PREFACE TO THE FRAMEWORK
AND STANDARDS ON INTERNAL AUDIT
Contents
Paragraph(s)
Introduction .............................................................................................. 1
Internal Audit Standards Board .................................................................. 2
Framework Governing Internal Audits ........................................................ 3
Standards on Internal Audit (SIAs) .............................................................. 4
Mandatory Nature of Framework and Standards ......................................... 5
Standard Setting Process .......................................................................... 6
Contents of the Standards ......................................................................... 7
Guidance ................................................................................................... 8
Effective Date .......................................................................................... 9
Annexure 1: Details of the Standard Setting Process ................................. 10
Annexure 2: List of Stakeholders for Inputs on Exposure Drafts ................. 11
Preface to the Standards on Internal Audit was, originally, issued in
November, 2004, revised in July, 2007, and was recommendatory in
nature. The revised Preface to the Framework and Standards on Internal
Audit shall become mandatory from such date as notified by the
Council.
Issued in November, 2018.
1. Introduction
This Preface to the Framework, Basic Principles and Standards on
Internal Audit facilitates understanding of the scope and authority of
the pronouncements of the Internal Audit Standards Board, issued
under the authority of the Council of the Institute of Chartered
Accountants of India.
2. Internal Audit Standards Board
2.1. The Institute of Chartered Accountants of India (hereinafter referred as
"ICAI" or "the Institute") constituted the "Committee for Internal Audit
(CIA)" in February 2004, which in November 2005 was renamed as the
"Committee on Internal Audit". In November 2008, the Council
renamed this Committee as the "Internal Audit Standards Board
(hereinafter referred as the Board)".
2.2. The objectives and functions of the Board are as follow:
(i) To review existing and emerging internal auditing practices
worldwide and identify areas in which Standards on Internal
Audit (SIAs) need to be developed.
(ii) To formulate Standards on Internal Audit, which may be issued
under the authority of the Council of the Institute.
(iii) To formulate Guidance Notes on issues relating to internal
audit, including those arising from the SIAs, or pertaining to any
specific industry, which may be issued under the authority of the
Council of the Institute.
(iv) To continuously review the existing Standards and Guidance on
Internal Audit and to undertake their revision, if necessary.
(v) To formulate and review Implementation Guides, Technical
Guides, Practice Manuals, Studies and other papers which may
be issued under its own authority for guidance of the members,
as felt appropriate by the Board.
(vi) To undertake research and promote knowledge dissemination in
the field of internal audit.
3. Framework Governing Internal Audits
3.1. Every standard setting process operates within a pre-defined
framework which outlines certain fundamental components inherent to
Preface to the Framework and Standards on Internal Audit
the function or activity of internal audit. This is essential to ensure a
consistent application of Basic Principles, Best Practices and
Standards to achieve a high level of quality consistent with the
objective of internal audit.
3.2. The Framework Governing Internal Audits is an overarching document
to be read along with this Preface. It consist of Definition of Internal
Audit, Code of Ethics and the following four components of internal
audit:
(a) Basic Principles of Internal Audit
(b) Key Concepts
(c) Standards on Internal Audit, and
(d) Guidance
4. Standards on Internal Audit (SIAs)
4.1. The Standards on Internal Audit (SIAs) are a set of minimum
requirements that apply to all members1 of the ICAI while performing
internal audit of any entity or body corporate.
4.2. As per Section 138 of Companies Act, 2013, the Board of a Company
may, besides a Chartered Accountant, appoint a cost accountant or
any other professional to conduct Internal Audits. The ICAI
recommends the adoption of the SIAs by non-members of the ICAI
who are performing internal audits so as to ensure a consistent
approach and quality in the discharge of their professional duties.
5. Mandatory Nature of Framework and Standards
5.1. The Council of the ICAI has decided that the Standards will be made
mandatory in a phased manner.
