ANAO - Public Sector Audit Committees

2.5. Internal audit

A strong relationship between the Audit Committee and the entity’s internal auditors enables the committee to meet its responsibilities and carry out its functions. Internal audit is a major source of information to the Audit Committee on the performance of the entity and its control environment. To maximise the value provided by internal audit to the Audit Committee, it is important that open lines of communication are established and maintained between internal audit and the committee.

Audit Committee internal audit responsibilities
An Audit Committee’s responsibilities in relation to internal audit would generally be to: act as a forum for communication between the Chief Executive/Board, senior management and internal and external audit [17]; review internal audit coverage [18]; and ensure the internal audit plan is aligned with the entity’s risks, and recommend approval of the plan by the Chief Executive/Board; advise the Chief Executive/Board on the adequacy of internal audit resources to carry out its responsibilities, including completion of the approved internal audit plan; coordinate, as far as practicable, the audit programs conducted by internal and external audit and other review functions [19];; review all audit reports and provide advice to the Chief Executive/Board on significant issues identified and action to be taken on issues raised that are relevant to the entity, including the identification and dissemination of good practice [20]; monitor management’s implementation of internal audit recommendations; review the internal audit charter to ensure appropriate authority, access and reporting arrangements are in place; periodically review the performance of internal audit; and provide advice to the Chief Executive/Board on the appointment of the Head of Internal Audit (in the case of an in-house internal audit function) or the appointment of the internal auditor where outsourced or co-sourced.

Audit Committee internal audit responsibilities

An Audit Committee’s responsibilities in relation to internal audit would generally be to:

act as a forum for communication between the Chief Executive/Board, senior management and internal and external audit [17];
review internal audit coverage [18]; and ensure the internal audit plan is aligned with the entity’s risks, and recommend approval of the plan by the Chief Executive/Board;
advise the Chief Executive/Board on the adequacy of internal audit resources to carry out its responsibilities, including completion of the approved internal audit plan;
coordinate, as far as practicable, the audit programs conducted by internal and external audit and other review functions [19];;
review all audit reports and provide advice to the Chief Executive/Board on significant issues identified and action to be taken on issues raised that are relevant to the entity, including the identification and dissemination of good practice [20];
monitor management’s implementation of internal audit recommendations;
review the internal audit charter to ensure appropriate authority, access and reporting arrangements are in place;
periodically review the performance of internal audit; and
provide advice to the Chief Executive/Board on the appointment of the Head of Internal Audit (in the case of an in-house internal audit function) or the appointment of the internal auditor where outsourced or co-sourced.

Part 3 includes a committee and an internal audit checklist in relation to internal audit (pages 105 to 108).

[17]. Section 46 of the FMA Act states that a function of the Audit Committee of FMA agencies is to provide a forum for communication between the Chief Executive, the senior manager of the Agency and the internal and external auditors of the Agency. Section 32 of the CAC Act states that a function of the Audit Committee of CAC entities is to provide a forum for communication between the directors, the senior managers of the authority and the internal and external auditors of the authority.

[18]. FMA Regulation 22C(4)(c) provides for the Audit Committee to advise the Chief Executive about audit plans of the Agency.

[19]. FMA Regulation 22C(4)(a) provides for the Audit Committee to, as far as practicable, coordinate the audit programs relating to internal and external audits.

[20]. FMA Regulation 22C(4)(i) provides for the Audit Committee to review the content of reports of internal and external audit, for the purpose of identifying material that is relevant to the Agency, and advising the Chief Executive about good practices. FMA Regulation 22C(4)(j) provides for the Audit Committee to advise the Chief Executive about action to be taken on significant matters of concern, and on significant opportunities for improvement that are mentioned in the reports of internal and external audit.

Previous: Compliance requirements

Next: External audit