28 June 2012

The internal audit function in banks - Final document issued by the Basel Committee

The Basel Committee on Banking Supervision is issuing this revised supervisory guidance for assessing the effectiveness of the internal audit function in banks, which forms part of the Committee's ongoing efforts to address bank supervisory issues and enhance supervision through guidance that encourages sound practices within banks. The document replaces the 2001 document, 'Internal audit in banks and the supervisor's relationship with auditors'. It takes into account developments in supervisory practices and in banking organisations and incorporates lessons drawn from the recent financial crisis.

The document builds on the Committee's 'Principles for Enhancing Corporate Governance' which require banks to have an internal audit function with sufficient authority, stature, independence, resources and access to the board of directors. Independent, competent and qualified internal auditors are central to sound corporate governance.

The document is based on 20 principles, organised in three sections: A) Supervisory expectations relevant to the internal audit function, B) The relationship of the supervisory authority with the internal audit function, and C) Supervisory assessment of the internal audit function. This approach seeks to promote a strong internal audit function within banking organisations. It also encourages bank internal auditors to comply with and to contribute to the development of national and international professional standards and it promotes due consideration of prudential issues in the development of internal audit standards and practices. An annex to the consultative document details responsiblities of a bank's audit committee.

Mr Stefan Ingves, Chairman of the Basel Committee on Banking Supervision and Governor of Sveriges Riksbank, Sweden's central bank, noted: "An internal audit function, independent from management and composed of competent auditors, is a key component of a bank's sound governance framework. The Committee's document lays out expectations that should help banks and their supervisors strengthen professional practices in this area."

Full document

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