Tumulak, Nichole G.

SBA A343
20577396 November 20, 2020

Individual Assignment: Module15: Charter,

Independence & Objectivity; The Internal Audit
Committee; and Dual Reporting Relationships

1. Define the following in the context of internal audit:

1. Charter

A charter provides the organization a blueprint for how internal audit will operate
and helps the governing body to clearly signal the value it places on internal
audit’s independence.

(n.d.). The Institute of Internal Auditors. https://na.theiia.org/about-

ia/PublicDocuments/PP-The-Internal-Audit-Charter.pdf

2. Independence

Independence is the freedom from conditions that threaten the ability of the
internal audit activity to carry out internal audit responsibilities in an unbiased
manner.

South American independence: War, liberty, gender, text. (2006). South

American Independence, 3-
32. https://doi.org/10.5949/liverpool/9781846310270.003.0001

3. Objectivity

Objectivity is an unbiased mental attitude that allows internal auditors to perform

engagements in such a manner that they believe in their work product and that
no quality compromises are made. Objectivity requires that internal auditors do
not subordinate their judgment on audit matters to others

South American independence: War, liberty, gender, text. (2006). South

American Independence, 3-
32. https://doi.org/10.5949/liverpool/9781846310270.003.0001
Tumulak, Nichole G. SBA A343
20577396 November 20, 2020

2. What are the necessary contents of a charter? Identify and define each.

 The internal audit charter is vital to internal audit’s success and should be
reviewed annually by the governing body.
 The internal audit charter should be approved by the governing body and agreed
to by senior management.
 The charter should at a minimum include internal audit’s purpose and mission,
authority, responsibility, its independent reporting relationships, scope and
requirement to conform to IIA Standards.
 The internal audit charter should include details of how the internal audit activity
will assess and report on the quality of the internal audit activity.
 A charter provides a blueprint for how internal audit will operate and allows the
governing body to clearly signal the value it places on internal audit’s
independence.

(n.d.). The Institute of Internal Auditors. https://na.theiia.org/about-

ia/PublicDocuments/PP-The-Internal-Audit-Charter.pdf

3. What measures can an internal audit activity undertake to ensure

independence and objectivity?

To comply with the standard, internal auditors must understand what

independence and objectivity are and what is required in practice. In short,
independence and objectivity means that internal auditors and the internal audit activity
have, and maintain, the ability to make unbiased judgement and decisions based on the
audit activities and facts and that they are free from any internal or external interference
or obstruction with functional accountability being to the board, either directly or through
an audit committee.

Position paper: Independence and objectivity. (n.d.). Chartered Institute of Internal

Auditors | iia.org.uk. https://www.iia.org.uk/resources/delivering-internal-
audit/position-paper-independence-and-objectivity/#:~:text=In%20short%2C
%20independence%20and%20objectivity,interference%20or%20obstruction%20with
%20functional
Tumulak, Nichole G. SBA A343
20577396 November 20, 2020

4. What is an Internal Audit Committee? Who comprises such? What is the

function of the committee?

 The audit committee can expect to review significant accounting and reporting
issues and recent professional and regulatory pronouncements to understand the
potential impact on financial statements. An understanding of how management
develops internal interim financial information is necessary to assess whether
reports are complete and accurate.

 The committee reviews the results of an audit with management and external
auditors, including matters required to be communicated to the committee under
generally accepted auditing standards. Controls over financial reporting,
information technology security and operational matters fall under the purview of
the committee. 

 The audit committee is responsible for the appointment, compensation and

oversight of the work of the auditor. As such, CPAs report directly to the audit
committee, not management.

 Audit committees meet separately with external auditors to discuss matters that
the committee or auditors believe should be discussed privately. The committee
also reviews proposed audit approaches and handle coordination of the audit
effort with internal audit staff.  When an internal audit function exists, the
committee will review and approve the audit plan, review staffing and
organization of the function, and meet with internal auditors and management on
a periodic basis to discuss matters of concern that may arise.

 Audit committees must have authority over their own budgets and over external
auditors. It is through these protections that investors will come to trust the
financial reports released by companies.

 While boards should seek members who can provide a diverse range of
competent perspectives based on their experience and expertise, it is
nevertheless imperative that board members are knowledgeable and conversant
in the language of finance and accounting. This need is particularly acute for the
audit committee.

YORULMAZ, M. (2018). COMPARISON%20OF%20TURKEY%20WITH

%20DEVELOPED%20COUNTRIES%20IN%20TERMS%20OF%20HEALTH
%20MANAGEMENT%20PROFESSION. International Journal of Social Humanities
Sciences Research (JSHSR), 5(27), 2730-
2736. https://doi.org/10.26450/jshsr.649

A committee often fulfils a number of functions;

Tumulak, Nichole G. SBA A343
20577396 November 20, 2020

 A pure ‘governance’ role i.e. directing and controlling the organization through
collective decision making.

 A pool of expertise and advice i.e. making advice and expertise available to staff
and volunteers

 A management role i.e. to manage one or more staff, volunteers or projects (for
instance managing the Coordinator, or managing the production of the
newsletter).

 A work role i.e. actually doing work (staffing a helpline, answering

correspondence, changing hearing aid batteries etc.).

http://www.governancepages.org.uk/faq-2/faq-1-8/3-what-is-the-role-of-the-committee/#:~:text=1%20A
%20pure%20'governance'%20role,organisation%20through%20collective%20decision
%20making.&text=3%20A%20management%20role%20i.e.,the%20production%20of%20the
%20newsletter).

5. What are the reporting responsibilities of the Chief Audit Executive? To whom
and in what capacity does the CAE report?

The chief audit executive is responsible for monitoring the performance of the
internal audit activity. He or she may look to use benchmarking to analyze certain
performance metrics. The CAE will also want to assess how internal audit is performing
in the eyes of both the audit committee as well as management. Part II of this essay
examines the concept of monitoring internal audit.

For day-to-day administrative purposes, the CAE should report to the most senior
executive (i.e., the chief executive officer [CEO]) of the organization.
 
According to The IIA's 2004 GAIN survey, 70 percent of CAEs report to the audit
committee, an increase from 53 percent in the prior year.

(n.d.). The Institute of Internal Auditors. https://na.theiia.org/about-us/Public

%20Documents/The%20Chief%20Audit%20Executive-Understanding%20the%20Role
%20and%20Professional%20Obligations%20of%20a%20CAE.pdf

Figures 122–129 from: Tang L, Li L, he W (2014) the genus Scaphidium olivier in east
China (Coleoptera, Staphylinidae, Scaphidiinae). ZooKeys 403: 47-96.
HTTPS://doi.org/10.3897/zookeys.403.7220.
(n.d.). https://doi.org/10.3897/zookeys.403.7220.figures122-129
Tumulak, Nichole G. SBA A343
20577396 November 20, 2020