Internal Audit Quality

Developing a Quality Assurance and Improvement Program

Sally-Anne Pitt

• Publisher: Wiley
• Year: 2014
• Print ISBN: 9781118715512
• eBook ISBN: 9781118715499
• Edition: 1
• Topic: Business
• Subtopic: Auditing
• Index: Business

Deliver increased value by embedding quality into internal audit activities

Internal Audit Quality: Developing a Quality Assurance and Improvement Program is a comprehensive and authoritative guide to better practice internal auditing. Written by a global expert in audit quality, this guide is the first to provide complete coverage of the elements that comprise an effective internal audit quality assurance and improvement program. Readers will find practical solutions for monitoring and measuring internal audit performance drawn from The IIA's International Standards for the Professional Practice of Internal Auditing, and complemented by advice and case studies from leading audit practitioners from five different continents.

Major corporate and financial collapses over the past decade have challenged the value of internal audit. With an increased focus on internal audit's role in good governance, management is increasingly demanding that internal audit provides assurance of the quality of its own activities. The IIA standards provide a framework for audit quality in the form of mandatory guidance. Recent research indicates that the majority of internal audit functions do not fully comply with the standards and, as a result, are not servicing the needs of their organizations as well as they might. Internal Audit Quality offers a roadmap to internal audit quality, providing readers the guidance they need to:

• Embed quality into all elements of internal audit from strategic and operational planning down to day-to-day tasks
• Create well-defined internal audit programs and procedures
• Independently self-assess internal audit quality and performance
• Conform with the IIA standards and better practice
• Provide assurance over internal audit efficiency and effectiveness
• Deliver value by meeting stakeholder expectations

As a key component of good governance, internal audit is on the rise. The days of retrospective, compliance-focused auditing is a thing of the past. Organizations expect more of internal audit, and many internal audit activities are accepting the challenge. Rather than relying on audit supervision and external assessments, modern auditors are embedding quality into audit activities to create effective programs. For the auditor looking to distinguish themselves as leading edge, Internal Audit Quality provides the guidance that enables the right work, at the right time, in the right way.

Part I
Internal Audit and Quality

Chapter 1
The Various Faces of Internal Audit

Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.

—Institute of Internal Auditors, Definition of Internal Auditing (2013)

Internal auditing is an internationally recognized profession guided by a common commitment to enhancing governance, risk management, and control processes. Although the nature of internal auditing may vary between countries, jurisdictions, and organizations, central to its purpose is a desire to support management to improve operational, and ultimately organizational, outcomes.

There is no single correct approach to internal auditing. Internal auditing should look and feel different for each organization. The best internal audit functions will reflect the priorities and values of each organization. Senior managers and audit committees across organizations will each have their own expectations of the internal audit function. The challenge for chief audit executives is to understand and, wherever possible, reflect these expectations in their operations.

History

Internal auditing can be traced back to the Persian Empire. Murray (1976) attributes the start of internal auditing to Darius the Great, “who ruled his people from 521 to 425 B.C.” Darius exercised his rule at different times of the year from four scattered capitals in different parts of the country—Persepolis, Ecbatana, Susa, and Ctesiphon. His empire was divided into 20 provinces, each administered by a satrap who paid taxes to the empire according to the wealth of the province. In order that the honesty of the rule of the satrap could be established, Darius sent representatives out to all parts of his empire. They became known as “the eyes and ears of the king”—possibly the first internal auditors.

Despite the early beginnings of internal auditing, the profession did not experience considerable growth until the nineteenth century, when the Industrial Revolution resulted in the large-scale systemization of processes, and an enhanced focus on quality and consistency of outputs. Its growth continued into the twentieth century with the development of management theory and practice and the emergence of the “manager” as a distinct role in corporate operations.

The Institute of Internal Auditors

The first major book on internal auditing was authored by Victor Brink in 1941. Around the same time, a small group of professionals were looking to establish a professional association for internal auditors.

The Institute of Internal Auditors (IIA) was established in the United States in 1941 with 24 members. The IIA developed a Statement of Responsibilities of Internal Auditing in 1947. According to Flesher (1996), the statement intended “that internal auditing dealt primarily with accounting and financial matters, but may also properly deal with matters of an operating nature. In other words, the emphasis was on accounting and financial matters, but other activities were also fair game for the internal auditor.”

The role of the internal auditor was to evolve quickly, however, and as early as 1948, Byrne recognized the potential for internal audit to add value to organizations. He stated, “Management has broadened the internal auditor's horizons and it is the auditor's responsibility to take advantage of the opportunities presented in order to realize the true value to be obtained from a dynamic internal audit program” (Byrne 1948).

Flesher (1996) found the emphasis on accounting and finance matters in the IIA's 1947 statement had significantly changed by the release of a revised statement in 1957, which allowed the internal auditor to provide services to management, including:

• Reviewing and appraising the soundness, adequacy, and application of accounting, financial, and operating controls.
• Ascertaining the extent of compliance with established policies, plans, and procedures.
• Ascertaining the extent to which company assets are accounted for, and safeguarded from, losses of all kinds.
• Ascertaining the reliability of accounting and other data developed within the organization.
• Appraising the quality of performance in carrying out assigned responsibilities.

In 1978, the IIA released the Standards for the Professional Practice of Internal Auditing. The IIA established its first international chapters in 1948, and by 2012, membership had grown to over 180,000 across 190 countries.

According to its website, the mission of the IIA is to provide dynamic leadership for the global profession of internal auditing. The IIA has identified activities that support this mission:

• Advocating and promoting the value that internal audit professionals add to their organizations.
• Providing comprehensive professional educational and development opportunities, standards and other professional practice guidance, and certification programs.
• Researching, disseminating, and promoting knowledge concerning internal auditing and its appropriate role in control, risk management, and governance to practitioners and stakeholders.
• Educating practitioners and other relevant audiences on best practices in internal auditing.
• Bringing together internal auditors from all countries to share information and experiences.

The IIA is governed by a board of directors elected at an annual meeting of the membership. Under the board of directors sit a number of committees comprised primarily of volunteer members. Operationally, the IIA is supported through an office in the United States, which has a dual r...

Table of contents

• Cover
• Title Page
• Copyright
• Dedication
• Preface
• Acknowledgments
• Part I: Internal Audit and Quality
• Part II: Developing the Quality Assurance and Improvement Program
• Part III: Internal Audit Governance Structures
• Part IV: Internal Audit Staffing
• Part V: Internal Audit Professional Practices
• Appendix A: International Standards for the Professional Practice of Internal Auditing
• Appendix B: List of Quality Questions
• Appendix C: List of Key Performance Indicators
• Glossary
• About the Author
• Index
• End User License Agreement