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Performance standards

2000 Managing the Internal Audit Activity

The chief audit executive must effectively manage the internal audit activity to ensure it adds value to the organisation.

Interpretation:
The internal audit activity is effectively managed when:

  • It achieves the purpose and responsibility included in the internal audit charter.
  • It conforms with the Standards.
  • Its individual members conform with the Code of Ethics and the Standards.
  • It considers trends and emerging issues that could impact the organisation.

The internal audit activity adds value to the organisation and its stakeholders when it considers strategies, objectives and risks; strives to offer ways to enhance governance, risk management and control processes; and objectively provides relevant assurance.


2010 Planning

The chief audit executive must establish a risk-based plan to determine the priorities of the internal audit activity, consistent with the organisation's goals.

Interpretation:
To develop the risk-based plan, the chief audit executive consults with senior management and the board and obtains an understanding of the organisation’s strategies, key business objectives, associated risks, and risk management processes.

The chief audit executive must review and adjust the plan, as necessary, in response to changes in the organisation's business, risks, operations, programmes, systems, and controls.

2010.A1
The internal audit activity's plan of engagements must be based on a documented risk assessment, undertaken at least annually. The input of senior management and the board must be considered in this process.

2010.A2
The chief audit executive must identify and consider the expectations of senior management, the board and other stakeholders for internal audit opinions and other conclusions.

2010.C1
The chief audit executive should consider accepting proposed consulting engagements based on the engagement's potential to improve management of risks, add value and improve the organisation's operations. Accepted engagements must be included in the plan.


2020 Communication and Approval

The chief audit executive must communicate the internal audit activity's plans and resource requirements, including significant interim changes, to senior management and the board for review and approval. The chief audit executive must also communicate the impact of resource limitations.


2030 Resource Management

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

Interpretation:
Appropriate refers to the mix of knowledge, skills and other competencies needed to perform the plan. Sufficient refers to the quantity of resources needed to accomplish the plan. Resources are effectively deployed when they are used in a way that optimises the achievement of the approved plan.


2040 Policies and Procedures

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

Interpretation:
The form and content of policies and procedures are dependent upon the size and structure of the internal audit activity and the complexity of its work.


2050 Coordination and Reliance

The chief audit executive should share information, coordinate activities and consider relying upon the work of other internal and external assurance and consulting service providers to ensure proper coverage and minimise duplication of efforts.

Interpretation:
In coordinating activities, the chief audit executive may rely on the work of other assurance and consulting service providers. A consistent process for the basis of reliance should be established, and the chief audit executive should consider the competency, objectivity, and due professional care of the assurance and consulting service providers.

The chief audit executive should also have a clear understanding of the scope, objectives, and results of the work performed by other providers of assurance and consulting services. Where reliance is placed on the work of others, the chief audit executive is still accountable and responsible for ensuring adequate support for conclusions and opinions reached by the internal audit activity.


2060 Reporting to Senior Management and the Board

The chief audit executive must report periodically to senior management and the board on the internal audit activity's purpose, authority, responsibility and performance relative to its plan and on its conformance with the Code of Ethics and the Standards

Reporting must also include significant risk and control issues, including fraud risks, governance issues and other matters that require the attention of senior management and/or the board.

Interpretation:
The frequency and content of reporting are determined collaboratively by the chief audit executive, senior management, and the board. The frequency and content of reporting depends on the importance of the information to be communicated and the urgency of the related actions to be taken by senior management and/or the board. 

The chief audit executive’s reporting and communication to senior management and the board must include information about: 

  • The audit charter.
  • Independence of the internal audit activity.
  • The audit plan and progress against the plan.
  • Resource requirements.
  • Results of audit activities.
  • Conformance with the Code of Ethics and the Standards, and action plans to address any significant conformance issues.
  • Management’s response to risk that, in the chief audit executive’s judgment, may be unacceptable to the organisation. 

These and other chief audit executive communication requirements are referenced throughout the Standards.


2070 External Service Provider and Organisational Responsibility for Internal Audit

When an external service provider serves as the internal audit activity, the provider must make the organisation aware that the organisation has the responsibility for maintaining an effective internal audit activity.

Interpretation:
This responsibility is demonstrated through the quality assurance and improvement programme which assesses conformance with the the Code of Ethics and the Standards.


2100 Nature of Work

The internal audit activity must evaluate and contribute to the improvement of the organisations governance, risk management and control processes using a systematic, disciplined and risk based approach. Internal audit credibility and value are enhanced when auditors are proactive and their evaluations offer new insights and consider future impact.


