance.

What are the purposes of internal audit working papers?

Working papers provide evidence that the audit work has been completed to a sufficient standard and support the auditor's conclusions. The working papers should stand alone in that an experienced auditor with no connection to the audit who reads them can see how the conclusions and recommendations have been arrived at.