What is the Importance of Internal Audit Chartered? All You Need To Know

Introduction

Documentation of various processes tends to be increasingly important to ensure that the required KPIs are duly met so that auditors can fulfill their duties with the proper groundwork.

As a matter of fact, it can be seen that this paperwork greatly helps them to store substantial evidence that can help them to add backing to the conclusive evidence they claim to have found.

In this regard, auditors and organizations tend to create a number of documents in lieu of ensuring that they are able to document all the processes. Audit Charter tends to be one such document.

Definition

The Audit Charter can be defined as a formal document that defines an internal audit’s purpose, authority, responsibility, as well as position within the organization.

In this regard, they must figure out the nature of services that the audit process will entail and how internal audits can, at large, contribute towards the organization achieving its objectives.

There are numerous reasons why the Audit Charter is considered necessary and should necessarily and justifiably be a part of the audit process.

Importance of Audit Charter

The importance of an audit charter can be gauged by the fact that it helps clarify the internal audit activity position within the organization.

It can be seen that the audit charter helps to clarify the role that this particular department has to play when it comes to reporting and creating audit statements that can be regarded as pivotal for the process.

This also includes the head of the internal audit, access to records, property, and personnel, and the scope of the offered activities.

Furthermore, the importance of an audit charter can also be dissected in the manner in which it is structured.

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It provides a holistic insight into the audit’s mission and vision and the key features that it tends to achieve in this regard.

Factually, it can be seen that there are numerous different roles that the audit function has to play within the organization. The charter is designed to ensure that these features are included in the overall system so that there is no confusion pertaining to this matter.

Audit Charter also tends to be important because it is directly in compliance with the International Standards of Auditing.

This board has made it compulsory to draft this charter to highlight all compliance and adherence-related issues in the given documents.

Furthermore, it also helps establish and reinforce the chain of command pertaining to the audit function.

This helps in the division of responsibilities and authorities. In this regard, it becomes easier to identify people with respective responsibilities, and what role they are supposed to play in the existing circumstances.

Independence and Objectivity tend to be very important components of the audit process. The audit charter is drafted so that there is proper clarity regarding these aspects, and how they have been dealt with when it comes to completing the audit process.

It also tends to highlight critical areas of responsibility so that it can easily facilitate the creation of a risk-based internal audit plan and verify that the internal audit department is fulfilling its required responsibilities.

Similarly, Audit Charter is also important because it tends to highlight important factors that can positively contribute towards quality enhancement within the organization.

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This is because it helps to identify key areas of improvement that can be focused upon to get the best outcome of the audit process.  

The importance of quality control can be gauged by the fact that it can be used for feedback and strategy formulation for subsequent fiscal years.

Important Content of Internal Audit Chartered

Internal audits are important for any organization as they help ensure that processes and procedures are being properly implemented and managed.

An internal audit chartered outlines the scope of an audit, describes the specific areas to be tested, identifies the auditors who will participate in the audit, and outlines how reports will be delivered.

The important contents of an Internal Audit Chartered include the:

  1. Objective: The objective of the Internal Audit should be clearly defined in terms of its purpose and goals.
  2. Scope: The scope of the Internal Audit should include what is to be reviewed, including process areas, functions, sites, or activities.
  3. Responsibilities: The responsibilities of each Internal Auditor should be specified in detail to ensure that their roles are understood and carried out effectively.
  4. Resources: Resources needed for the Internal Audit such as personnel and resources, need to be allocated beforehand so that necessary funds can be secured ahead of time.
  5. Timelines & Reporting: Timelines need to be established as well as how results will be reported back to relevant stakeholders upon completion of each audit cycle (monthly/quarterly etc).
  6. Follow-up & Resolutions: Procedures on how issues identified in the report should be followed up with appropriate corrective action taken when required need to also be specified here.
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What is the Purpose of an Audit Committee Charter?

An audit committee charter is a document that outlines the responsibilities and objectives of an organization’s audit committee.

This charter serves as a guide for the members of the audit committee and explains their roles, functions, and activities.

It also details how the audit committee should report to other governing bodies such as shareholders or board members.

The purpose of an Audit Committee Charter is threefold:

  1. To establish a clear structure for the audit committee’s operations;
  2. To define the roles and responsibilities of each member;
  3. To ensure compliance with applicable laws and regulations related to financial reporting and internal controls.

An audit committee charter should be reviewed periodically to ensure it reflects any changes in laws, regulations, or organizational structures that could impact its effectiveness.

Additionally, it should be updated whenever there are changes in members or operations within the audit committee itself.

Conclusion

Therefore, it can be seen that the audit charter is mainly drafted because it helps to identify certain important aspects within the audit process and how it contributes to streamlining and smoothening the overall audit process.

It tends to be of pivotal importance because it creates a much-needed progressive atmosphere. The audit charter can also be realized as one of the most crucial factors that help the audit function deliver the respective KPIs to maximize the audit impact to the utmost extent.

Furthermore, this charter helps organizations reflect on their policies and systems of internal control, which can subsequently be used as inputs to help deliver better results over time.