Internal audit is one of self-defense tools in any organization. However, as any activity, it requires quality assessment to ensure that internal audit activities are carried in compliance with the IIA’s International Standards for the Professional Practice of Internal Auditing (Standards). The said standards mandated different types of quality assessment including Internal Assessment, External Assessments and Self-assessment with Independent Validation.
What is internal audit assessment?Performance assessment of internal audit function is termed by the Institute of Internal Auditors (IIA) as “Quality Assurance and Improvement Program (QAIP)”, which enables an evaluation of the internal audit activity’s conformance with the Definition of Internal Auditing and the International Standards for the Professional Practice of Internal Auditing (Standards) and an evaluation of whether internal auditors apply the Code of Ethics. The program also assesses the efficiency and effectiveness of the internal audit activity and identifies opportunities for improvement.
What is the purpose of internal audit quality assessment?The Framework for Quality Assurance issued by the Institute of Internal Auditors (IIA) indicates that purpose of engaging an external auditor by business entities to evaluate the performance of internal audit function is to provide the stakeholders with assurance that the internal audit activity is performed in accordance with the relevant international standards of internal auditing, and that the internal auditors comply with the code of ethics.
What is the standard mandate regarding External Assessments?As per IIA Standard 1312 – External Assessments requires that an external assessment of an internal audit activity be conducted at least once every five years by a qualified, independent assessor or assessment team from outside the organization. The objective of the external assessment is to evaluate an internal audit activity’s conformance with the Standards and the Code of Ethics.
Is the performance quality assessment of internal audit function a mandate by regulatory bodies in Kuwait?Central Bank of Kuwait has not required the business entities supervised by it to conduct review and evaluation of the internal audit function. However, some banks perform such evaluation voluntarily. With respect Capital Markets Authority, as the regulator of licensed persons and listed companies, the Executive Regulations of Law No. 7 of 2010 concerning the Establishment of Capital Markets Authority and Regulation of Securities Activity set forth in Module 15 – Corporate Governance as follows:
|Article 6-9||An independent audit firm shall be engaged to evaluate and review the internal control systems and prepare a report in this regard (Internal Control Report), which shall be submitted to CMA on annual basis. Furthermore, another audit firm shall review and assess the performance of internal audit department/office/ unit periodically every three years; provided that a copy of such report shall be submitted to the internal audit committee and the Board of Directors.|
What is the effective date of Article 6-9 of Module 15, based on which the three-year period is computed?Pursuant to Appendix (3) Transitional Provisions to Decision No. 72 of 2015 dated 9 November 2015 regarding issuance of Executive Regulations of Law No. 7 of 2010, Article 6-9 of Module 15 of the said Executive Regulations shall come into effect from 30 June 2016. Furthermore, based on the Reminder issued by Capital Markets Authority on 18 October 2018, which sets the deadline of 30 June 2019 for preparing the first report on review and assessment of the internal audit function. Thus, the listed and licensed companies have submitted the report on review and assessment of internal audit function’s performance to the Internal Audit Committee and Board of Directors not later than 30 June 2019, then they shall follow it with subsequent reports every three years.
Who can conduct the internal audit quality assessment?As per Capital Markets Authority mandates, the internal audit quality assessment shall be carried by licensed auditor who was not appointed for auditing the financial statements nor conducting annual internal control review.
Are there any specific conditions for engaging the auditor to prepare the above report?There are no specific conditions for engaging the auditor as the Reminder issued by Capital Markets Authority on 18 October 2018, which states that the auditor shall be engaged to prepare the aforesaid report whether or not they are registered on the Auditors Register with CMA.
What is the adding value to business entities from conducting Internal Audit Quality Assessment?
- Comply with laws, regulations, resolutions, and instructions issued by Capital Markets Authority.
- Identify efficiency of internal audit department/ office/ unit performance in carrying out their roles and responsibilities.
- Enhance the performance efficiency of internal audit department/ office/ unit and the business entity as a whole through identifying strengths and weaknesses and defining performance improvement opportunities.
What are the services offered by Baker Tilly?Assurance Report on Internal Audit Quality Assessment
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