Audit Committee’s Responsibility for Internal Audit: What Does This Really Mean?
- Most audit committees are not aware the requirement of an independent assessment of their organization’s internal audit function.
- An assessment can help the audit committee determine if the department is performing as expected, or if there’s room for improvement.
- An independent external quality assessment review (QAR) of the internal audit function is the gold standard for oversight.
An organization’s board — or specifically, the audit committee — has certain responsibilities for the internal audit function. Many organizations believe that means an evaluation of the internal audit's ability to stay within budget, meet its audit plan objectives, and assist external auditors in an effort to reduce fees. In other words, their overarching goal is for the internal audit to “keep the organization out of hot water” with regard to fraud, major internal control surprises, or regulatory scrutiny.
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However, your audit committee’s responsibilities extend beyond reading audit reports, receiving updates on prior internal audit findings, and navigating other governance issues. You are also required to have an independent assessment of the internal audit function.
The benefits of an independent assessment
You may question the value of an assessment if you are satisfied with the job of your internal audit department. Furthermore, an independent assessment comes with incremental costs you may not want to incur.
However, a periodic independent assessment of an organization's internal audit function is required by the Institute of Internal Auditors (IIA) Professional Standards (IIA Standard 1312 – External Assessments). An independent assessment also helps you evaluate your internal audit function’s performance. For example, an independent assessment can:
- Validate that your internal audit function is providing value
- Support your role as steward of the governance, risk, and control framework of the organization
- Enhance consultative support to management
- Serve as the objective assurance function, as outlined in Principle 1 of the IIA’s newly released Three Lines Model
Ultimately, the audit committee cannot effectively oversee and evaluate the internal audit function without having an external assessment to determine the internal audit department's conformance with the IIA’s International Standards for the Professional Practice of Internal Auditing (the Standards) at least once every five years, as required by the IIA.
An external quality assessment review (QAR) is the gold standard for internal audit department oversight. A QAR can validate whether or not the internal audit department conforms to the Standards.
A QAR can improve internal audit performance
Conversely, if the internal audit activity does not conform to the Standards (either “Partially Conforms” or “Does Not Conform” ratings), your audit committee has an opportunity to strengthen the internal audit function and fulfill their responsibility to oversee the organization’s internal audit function.
Potential improvements include:
- Enhanced risk assessments and audit plans
- Better reports to review
- Improved staffing within the internal audit department
- Better audit management and execution
- Increased effectiveness of management reports
- Improved audit committee communications
Consider getting a periodic, independent assessment of your internal audit function. Then the audit committee and stakeholders can have peace of mind that they are effectively overseeing the internal audit function — and, most importantly, conforming to professional internal audit standards.
How we can help
Our experienced professionals can provide an independent, customized QAR for your organization. While this can improve oversight, it also provides clarity around the effectiveness of your internal audit activities and reporting. Reach out to our team for additional details.