Standards on Internal Audit Part-I

This article provides a basic understanding of two very important Standards on Internal Audit formulated by the Institute of Chartered Accountants of India (ICAI). These two standards are-

Standards on Internal Audit

  • Standards on Internal Audit (SIA) 7: Quality Assurance in Internal Audit

It states the standards and rules for the quality assurance to be maintained during the Internal Audit Function. The contents of this Standard on Internal Audit are as follows-

  1. Introduction to Internal Audit: The internal audit function can be defined on the basis of its objectives and aims for which it is conducted. These are as follows-
  • It is an independent function of the management.
  • It provides suggestions t improve and strenghten the overall mechanism of governance in the company.
  • It provides with assurance and transparency in the reporting function, as part of quality and good governance.
  • It provides with continuous and critical appraisal in the organization.
  1. Scope: The scope of the Standards on Internal Audit (SIA) 7 makes it applicable wherever and whenever an internal audit service is conducted by the internal audit department in the company or Professional accountants from an external firm.
  2. Objective: The main objectives of SIA 7 are as follows-
  • Ensuring proper compliance with the regulations, professional standards and the legal requirements prescribed by various statutes.
  • Establishing the standards in proper way to provide guidance.
  • Improving the organizations functionalities.
  • Providing transaprency in reporting function and maintaining good governance.
  1. In House Internal Audit: When an organization has an in built in house Internal Audit team or unit, the following points of the Standards on Internal Audit are to be kept in mind-
  • The ethical requirements of the audit function.
  • Human Resource function.
  • Monitoring function.
  • Performance of engagement.
  • Responsibilities of the leadership to provide quality in the internal audit activities.
  • Acceptance of the relationship with clients and continuing the same.
  • Specific engagements
  1. Quality Review: The following reviews of the areas are mandatory and must be validated during the quality review function in the internal audit-
  • Reviews on Internal Quality
  • Reviews on External Quallity
  • Reviewer for Internal Quality
  • Reviewer for External Quality
  • Communication of the Internal Quality Review results to the management
  • Communication of the External Quality Review results to the management


  • Standard on Internal Audit (SIA) 8: Terms of Internal Audit Engagement

It states the standards and terms and conditions for the engagements during the Internal Audit Function. The contents of this Standard on Internal Audit are as follows-

  1. Introduction: The Standards on Internal Audit 8, contains the following aspects in a proper order to be fulfilled by the company and the auditor-
  • Before the audit commences, the parties involved must agree on the terms and conditions of the engagement.
  • The terms and conditions on which the parties have agreed upon must be recorded in the letter of engagement.
  • The letter of engagement must be prepared by the internal auditor.
  • This letter is to be signed both parties i.e. the auditee and the internal auditors.
  • It must be approved by the Audit Committee and the Board of Directors in the company.
  • The Terms of Engagement must be reviewed periodically and necessary modifications must be made accordingly.
  1. Elements of Terms of Engagement Elements of Terms of Engagement: A Letter of Engagement must contain the following elements in the following order-
  • Scope of the engagement
  • Segregation of responsibilities
  • The main Authorities
  • Factor of Confidentiality
  • Limitations if any
  • Reporting function
  • Any kind of compensations
  • Compliance with Standards on Internal Audit
  1. Withdrawal from Engagement: The Standards on Internal Audit also provide with the conditions and issues during the withdrawal from the engagement. These are as follows-
  • Any obligation whether contractual or otherwise to report the withdrawal of one party to other parties must be considered.
  • If any party is unable to agree upon any changes made in the terms and conditions or in case is not permitted and allowed to continue working under the original terms then the audit has to withdraw from the engagement as per this Standards on Internal Audit.
  • If unable to agree to any change in the terms or is not permitted to continue as per the original terms, then auditor should withdraw from the engagement
  • Consider whether there is an obligation, contractual or otherwise, to report the withdrawal to other parties.
Author: Anil Agrawal
EZYBIZ India Consulting LLP, New Delhi. The firm is business and tax consultancy firm providing consultancy in Taxation, Regulatory, Transfer pricing, Valuation, Corporate funding and Business set up matters. He may be reached at 9899217778 or