Internal Auditing: Fundamental Principles and Best Practices (Portfolio 5406)

Bloomberg Tax Portfolio 5406-2nd, Internal Auditing: Fundamental Principles and Best Practices, analyzes the development of internal auditing, the importance and visibility of which have expanded as a result of the increased emphasis on corporate governance since enactment of the Sarbanes-Oxley Act of 2002. The work also describes best practices useful in accomplishing internal auditing's expanded mission.

This Portfolio is organized as follows. Section I describes its purpose and scope.Section II surveys the practice of internal auditing. Section III relates the historical development of internal auditing practices, from the earliest traditional views, through ‘modern’ perceptions, to the contemporary consideration of internal auditing as a part of governance. Section III also traces the historical development of internal auditing guidance, primarily the pronouncements of The Institute of Internal Auditors (IIA).

Section IV describes outside influences that have affected the development and practice of internal auditing. These influences include rules of stock exchanges, the U.S. Sentencing Guidelines and recommendations of prominent groups.Section V discusses the various provisions of the Sarbanes-Oxley Act of 2002 and implementing regulations pertinent to internal auditing.

The critically important relationship of internal auditing to the audit committee and board of directors is described in Section VI. This section describes ongoing communications that a company's Chief Audit Executive (CAE) should have with the audit committee. The section also explains the CAE's responsibility to develop an appropriate annual internal auditing work plan for approval by the senior management and the audit committee as a condition precedent to the audit committee supporting allocation of adequate resources. Section VII identifies the most important attributes and key best practices that distinguish a first class internal audit activity. These distinguishing characteristics relate to the charter of the activity and various hallmarks including independence of both the activity and the individual auditor. The section continues by detailing how the activity performs its mission; subjects include planning and scheduling audits for best results, staffing the activity (including co-sourcing and outsourcing), and managing internal audits. Sections VIII, IX, X, and XI explore in greater depth four subjects of importance to internal auditing: Risk Management, Governance, Internal Control, and Fraud.

This Portfolio may be cited as APP 5406, Internal Auditing: Fundamental Principles and Best Practices.