The auditors are required to report on the system of record keeping and verify the actual stocks held on a timely basis. For instance, corporate governance has been strengthened on a number of occasions by various changes in company law, e.g. 5.5 Stock Audit The banks appoint CA firms to verify and report on the stocks maintained by the borrowers of the Banks. The general legal framework for these expectations has changed over the years. The expectations that banking supervisors have of it are correspondingly high.
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. The internal audit function is a key component of banks risk management.
This approach seeks to promote a strong internal audit function within banking organisations. 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. Independent, competent and qualified internal auditors are central to sound corporate governance. His/her role also involves ensuring assignments are completed within budget by effectively organizing and applying resources. The document builds on the Committee's Principles for Enhancing Corporate Governancewhich require banks to have an internal audit function with sufficient authority, stature, independence, resources and access to the board of directors. The internal auditor takes responsibility for all audit project management activities of the bank, as well as for planning, developing, and scoping the audit test plan. It takes into account developments in supervisory practices and in banking organisations and incorporates lessons drawn from the recent financial crisis. The document replaces the 2001 document Internal audit in banks and the supervisor's relationship with auditors. 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.