Internal Audit Charter

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  • #226164

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    This forum is restricted to members of the associated course(s).

    Shoaib Ahmed
    Participant

    It is stated that “The chief audit executive will report functionally to the board and administratively (i.e., day-to-day operations) to the chief executive officer.”

    Why Internal Audit should report to CEO?

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  • #226165

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    Brian Hock
    HOCK international

    Hello, Shoaib,

    The IAA reports to the CFO only for administrative things – the things that are normally part of this administrative reporting are: budgeting and management accounting, human resource administration, including personnel evaluations and compensation, internal communications and information flows, administration of the internal audit activity’s policies and procedures.

    The reporting to the Board, the functional reporting, is the reporting of the results of their work. This is from Standard 1110:

    Examples of functional reporting to the board involve the board:
    • Approving the internal audit charter;
    • Approving the risk based internal audit plan;
    • Approving the internal audit budget and resource plan;
    • Receiving communications from the chief audit executive on the internal audit activity’s performance relative to its plan and other matters;
    • Approving decisions regarding the appointment and removal of the chief audit executive;
    • Approving the remuneration of the chief audit executive; and
    • Making appropriate inquiries of management and the chief audit executive to determine whether there are inappropriate scope or resource limitations.

    Does this help?

    Brian

    #226209

    This forum is restricted to members of the associated course(s).

    Shoaib Ahmed
    Participant

    Can you please further elaborate this (from Quote #226165):

    “The IAA reports to the CFO only for administrative things – the things that are normally part of this administrative reporting are: budgeting and management accounting, human resource administration, including personnel evaluations and compensation, internal communications and information flows, administration of the internal audit activity’s policies and procedures.”

     

    #226210

    This forum is restricted to members of the associated course(s).

    Shoaib Ahmed
    Participant

    Greetings,

    Can you please explain how the internal audit will report periodically senior management and the board regarding the internal audit activity’s conformance to the code of Ethics and the Standards, whether it is through report or communicating verbally and frequency as well (quarterly, half yearly etc.)?

     

    #226219

    This forum is restricted to members of the associated course(s).

    Brian Hock
    HOCK international

    In terms of administrative issues, it is all of the work that happens that is not directly connected to the performance of an engagement and the reports about engagements. The IAA is a department within the company and as a department, there are a lot of administrative tasks connected to running the department. These things are reported to the CFO. For example, as they have issues connected to the evaluations of the staff, the Board does not care about those details, but it is the CFO who is the person that any issues connected to evaluations, or other administrative things are reported to. If there is something in the evaluations that is important for the Board, the CFAO would probably be the one to report it. The Board is interested in the work product that the IAA creates. So, for those work product issues, the IAA and CAE will report to the Board. For departmental administrative issues, they will report to the CFO.

    As for the reporting to senior management – it will most likely be regularly scheduled written reports that are also followed up with discussion as needed. Anything that is very sensitive to the company or critical the achievement of the goals will probably be written and discussed. But, regular ongoing things may just be provided in written form. There should be at least one meeting a year in person in which the goals of the IAA are established and agreed, any changes to the Charter are discussed and the results of the previous year are discussed. Other in person meetings may take place through out the year as well.

    If the company is a large one with an audit committee, there will most likely be more regular meetings between the CAE and the Audit Committee, but still at least an annual meeting with the Board. The specifics of this will be different from one company to the next, but this would be the general minimum reporting that should take place.

    #226392

    This forum is restricted to members of the associated course(s).

    Shoaib Ahmed
    Participant

    Can you please provide the examples of the following:

    Communicate to senior management and the board the impact of resource limitations on the internal audit plan.
    Review and adjust the internal audit plan, as necessary, in response to changes in Company X’s
    business, risks, operations, programs, systems, and controls.

    Communicate to senior management and the board any significant interim changes to the internal
    audit plan.

    Ensure trends and emerging issues that could impact Company X are considered and communicated to senior management and the board as appropriate.
    • Ensure emerging trends and successful practices in internal auditing are considered.

     

     

     

    #226397

    This forum is restricted to members of the associated course(s).

    Brian Hock
    HOCK international

    Communicate to senior management and the board the impact of resource limitations on the internal audit plan.

    This means that if they do not have enough IAA staff, or do not have the needed skills, the CAE needs to lt management and the board what engagements they will not be able to perform because of the missing staff or missing skills.

    Review and adjust the internal audit plan, as necessary, in response to changes in Company X’s business, risks, operations, programs, systems, and controls.

    This means that as the business changes, the risks that they face, or anything else changes, the CAE will need to make changes to the audit plan. The plan is something that is formally done once a year, but it needs to be adjusted during the year as things change. 

    Communicate to senior management and the board any significant interim changes to the internal audit plan.

    As changes are made to the plan during the year, they need to communicate them to the board. If they add engagements, remove engagements or make significant changes to the scope of an engagement, that needs to be communicated.

    Ensure trends and emerging issues that could impact Company X are considered and communicated to senior management and the board as appropriate.

    As things change that are going to impact the company, these need to be communicated, It may be industry changes, changes in laws or regulations, new environmental legislation in a country they do business.

    • Ensure emerging trends and successful practices in internal auditing are considered.

    When the IAA is doing their work, they need to make certain that they are staying current with the profession and that they are using best practices as guidance for how to do their engagements and provide support to the company.

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