How should the purpose, authority, and responsibility of the internal audit activity be defined?

How should the purpose, authority, and responsibility of the internal audit activity be defined?

• A. In the Audit Charter and approved by the Board
• B. By the Audit Manager and approved by the Board
• C. By the Board of Directors and approved by the CAE
• D. By the CAE and approved by Senior Management

Answer: (A)

The purpose, authority, and responsibility of the internal audit activity are fundamentally outlined in the Audit Charter, which serves as a formal document that establishes the foundation of the audit function. The Audit Charter is critical because it defines the scope of the audit activity, ensures alignment with the organization's strategic objectives, and clarifies the accountability of the internal audit team. Furthermore, having this charter approved by the Board enhances its credibility and authority within the organization. The Board's approval signifies a commitment to the audit process, granting the internal auditors the independence and authority needed to perform their duties effectively. This independence is vital as it allows auditors to operate without undue influence from management, thereby maintaining objectivity in evaluating the organization’s risks and controls. In contrast, while other options may involve appropriate stakeholders in different aspects of the governance structure, they do not encapsulate both the formal definition and the level of authority that the Board's approval confers on the Audit Charter. Thus, defining these elements through the Audit Charter and securing Board approval is the precise and most effective approach.

The purpose, authority, and responsibility of the internal audit activity are fundamentally outlined in the Audit Charter, which serves as a formal document that establishes the foundation of the audit function. The Audit Charter is critical because it defines the scope of the audit activity, ensures alignment with the organization's strategic objectives, and clarifies the accountability of the internal audit team.

Furthermore, having this charter approved by the Board enhances its credibility and authority within the organization. The Board's approval signifies a commitment to the audit process, granting the internal auditors the independence and authority needed to perform their duties effectively. This independence is vital as it allows auditors to operate without undue influence from management, thereby maintaining objectivity in evaluating the organization’s risks and controls.

In contrast, while other options may involve appropriate stakeholders in different aspects of the governance structure, they do not encapsulate both the formal definition and the level of authority that the Board's approval confers on the Audit Charter. Thus, defining these elements through the Audit Charter and securing Board approval is the precise and most effective approach.