5.2. The SIAs shall initially be mandatory for members performing internal
audits in all listed companies, as per Section 138 of the Companies
1 The current law in India permits internal audit to be performed either by an entity's own
employee (i.e., personnel on the payroll of the organization or its group company) or by a
professional who is part of an external agency (e.g., a firm of practicing Chartered
Accountants undertaking internal audit engagements). These SIAs apply to ICAI
members in both situations, irrespective of whether the internal audit is conducted by
them in the capacity of an employee or as a representative of an external agency.
2
Preface
Act, 2013, read with Rule 13 of Companies (Accounts) Rules 2014
from the effective date of the SIA, and all other companies from one
year thereafter.
5.3. The mandatory status of a SIA implies that while carrying out an
internal audit, it shall be the duty of the members of the Institute to
ensure that they comply with the SIAs read with the Preface,
Framework Governing Internal Audits and Basic Principles of Internal
Audit.
5.4. If, for any reason, a member is unable to comply with any of the SIAs
requirements, or if there is a conflict between the SIA and other
mandates, such as a regulatory requirement, the internal audit report
(or such similar communication) should draw attention to the material
departures therefrom along with appropriate explanation.
6. Standard Setting Process
6.1. The Board develops and revises SIAs in consultation with Study
Groups (if required). Exposure drafts are thereafter released to various
interest groups and public at large for their feedback and comments.
The Board reviews the comments and thereafter places the SIA before
the Council for its deliberation. The SIAs approved by the Council are
issued with the final changes.
6.2. The detailed process is explained under Annexure 1.
7. Contents of the Standards
7.1. SIAs shall be principle based and will clearly outline the objective of
issuing the particular Standard along with the essential requirements
for its compliance.
7.2. Internal Auditors shall apply their best professional judgement in the
implementation of SIAs on a "substance over form" basis.
Implementation and Technical guides issued by the Board would help
to provide the necessary guidance and clarification in this regard.
7.3. The essence of each Standard is captured under the following key
sections:
(i) Introduction: To provide a brief background and scope of the
Standard and its applicability.
3
Preface to the Framework and Standards on Internal Audit
(ii) Objective: Reasons for issuing the Standard and why it is
required.
(iii) Requirements: The desired outcome and what is essential to
ensure compliance with the Standard.
(iv) Explanatory Comments on Implementation and Application:
Certain parts of the Standard which needs to be elaborated,
including defining key words and terms.
(v) Effective Date: Date from which the Standard is to be applied
and made mandatory.
7.4. The Standards on Internal Audit, as and when issued, will be classified
and numbered in a series format, as follows:
(i) 100 Series : Standards on Key Concepts
(ii) 200 Series : Standards on Internal Audit Management
(iii) 300400 Series : Standards on the Conduct of Audit
Assignments
(iv) 500 Series : Standards on Specialised Areas
(v) 600 Series : Standards on Quality Control
(vi) 700 Series : Other/Miscellaneous Matters
8. Guidance
8.1. Guidance Notes on Internal Audit are primarily designed to provide
guidance on matters of implementation or clarification on their
applicability in certain circumstances.
8.2. The Board may issue the following guides (as appropriate):
(i) Implementation Guide: Best practices, methodologies or
approach on how best to apply internal audit procedures in
order to achieve the objectives of the SIA.
(ii) Technical Guide: Clarifications as to what extent the SIA applies
in a certain industry or a particular situation, considering the
technical or operational uniqueness of the same, and how best
to achieve the objectives of the SIA.
8.3. The Implementation and Technical Guides are recommendatory in
nature. The Internal Auditor should ordinarily follow these
4
Preface
recommendations except where, under particular circumstances, it
may not be necessary or appropriate to do so.
9. Effective Date
9.1. The Preface to the Framework and Standards on Internal Audits is
applicable for all internal audits beginning on or after a date to be
notified by the Council of the Institute.
9.2. In case of SIAs issued by the ICAI for which a Guidance Note is
already in existence, the Guidance Note shall stand withdrawn from
the date on which the Standard comes into effect.