2110 Governance

The internal audit activity must assess and make appropriate recommendations to improve the organisation’s governance processes for: 

  • Making strategic and operational decisions.
  • Overseeing risk management and control.
    Promoting appropriate ethics and values within the organisation.
  • Ensuring effective organisational performance management and accountability.
  • Communicating risk and control information to appropriate areas of the organisation.
  • Coordinating the activities of, and communicating information among, the board, external and internal auditors, other assurance providers and management.

2110.A1
The internal audit activity must evaluate the design, implementation and effectiveness of the organisation's ethics-related objectives, programmes and activities.

2110.A2
The internal audit activity must assess whether the information technology governance of the organisation supports the organisation's strategies and objectives.


2120 Risk Management

The internal audit activity must evaluate the effectiveness and contribute to the improvement of risk management processes.

Interpretation:
Determining whether risk management processes are effective is a judgment resulting from the internal auditor's assessment that:

  • Organisational objectives support and align with the organisation's mission.
  • Significant risks are identified and assessed.
  • Appropriate risk responses are selected that align risks with the organisation's risk appetite.
  • Relevant risk information is captured and communicated in a timely manner across the organisation, enabling staff, management and the board to carry out their responsibilities.

The internal audit activity may gather the information to support this assessment during multiple engagements. The results of these engagements, when viewed together, provide an understanding of the organisation's risk management processes and their effectiveness.

Risk management processes are monitored through ongoing management activities, separate evaluations, or both.

2120.A1
The internal audit activity must evaluate risk exposures relating to the organisation's governance, operations and information systems regarding the:

  • Achievement of the organisation's strategic objectives.
  • Reliability and integrity of financial and operational information.
  • Effectiveness and efficiency of operations and programmes.
  • Safeguarding of assets.
  • Compliance with laws, regulations, policies, procedures and contracts.

2120.A2
The internal audit activity must evaluate the potential for the occurrence of fraud and how the organisation manages fraud risk. 

2120.C1
During consulting engagements, internal auditors must address risk consistent with the engagement's objectives and be alert to the existence of other significant risks.

2120.C2
Internal auditors must incorporate knowledge of risks gained from consulting engagements into their evaluation of the organisation's risk management processes.

2120.C3
When assisting management in establishing or improving risk management processes, internal auditors must refrain from assuming any management responsibility by actually managing risks.


2130 Control

The internal audit activity must assist the organisation in maintaining effective controls by evaluating their effectiveness and efficiency and by promoting continuous improvement.

2130.A1
The internal audit activity must evaluate the adequacy and effectiveness of controls in responding to risks within the organisation's governance, operations and information systems regarding the:

  • Achievement of the organisation's strategic objectives.
  • Reliability and integrity of financial and operational information.
  • Effectiveness and efficiency of operations and programmes.
  • Safeguarding of assets.
  • Compliance with laws, regulations, policies, procedures and contracts.

2130.C1
Internal auditors must incorporate knowledge of controls gained from consulting engagements into the evaluation of the organisation's control processes.


2200 Engagement Planning

Internal auditors must develop and document a plan for each engagement, including the engagement's objectives, scope, timing and resource allocations. The plan must consider the organisation’s strategies, objectives, and risks relevant to the engagement.


2201 Planning Considerations

In planning the engagement, internal auditors must consider:

  • The strategies and objectives of the activity being reviewed and the means by which the activity controls its performance.
  • The significant risks to the activity's objectives, resources and operations and the means by which the potential impact of risk is kept to an acceptable level.
  • The adequacy and effectiveness of the activity's governance, risk management and control processes compared to a relevant framework or model.
  • The opportunities for making significant improvements to the activity's governance, risk management and control processes.

2201.A1
When planning an engagement for parties outside the organisation, internal auditors must establish a written understanding with them about objectives, scope, respective responsibilities and other expectations, including restrictions on distribution of the results of the engagement and access to engagement records.

2201.C1
Internal auditors must establish an understanding with consulting engagement clients about objectives, scope, respective responsibilities and other client expectations. For significant engagements, this understanding must be documented.


2210 Engagement Objectives

Objectives must be established for each engagement.

2210.A1
Internal auditors must conduct a preliminary assessment of the risks relevant to the activity under review. Engagement objectives must reflect the results of this assessment.

2210.A2
Internal auditors must consider the probability of significant errors, fraud, non-compliance and other exposures when developing the engagement objectives.

2210.A3
Adequate criteria are needed to evaluate governance, risk management and controls. Internal auditors must ascertain the extent to which management and/or the board has established adequate criteria to determine whether objectives and goals have been accomplished.

