What accountants should know about the proposed internal auditing standards

Peter Jones, CEO, The institute of Internal Auditors – Australia

The International Internal Auditing Standards Board (IIASB) has released a new set of internal auditing standards (The Global Internal Audit Standards) for public exposure. The public exposure period finished on 30 May and the responses are being evaluated.

As many accountants use the results of internal audit functions and others work in internal audit, four of the proposed domains should be of particular interest:

  • Purpose of Internal Auditing;
  • Ethics and Professionalism;
  • Managing the Internal Audit Function; and
  • Performing Internal Audit Services.

What is changing?

The proposed new standards set out uniform global requirements for the professional practice of internal auditing and are intended to be applicable to any organisation internationally, regardless of location, purpose, size, industry or complexity. While the proposed standards are not approved for current use, they indicate the direction of evolution of internal auditing.

Why are the Standards being revised?

The current Standards were developed in the early 2000s and have gradually evolved over the last 20 years. The current evolution is intended to take into consideration the rapidly changing requirements of governance and oversight and set describe minimum standards of performance for internal audit functions in the 2020s.

The Purpose of Internal Auditing

Internal auditing is intended to enhance an organisation’s success by providing the governing body and management with objective assurance and advice. The professional application of internal auditing will strengthen and organisation’s reputation and credibility and will address value creation, protection, and sustainability within the organisation.

Ethics and Professionalism

The proposed standards require that all internal auditors demonstrate integrity in their work and behaviour. This obligation requires internal auditors to work with honesty and courage to serve their organisation and ensure that governing bodies receive reliable and relevant information about organisational performance and activity. Related to this are obligations for internal auditors to maintain their objectivity in relation to matters under review; to ensure that they are and remain competent to perform their work; perform their work with care; and deal appropriately with the information they receive.

Accountants will find significant overlap with the requirements set out in APES 110 Code of Ethics for Professional Accountants.

Managing the Internal Audit Function

This set of standards is directed at the Chief Audit executive (head of internal audit) within an organisation. It lays down essentials for the planning and delivery of a risk-based internal audit service that aligns to the needs of the organisation and takes into account the other assurance functions within the organisation. The standards include a requirement for strategic planning of the internal audit function – setting out the vision, strategic objectives and supporting initiatives for the internal audit function. This is a requirement that is significantly different from the common, and largely pointless, practice of providing an extended program of potential internal audits (often called a Strategic Audit Plan).

Performing Internal Audit Services

This section amplifies requirements in the current standards. It prescribes requirements that relate to the delivery of individual engagements. A new requirement is for internal auditors to rate individual observations and to form a conclusion in relation to the engagement objective. It will no longer be acceptable for an internal audit to be a simple list of findings.

Next Steps

The comments from stakeholders world-wide are currently being reviewed by the IIASB. The new Standards will become applicable six months after their approval, which is expected in July.

IIA-Australia recently ran Town Hall sessions to explain the major changes. Please click here to view the recording. Further information is available from the Global IIA website: https://www.theiia.org/en/standards/ippf-evolution/