The internal Audit Charter is a formal document which it is specifies the internal audit function’s purpose, internal audit authority, responsibility, and position in the internal audit department.
The internal audit charter, is normally, required to perform an annual review by the audit committee and the board of directors and which the internal audit department and related parties should have. This is also a best practice if the internal audit charter could upload to the intranet for internal awareness by the related parties for understanding and reviewing this charter.
The internal audit charter will help an auditor to understand how the internal audit function works toward achieving the organization’s objective and this also helps to ensure the business’s operation aligns with the international standard, avoid fraud, and to meet the organization’s mission and vision statement.
The internal audit charter provides the guideline for the organization’s internal audit functions and these outlines determine how the internal audit department will operate in the organization.
The internal audit charter should be included in the items below:
- The purpose of the internal audit function
- The mission, vision, scope, and purpose
- The authority of the internal audit function
- Internal auditor’s authority
- Independence and objectivity of the function
- The responsibilities of the internal audit function
- Composition/ membership
- Access to information data, records, and individuals.
The internal audit charter should be mentioned the authority who are able to hire, reward, discipline, and terminate the top management in the audit department such as the Head of the Internal Audit department, or the Chief Internal Audit Officer (CIAO). Normally, the audit committee who have those authorities.
The internal audit charter establishes the internal audit function in the organization and this charter should mention the main information regarding the categories of internal auditor’s position structures, the reporting line to access records, and the scope of its activities.
It is typically there is a different types of audits such are compliance audits, financial audits, operational audits, accounting forensics, IT Audit, and so on. The type of audits should be included in the internal audit charter to make the auditor clear about the roles and responsibilities and the function of the internal auditor in the organization.
Fraud risk review, consulting, and advisory services should be included in the internal audit charter except the urgent special project or whistle-blowing are not specified in the charter since these activities require to review depending on the incident of fraud is reported.
New Internal auditors should read to understand the outline of the internal audit charter and the variety of internal audit activities in the organization to be aware of the value-added of the internal audit function and to be able to perform internal audit reviews in the organization.
Those group of audit projects included in the internal audit charter is added value to the organization due to the defined process and risky areas that would be considered to review and the auditor could be aware of the variety of assigned tasks to perform as well.