TIAPS Module 1 Audit and Assurance workbook

Examples of appropriate measures the head of internal audit may take to safeguard against
impairments and ensure sufficient independence and objectivity include the following:
• Discuss a perception of impairment with relevant parties to describe the controls in
place (such as policies, processes, supervision, and review of audit work) that would
minimize any actual impairment and so reduce concerns.
• Assign a sufficiently competent alternate auditor to an engagement to avoid a conflict
of interest in fact or appearance.
• Discuss an actual impairment with senior management and the board to seek
support and resolution, which may include noting and accepting the risk in the short
term while recruiting additional resource for future engagements or contracting with
an alternate auditor on a temporary basis from another public entity or external
agency.
• Reporting an impairment that has been identified after completion of an engagement
to the client and the governing body to consider its potential impact on the accuracy
and reliability of the conclusions, as required by Standard 2121 – Errors and
Omissions.
One of the more persistent threats to independence of the internal audit function in the public
sector is the absence of a functional reporting line by the head of internal audit to an
independent governing body, in some cases because such a body (or individual) does not
exist in the way envisaged by the IPPF. There may not be a duly constituted board and the
senior executive – as the de facto governing body – may act with little or no separation
between management and governance roles. Where there is a governing body, the
appointments to it may be directed by the government with political motivations or in
accordance with various conventions and practices that have little to do with providing
competent oversight of the entity and its internal audit function. Approval of the internal audit
plan and budget may be made by those with responsibilities for areas to be audited. In such
a position, the head of internal audit must be extra vigilant to maintain and demonstrate
independence in determining engagement priorities based on risk and organizational need.
In all cases, the head of internal audit must report on the status of independence of the
function. Peer review as part of the quality assurance and improvement program as well as
more regular external review can also be used to provide validation of independence.
Practice varies regarding the establishment of audit committees. For example, a city council
– as the governing body of a municipality – may meet periodically as an audit committee
such that the members of the council are also the members of the audit committee.
Alternatively, an audit committee may have a separate existence from the governing body
and act as an advisory panel with membership comprising other independent individuals.
Where a government has adopted the European Commission model for Public Internal
Financial Control (PIFC), the Central Harmonization Unit (CHU) may act as the audit
committee for multiple entities (although bandwidth constraints usually limit the role to
monitoring internal audit activity rather than findings.) PIFC is discussed in module T3
Accounting Fundamentals. In large complex public organizations, especially multilateral
bodies like the United Nations, but also for ministries with multiple subordinated entities,
there may be audit committees with oversight responsibilities of lower-level bodies reporting
to their respective governing authorities that are also coordinated by a higher-level
committee or board that considers all reports to ensure a coherent aggregated perspective.
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