The following is the text of the Revised Preface to the Standards on Internal Audit issued by the Council of the Institute of Chartered Accountants of India.

1. Formation of the Committee on Internal Audit

1.1 The Institute of Chartered Accountants of India constituted the "Committee for Internal Audit (CIA)" on 5th February 2004. At its 245th meeting held on November 29, 30 and December 1, 2005, the Council of the Institute of Chartered Accountants of India changed the nomenclature of the "Committee for Internal Audit" to "Committee on Internal Audit".

Scope and Functions of the Committee on Internal Audit

2.1 A large number of the members of the Institute are involved in carrying out internal audit engagements. The Institute has, from time to time, issued general and industry specific guidelines on internal audit practices for the guidance of the members. The main function of the Committee on Internal Audit is to review the existing internal audit practices in India and to develop Standards on Internal Audit (SIAs). The SIAs aim to codify the best practices in the area of internal audit and also serve to provide a benchmark of the performance of the internal audit services. The SIAs are issued under the authority of the Council of the Institute.

 

2.2 While formulating the SIAs, the Committee will take into consideration the applicable laws, customs, usages and business environment and generally accepted auditing practices in India. The Committee may also, where it considers appropriate, take into consideration the international practices in the area of internal audit, to the extent they are relevant to the conditions existing in India.

 

2.3 The Committee on Internal Audit will also develop Guidance Notes on internal audit, including those on issues arising from the Standards on Internal Audit. These Guidance Notes will be issued under the authority of the Council of the Institute.

 

2.4 The Committee on Internal Audit will also formulate Clarifications on issues arising from SIAs. These Clarifications will also be issued under the authority of the Council of the Institute.

3. Scope of the Standards on Internal Audit

3.1 The Standards on Internal Audit shall apply whenever an internal audit is carried out. Internal audit is an independent management function, which involves a continuous and critical appraisal of the functioning of an entity with a view to suggest improvements thereto and add value to and strengthen the overall governance mechanism of the entity, including the entity's strategic risk management and internal control system. Internal audit, therefore, provides assurance that there is transparency in reporting, as a part of good governance.

4. Procedure for Issuing the Standards on Internal Audit

Broadly, the following procedure will be adopted for issuing Standards on internal Audit.

4.1 The Committee on Internal Audit will identify the broad areas in which the 51As need to be formulated and the priority in regard to selection thereof.

 

4.2 In the preparation of the SIAs, the Committee will be assisted by Study Groups constituted to consider specific subjects. In the formation of the Study Groups, provision shall be made for participation of a cross section of members of the Institute. In situations considered necessary, the Committee may also consider having an expert on such Study Groups, subject to such terms and conditions, as may be finalised by the Committee. The expert need not necessarily be a member of the Institute of Chartered Accountants of India. The Study Group will be responsible for preparing the draft of the Standard.

 

4.3 The above mentioned draft Standard would be considered by the Committee. On the basis of the deliberations of the Committee on the draft Standard, an Exposure Draft of the proposed Standard will be prepared by the Committee and issued for comments by the members of the Institute. The Exposure Draft will also be open for comments by non members, including the regulators and other such bodies as well as general public.

 

4.4 The above mentioned Exposure Draft will be published in the Journal of the Institute and will also be hosted on the website of the Institute under appropriate head.

 

4.5 The Exposure Draft will normally remain open for comments for a period of at least sixty days from the date of issuance.

 

4.6 The above mentioned Exposure Draft will be circulated to all the Council members, Past Presidents, Regional Councils, Branches and CPE Study Circles of the Institute for their comments. The Exposure Draft will also be circulated to the following bodies, as may be necessary on a case to case basis, for their comments:

(i) The Ministry of Corporate Affairs

(ii) The Reserve Bank of India

(iii) The Securities and Exchange Board of India

(iv) The Insurance Regulatory and Development Authority

(v) The Comptroller and Auditor General of India

(vi) The Central Board of Direct Taxes

(vii) The institute of Cost and Works Accountants of India

(viii) The Institute of Company Secretaries of India

(ix) The Associated Chambers of Commerce and Industry

(x) The Federation of Indian Chambers of Commerce and Industry

(xi) The Confederation of Indian Industry

(xii) The Indian Banks' Association

(xiii) The Foreign Exchange Dealers' Association of India

(xiv) The Standing Conference of Public Enterprises

(xv) All recognised Stock Exchanges in India

(xvi) The Competition Commission of India

(xvii) The National Bank for Agricultural and Rural Development

(xviii) The Controller General of Accounts

(xix) The Ministry of Finance Insurance and Banking Divisions

(xx) The Indian Institute of Management Ahmedabad, Bangalore, Kolkata, Indore, Kochi and Lucknow

(xxi) The Central Registrar of Cooperative Societies, Government of India

(xxii) The Bombay Mercantile Association

The Committee may, however, in addition to the bodies listed above, circulate the Exposure Draft for comments to such other bodies also, as considered appropriate by it.