If adequate, internal auditors must use such criteria in their evaluation. If inadequate, internal auditors must identify appropriate evaluation criteria through discussion with management and/or the board.

Interpretation:
Types of criteria may include: 

  • Internal (e.g., policies and procedures of the organisation).
  • External (e.g., laws and regulations imposed by statutory bodies).
  • Leading practices (e.g., industry and professional guidance).

2210.C1
Consulting engagement objectives must address governance, risk management and control processes to the extent agreed upon with the client.

2210.C2
Consulting engagement objectives must be consistent with the organisation's values, strategies, and objectives.


2220 Engagement Scope

The established scope must be sufficient to achieve the objectives of the engagement.

2220.A1
The scope of the engagement must include consideration of relevant systems, records, personnel and physical properties, including those under the control of third parties.

2220.A2
If significant consulting opportunities arise during an assurance engagement, a specific written understanding as to the objectives, scope, respective responsibilities and other expectations should be reached and the results of the consulting engagement communicated in accordance with consulting standards.

2220.C1
In performing consulting engagements, internal auditors must ensure that the scope of the engagement is sufficient to address the agreed-upon objectives. If internal auditors develop reservations about the scope during the engagement, these reservations must be discussed with the client to determine whether to continue with the engagement.

2220.C2
During consulting engagements, internal auditors must address controls consistent with the engagement's objectives and be alert to significant control issues.


2230 Engagement Resource Allocation

Internal auditors must determine appropriate and sufficient resources to achieve engagement objectives based on an evaluation of the nature and complexity of each engagement, time constraints and available resources.

Interpretation:
Appropriate refers to the mix of knowledge, skills, and other competencies needed to perform the engagement.

Sufficient refers to the quantity of resources needed to accomplish the engagement with due professional care.


2240 Engagement Work Programme

Internal auditors must develop and document work programmes that achieve the engagement objectives.

2240.A1
Work programmes must include the procedures for identifying, analysing, evaluating and documenting information during the engagement. The work programme must be approved prior to its implementation and any adjustments approved promptly.

2240.C1
Work programmes for consulting engagements may vary in form and content depending upon the nature of the engagement.


2300 Performing the Engagement

Internal auditors must identify, analyse, evaluate and document sufficient information to achieve the engagement's objectives.


2310 Identifying Information

Internal auditors must identify sufficient, reliable, relevant and useful information to achieve the engagement's objectives.

Interpretation:
Sufficient information is factual, adequate and convincing so that a prudent, informed person would reach the same conclusions as the auditor. Reliable information is the best attainable information through the use of appropriate engagement techniques.

Relevant information supports engagement observations and recommendations and is consistent with the objectives for the engagement. Useful information helps the organisation meet its goals.


 

2320 Analysis and Evaluation

Internal auditors must base conclusions and engagement results on appropriate analyses and evaluations.


 

2330 Documenting Information

Internal auditors must document sufficient, reliable, relevant, and useful information to support the engagement results and conclusions.

2330.A1
The chief audit executive must control access to engagement records. The chief audit executive must obtain the approval of senior management and/or legal counsel prior to releasing such records to external parties, as appropriate.

2330.A2
The chief audit executive must develop retention requirements for engagement records, regardless of the medium in which each record is stored. These retention requirements must be consistent with the organisation's guidelines and any pertinent regulatory or other requirements.

2330.C1
The chief audit executive must develop policies governing the custody and retention of consulting engagement records, as well as their release to internal and external parties. These policies must be consistent with the organisation's guidelines and any pertinent regulatory or other requirements.


2340 Engagement Supervision

Engagements must be properly supervised to ensure objectives are achieved, quality is assured and staff is developed.

Interpretation:
The extent of supervision required will depend on the proficiency and experience of internal auditors and the complexity of the engagement. The chief audit executive has overall responsibility for supervising the engagement, whether performed by or for the internal audit activity, but may designate appropriately experienced members of the internal audit activity to perform the review. Appropriate evidence of supervision is documented and retained.


2400 Communicating Results

Internal auditors must communicate the results of engagements.


2410 Criteria for Communicating

Communications must include the engagement’s objectives, scope, and results. 

2410.A1
Final communication of engagement results must include applicable conclusions, as well as applicable recommendations and/or action plans. Where appropriate, the internal auditors’ opinion should be provided. An opinion must take into account the expectations of senior management, the board and other stakeholders and must be supported by sufficient, reliable, relevant and useful information.

