Definition of Internal Audit Function (RDefinition of Internal Audit Function (Ref: Para. 2, 14(a))

Definition of Internal Audit Function (Ref: Para. 2, 14(a))

1. The objectives and scope of internal audit functions typically include assurance and consulting activities designed to evaluate and improve the effectiveness of the entity’s governance processes, risk management and internal control such as the following:

Activities Relating to Governance

• The internal audit function may assess the governance process in its accomplishment of objectives on ethics and values, performance management and accountability, communicating risk and control information to appropriate areas of the organisation and effectiveness of communication among those charged with governance, external and internal auditors, and management.

Activities Relating to Risk Management

• The internal audit function may assist the entity by identifying and evaluating significant exposures to risk and contributing to the improvement of risk management and internal control (including effectiveness of the financial reporting process).
• The internal audit function may perform procedures to assist the entity in the detection of fraud.

Activities Relating to Internal Control

• Evaluation of internal control. The internal audit function may be assigned specific responsibility for reviewing controls, evaluating their operation and recommending improvements thereto. In doing so, the internal audit function provides assurance on the control. For example, the internal audit function might plan and perform tests or other procedures to provide assurance to management and those charged with governance regarding the design, implementation and operating effectiveness of internal control, including those controls that are relevant to the audit.
• Examination of financial and operating information. The internal audit function may be assigned to review the means used to identify, recognise, measure, classify and report financial and operating information, and to make specific enquiry into individual items, including detailed testing of transactions, balances and procedures.
• Review of operating activities. The internal audit function may be assigned to review the economy, efficiency and effectiveness of operating activities, including non‑financial activities of an entity.
• Review of compliance with laws and regulations. The internal audit function may be assigned to review compliance with laws, regulations and other external requirements, and with management policies and directives and other internal requirements.

1. Activities similar to those performed by an internal audit function may be conducted by functions with other titles within an entity. Some or all of the activities of an internal audit function may also be outsourced to a third‑party service provider. Neither the title of the function, nor whether it is performed by the entity or a third‑party service provider, are sole determinants of whether or not the external auditor can use the work of the function. Rather, it is the nature of the activities; the extent to which the internal audit function’s organisational status and relevant policies and procedures support the objectivity of the internal auditors; competence; and systematic and disciplined approach of the function that are relevant. References in this Auditing Standard to the work of the internal audit function include relevant activities of other functions or third‑party providers that have these characteristics.