 

4.7 After taking into consideration the comments received on the Exposure Draft, the draft of the proposed Standard will be finalised by the Committee and submitted for the consideration of the Council of the Institute.

 

4.8 The Council of the Institute will consider the final draft of the proposed Standard on Internal Audit and if necessary, modify the same in consultation with the Committee on Internal Audit. The SIA will then be issued under the authority of the Council of the Institute.

 

4.9 For a substantive revision of a Standard on Internal Audit, the procedure followed for formulation of a new Standard on Internal Audit, as detailed in paragraphs 4.1 through 4.8 will be followed.

 

4.10 Subsequent to the issuance of a Standard on Internal Audit, some aspect(s) may require revision which are not substantive in nature. For this purpose, the Institute of Chartered Accountants of India may make limited revision to a Standard on Internal Audit. The procedure followed for the limited revision will substantially be the same as that to be followed for formulation of a Standard on Internal Audit, ensuring that sufficient opportunity is given to various interest groups and general public to react to the proposal for limited revision.

Procedure for Issuing the Guidance Notes on Internal Audit

Broadly, the following procedure will be adopted for issuing Guidance Notes on internal audit.

 

5.1 The Committee will identify the issues on which Guidance Notes need to be formulated and the priority in regard to selection thereof.

 

5.2 In the preparation of the Guidance Notes, the Committee will be assisted by Study Groups constituted to consider specific subjects. In the formation of the Study Groups, provision will be made for participation of a cross section of members of the Institute. In situations considered necessary, the Committee may also consider having an expert on such Study Groups, subject to such terms and conditions, as may be finalised by the Committee. Such expert need not necessarily be a member of the Institute of Chartered Accountants of India. The Study Group will be responsible for preparing the draft of the Guidance Note.

 

5.3 The above mentioned draft Guidance Note would be considered by the Committee. On the basis of the deliberations of the Committee on the draft Guidance Note, the draft of the proposed Guidance Note will be finalised by the Committee and submitted for the consideration of the Council of the Institute. Unlike Standards on Internal Audit, ordinarily, no proposed Guidance Note will be required to be exposed for comments of the members and others. However, in situations considered necessary by the Committee, an Exposure Draft of a Guidance Note may as well be issued for comments. In case an Exposure Draft of a Guidance Note is issued, the same procedures as required for an Exposure Draft of an SIA (listed in paragraphs 4.3 through 4.8 above) will be required to be followed.

 

5.4 The Council of the Institute will consider the final draft of the proposed Guidance Note and, if necessary, modify the same in consultation with the Committee on Internal Audit. The Guidance Note will then be issued under the authority of the Council.

6. Compliance with the Standards and Guidance Notes on Internal Audit

6.1 The SIA(s) will be mandatory from the respective date(s) mentioned in the SIA(s). However, any limitation in the applicability of a specific Standard shall be made clear in the Standard. The mandatory status of a Standard on Internal Audit implies that while carrying out an internal audit, it shall be the duty of the members of the Institute to ensure that the SIAs are followed. Ifi for any reason, a member has not been able to perform all or any of such activities, as mentioned before, in accordance with the SIAs, his report should draw attention to the material departures therefrom.

 

6.2 Guidance Notes on internal audit are primarily designed to provide guidance to the members on matters which may arise in the course of their internal audit work and on which they may desire assistance in resolving issues which may pose difficulty. The Guidance Notes on internal audit will be recommendatory in nature. A member should, ordinarily, follow recommendations in a Guidance Note on internal audit except where he is satisfied that in the circumstances of the case, it may not be necessary to do so.

 

6.3 If any Standard or Guidance Note on Internal Audit is in variance/conflicts with any circular/notification/any such direction issued by any regulatory authority, the latter shall prevail. The member should, however, describe this fact in their internal audit report.

 

6.4 Whenever any specific Standard on Internal Audit is issued by the ICAI for which any Guidance Note is already in existence, then the date on which the Standard comes into effect, the Guidance Note shall stand withdrawn. Guidance Note will be ceased to exist from the date when Standard on Internal Audit is made applicable.

7. Effective Date

7.1 Members will be expected to follow SIAs in the internal audits commencing on or after the date(s) specified in the Standard.


The original Preface to the Standards on Internal Audit was issued in November, 2004 and revised in July, 2007.