Interpretation:
Opinions at the engagement level may be ratings, conclusions or other descriptions of the results. Such an engagement may be in relation to controls around a specific process, risk or business unit. The formulation of such opinions requires consideration of the engagement results and their significance.

2410.A2
Internal auditors are encouraged to acknowledge satisfactory performance in engagement communications.

2410.A3
When releasing engagement results to parties outside the organisation, the communication must include limitations on distribution and use of the results.

2410.C1
Communication of the progress and results of consulting engagements will vary in form and content depending upon the nature of the engagement and the needs of the client.


2420 Quality of Communications

Communications must be accurate, objective, clear, concise, constructive, complete and timely.

Interpretation:
Accurate communications are free from errors and distortions and are faithful to the underlying facts.

Objective communications are fair, impartial and unbiased and are the result of a fair-minded and balanced assessment of all relevant facts and circumstances.

Clear communications are easily understood and logical, avoiding unnecessary technical language and providing all significant and relevant information.

Concise communications are to the point and avoid unnecessary elaboration, superfluous detail, redundancy and wordiness.

Constructive communications are helpful to the engagement client and the organisation and lead to improvements where needed.

Complete communications lack nothing that is essential to the target audience and include all significant and relevant information and observations to support recommendations and conclusions.

Timely communications are opportune and expedient, depending on the significance of the issue, allowing management to take appropriate corrective action.


2421 Errors and Omissions

If a final communication contains a significant error or omission, the chief audit executive must communicate corrected information to all parties who received the original communication.


2430 Use of Conducted in Conformance with the International Standards for the Professional Practice of Internal Auditing

Indicating that engagements are “conducted in conformance with the International Standards for the Professional Practice of Internal Auditing” is appropriate only if supported by the results of the quality assurance and improvement programme.


2431 Engagement Disclosure of Non-conformance

When non-conformance with the the Code of Ethics or the Standards impacts a specific engagement, communication of the engagement results must disclose the:

  • Principle(s) or rule(s) of conduct of the Code of Ethics or Standard(s) with which full conformance was not achieved.
  • Reason(s) for non-conformance.
  • Impact of non-conformance on the engagement and the communicated engagement results.

2440 Disseminating Results

The chief audit executive must communicate results to the appropriate parties.

Interpretation:
The chief audit executive is responsible for reviewing and approving the final engagement communication before issuance and for deciding to whom and how it will be disseminated. When the chief audit executive delegates these duties, he or she retains overall responsibility.

2440.A1
The chief audit executive is responsible for communicating the final results to parties who can ensure that the results are given due consideration.

2440.A2
If not otherwise mandated by legal, statutory, or regulatory requirements, prior to releasing results to parties outside the organisation the chief audit executive must:

  • Assess the potential risk to the organisation.
  • Consult with senior management and/or legal counsel as appropriate.
  • Control dissemination by restricting the use of the results.

2440.C1
The chief audit executive is responsible for communicating the final results of consulting engagements to clients.

2440.C2
During consulting engagements, governance, risk management and control issues may be identified. Whenever these issues are significant to the organisation, they must be communicated to senior management and the board.


2450 Overall Opinions

When an overall opinion is issued, it must take into account the strategies, objectives and risks of the organisation; and the expectations of senior management, the board and other stakeholders. The overall opinion must be supported by sufficient, reliable, relevant and useful information.

Interpretation:
The communication will include:

  • The scope including the time period to which the opinion pertains.
  • Scope limitations.
  • Consideration of all related projects, including the reliance on other assurance providers.
  • A summary of the information that supports the opinion.
  • The risk or control framework or other criteria used as a basis for the overall opinion.
  • The overall opinion, judgment or conclusion reached.

The reasons for an unfavourable overall opinion must be stated.


2500 Monitoring Progress

The chief audit executive must establish and maintain a system to monitor the disposition of results communicated to management.

2500.A1
The chief audit executive must establish a follow-up process to monitor and ensure that management actions have been effectively implemented or that senior management has accepted the risk of not taking action.

2500.C1
The internal audit activity must monitor the disposition of results of consulting engagements to the extent agreed upon with the client.


2600 Communicating the Acceptance of Risks

When the chief audit executive concludes that management has accepted a level of risk that may be unacceptable to the organisation, the chief audit executive must discuss the matter with senior management.

If the chief audit executives determines that the matter has not been resolved, the chief audit executive must communicate the matter to the board.

Interpretation:

The identification of risk accepted by management may be observed through an assurance or consulting engagement, monitoring progress on actions taken by management as a result of prior engagements, or other means. It is not the responsibility of the chief audit executive to resolve the risk.

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Content reviewed: 26 July 2017