Every now and then, regulatory bodies around the world issue guidance documents that make a profound statement about internal auditing. Last week, the U.S. Federal Reserve issued some new guidance that clearly falls into that category.
The 15-page document, titled Supplemental Policy Statement on the Internal Audit Function and Its Outsourcing, technically applies only to U.S. banks with assets of US $10 billion or more. However, from my perspective, the Fed has made a powerful statement on the importance of a strong and effective internal audit function in financial services institutions in the “post financial crisis” era.
With this statement, the Federal Reserve also comes closer than virtually any other regulator in the industry to endorsing or mandating The IIA’s International Standards for the Professional Practice of Internal Auditing. In fact, the document’s opening paragraph asserts:
“The Federal Reserve is providing this supplemental guidance to enhance regulated institutions’ internal audit practices and to encourage them to adopt professional standards and other authoritative guidance, including those issued by The Institute of Internal Auditors.”
The guidance, which addresses the characteristics, governance, and operational effectiveness of an organization’s internal audit function, includes the following key provisions:
While not everyone may agree with the provisions of the Fed’s new policy guidance, I do view it as a very positive development. Feel free to share your thoughts.