Topic 1: Define Purpose, Authority, and Responsibility of Internal Audit Activity

The Chief Audit Executive (CAE) is the " top position within the organization responsible for internal audit activities. In the case where internal audit activities are obtained form outside service providers, the CAE is the person responsible for overseeing the service contract and the overall quality assurance of these activities, reporting to senior management and the board regarding internal audit activities, and follow up of engagement results.

A key component setting the stage for internal auditing activities is the audit charter. The charter of the internal audit activity is " a formal document that defines the internal audit activity's purpose, authority, and responsibility. The charter establishes the internal audit activity's position within the organization; authorizes access to records, personnel and physical properties relevant to the performance of engagements; and defines the scope of internal audit activities.

The CAE develops a charter that defines the nature of services for assurance and consulting engagement. The audit charter must be consistent with the standards and approved by the board.


Typical elements of audit charter:

• Mission and scope of the work of the internal auditing department
• Accountability of the CAE to management and the audit committee in discharge of his or her duties.
• Independence of the internal auditing function
• Responsibilities of the CAE and internal auditing staff
• Range of authority of the CAE and internal auditing staff
• Standards of audit practice to be met or exceeded

The charter provides a a recognized statement for review and acceptance by management and for approval, as documented in the minutes by the board. It also facilitates a periodic assessment of the adequacy of the internal audit activity's purpose, authority and responsibility which establishes the role of the internal audit activity. If a question should arise, the charter provides a formal, written agreement with management and the board about the organization's internal audit activity.