Final answer:
The purpose, authority, and responsibility of the internal audit activity are defined by the Chief Audit Executive and approved by Senior Management. This formal definition is a fundamental part of the IIA Standards and ensures clear expectations and accountability for the internal audit function.
Step-by-step explanation:
In accordance with the Institute of Internal Auditors (IIA) Standards, the purpose, authority, and responsibility of the internal audit activity should be formally defined. This delineation of scope and expectations is crucial and should be executed by the Chief Audit Executive (CAE) with subsequent approval from Senior Management. Such formalization ensures that there is a clear understanding of what the internal audit is expected to achieve, the bounds within which it operates, and the accountability standards it is subject to.
When defining a specific purpose for the internal audit function, the CAE should outline the strategic role of the audit within the organization, potentially touching on areas such as risk assessment, control assurance, and advisory services. This establishes a framework within which the internal audit team can operate effectively.
It is also paramount for the internal audit team to understand the responsibilities that come with their role. Knowing that they are responsible for certain processes and/or outcomes helps establish the parameters of their accountability. Clarity in these areas contributes to a functioning, efficient, and value-adding internal audit activity.