Performance Standards

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

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 organization.

The internal audit activity adds value to the organization 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.

The chief audit executive must establish a risk-based plan to determine the priorities of the internal audit activity, consistent with the organization'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 organization’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 organization’s business, risks, operations, programs, 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 organization's operations. Accepted engagements must be included in the plan.​

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.​

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 optimizes the achievement of the approved plan.​

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.​

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 minimize 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.​

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 organization.

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

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

Interpretation

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

The internal audit activity must evaluate and contribute to the improvement of the organization’s 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.​

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

• Making strategic and operational decisions.
• Overseeing risk management and control.
• Promoting appropriate ethics and values within the organization.
• Ensuring effective organizational performance management and accountability.
• Communicating risk and control information to appropriate areas of the organization.
• 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 organization's ethics-related objectives, programs, and activities.

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

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:

• Organizational objectives support and align with the organization's mission;
• Significant risks are identified and assessed;
• Appropriate risk responses are selected that align risks with the organization's risk appetite; and
• Relevant risk information is captured and communicated in a timely manner across the organization, 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 organization’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 organization's governance, operations, and information systems regarding the:

• Achievement of the organization's strategic objectives;
• Reliability and integrity of financial and operational information.
• Effectiveness and efficiency of operations and programs:
• Safeguarding of assets; and
• 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 organization 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 organization'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.

The internal audit activity must assist the organization 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 organization's governance, operations, and information systems regarding the:

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

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

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 organization’s strategies, objectives, and risks relevant to the engagement.​

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 organization, 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.​

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, noncompliance, 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 organization).
• 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 organization's values, strategies, and objectives.​

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.​

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.

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

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

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

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

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 organization meet its goals.​

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

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 organization'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 organization's guidelines and any pertinent regulatory or other requirements.

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.​

Internal auditors must communicate the results of engagements.​

Communications must include the engagement's objectives and scope as well as applicable conclusions, recommendations, and action plans.

2410.A1- Final communication of engagement results must, where appropriate, contain the internal auditors’ opinion and/or conclusions. When issued, an opinion or conclusion must take account of 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 organization, 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.

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 organization 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.​

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.​

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 program.

When nonconformance with the Code of Ethics or the Standards impacts a specific engagement, communication of the 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 nonconformance.
• Impact of nonconformance on the engagement and the communicated engagement 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 organization the chief audit executive must:

• Assess the potential risk to the organization;
• Consult with senior management and/or legal counsel as appropriate; and
• 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 organization, they must be communicated to senior management and the board.

When an overall opinion is issued, it must take into account the strategies, objectives, and risks of the organization; 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 unfavorable overall opinion must be stated.

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.

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