Page 34 - Internal Auditor M.E. - June 2019

Fostering Fundamentals TO cOMMenT on the article,
eMail the author at arifzaman786@yahoo.com

By: Arif Zaman
How to establish

the Internal Audit

Department in 8

simple steps?

I am fortunate to have experience of establishing the Internal The model -template of the Internal Audit Charter is available at
Audit Department in several parts of the world. the IIA website.
I have been asked by a couple of new audit leaders to assist them
in the formation of the Internal Audit Department. Based on my Step 6: Policies and Procedures - As per the IPPF, the Head of
personal experience, I would like to illustrate my approach and Internal Audit must develop internal audit policies and procedures
share my learning experience in the following steps: to regulate, standardize and document the audit activities. The
Step 1: Tone At The Top - It is the most vital component before policies shall cover the following process but not limited to; annual
establishing any function especially internal audit. Internal audit plan, approval process, engagement plan, audit execution,
auditors need the utmost support of the top management and
the Board in the establishment of the Internal Audit Department. audit reporting, follow-up, reporting to different stakeholders,
Once they have it, it will be easy to approve the framework and quality assurance etc. The policies and procedures shall be
reporting structure, which will allow internal auditors to maintain approved by the Audit Committee.
their independence and objectivity.
Step 7: Budget - The Audit Committee shall approve the budget of
Step 2: Business Understanding - It is very much important to be
acquainted with the culture and business acumen of the company. the Internal Audit Department, sufficient enough to attract good
It gives a general idea of the company risk maturity and control talent and provide resources for the Internal Audit Department to
environment; accordingly, an internal auditor can determine their carry out functional activities.
approach to pitch the Internal Audit Department framework.
Step 8: Liaison with Management and Other Departments -
Step 3: Structure - The structure of the Internal Audit Department
is very crucial. Some of the important questions to ponder upon Internal Audit Department shall meet with the Management and
are where does the Internal Audit Department will fall within the other Departmental Heads to develop business and operational
the organization structure, to whom they will report? who will understanding. All another department especially the second line
have the decision to hire or fire internal auditors Etc? In order to
maintain independence, Internal Audit Department shall report to of defense will enable the Internal Audit Department to work
the Audit Committee or directly to the Board. together by leveraging their expertise to bridge silos within the

Step 4: Audit Committee Charter - Once the reporting line is organization. This interaction may also help in developing the
defined, an Audit Committee Charter shall be developed to define Audit Universe and carry out Risk Assessment.
the role and responsibilities of the Committee. The Charter shall
be approved by the Board. Once the above prerequisites are met, Internal Audit Department
The model template of the Audit Committee Charter is available can presume with carrying out an annual risk assessment,
at the IIA website. developing an annual audit plan, presenting to the appropriate
Step 5: Internal Audit Charter - The second governing document authority for approval and execute the audit engagement according
after the Audit Committee Charter is the Internal Audit Charter, to the plan.
which define the role and responsibilities of the Internal Audit
Department. The Internal Audit Charter shall be approved by the Arif Zaman FCCA, cia, ciSa, cPa, cFe , is the Head of internal audit at
Audit Committee. emaar industries and investments based in Dubai, Uae.

34 INTERNAL AUDITOR - MIDDLE EAST JUNE 2019