5
Preface to the Framework and Standards on Internal Audit
ANNEXURE 1
DETAILS OF THE STANDARD SETTING PROCESS
1. Selection of Topics and Time-lines: The Internal Audit Standards
Board, on a continuous basis, and in consultation with its key
stakeholders, keeps identifying the broad areas in which the SIAs
need to be formulated (including the review and revision of prevailing
SIAs) and prepares a priority list with time lines for the issuance of the
SIAs.
2. Formation of Study Group to Draft Standards: In the preparation
and drafting of the SIAs, the Board is assisted by a Study Group (SG)
of professionals constituted by the Board. In the formation of the SG,
provision is made for the participation of a cross section of members of
the Institute. In certain situations the Board may also consider having
expert professionals on the SG, who need not necessarily be members
of the ICAI. The SG is generally chaired by a member of the Board
and convened by the Board. The SG is responsible for preparing and
finalising the Exposure Draft of the Standard and make it ready for
review and approval of the Board.
3. Review of Exposure Draft of SIA by the Board: The Exposure Draft
(ED) of the Standard is put up to the Board for their review,
deliberation and approval. On the basis of the deliberations of the
Board, changes are made to the draft, and the final ED is made ready
for exposure with a wide set of stakeholders.
While formulating the SIAs, the Board takes into consideration the
applicable laws, customs, business environment in India. The Board
also, where appropriate, takes into consideration the international
practices in the area of internal audit, to the extent they are relevant
and applicable to the conditions existing in India.
4. Exposure Draft Open for Comments for 30 days: The Exposure
Draft of the proposed Standard is issued for comments by the
members of the Institute. The ED is also open for comments by non-
members, including the regulators and other such bodies as well as
general public. The ED is also published in the monthly Journal of the
Institute and hosted on the website of the Institute wherefrom it is
downloadable free of charge for comments by the professional
accountants and the public. The ED is also circulated to all the
members of Council of the ICAI, the Institute's past Presidents,
6
Preface
Regional Councils and the branches of the Institute for their
comments. The Exposure Draft is also circulated to other external
stakeholders as listed in Annexure 2.
The Exposure Draft is normally open for comments for a period of at
least 30 (thirty) days from the date of issuance, but this time may be
extended if considered necessary.
5. Finalisation and Submission to ICAI Council: After taking into
consideration the comments received on the Exposure Draft, the
Board will update the draft of the proposed Standard, take inputs of
the SG (if appropriate), finalise the Standard for consideration by the
Council of the Institute.
6. ICAI Council Deliberates and Approves SIA: The Council of the
Institute will consider the final draft of the proposed Standard on
Internal Audit and if necessary, modify the same in consultation with
the Internal Audit Standards Board.
7. SIA Issued with Final Changes: The SIA will then be issued under
the authority of the Council of the Institute.
7
Preface to the Framework and Standards on Internal Audit
ANNEXURE 2
LIST OF STAKEHOLDERS FOR INPUTS ON EXPOSURE
DRAFTS
1. The Ministry of Corporate Affairs
2. The Reserve Bank of India
3. The Securities and Exchange Board of India
4. The Insurance Regulatory and Development Authority
5. The Comptroller and Auditor General of India
6. The Controller General of Accounts
7. The Central Board of Direct Taxes
8. The Central Board of Excise and Customs
9. The Institute of Cost Accountants of India
10. The Institute of Company Secretaries of India
11. Recognised Stock Exchanges in India
12. The Indian Banks' Association
13. The Standing Conference of Public Enterprises
14. The National Bank for Agricultural and Rural Development
15. The Indian Institute(s) of Management
16. The Telecom Regulatory Authority of India
17. The Central Registrar of Co-operative Societies
18. Various Industry bodies/associations, such as, The Confederation of
Indian Industry, The Associated Chambers of Commerce and Industry,
The Federation of Indian Chambers of Commerce and Industry, etc.
19. Any other body considered relevant by the Board, keeping in view the
nature and requirements of SIAs.
8
|
