Basel

Basel Committee’s Attempt to Improve Internal Audit Standards

Douglas P. Faucette. Muldoon Murphy & Faucette LLP. dfaucette@mmf-law.com. (assisted by Joseph J. Bradley)

In August 2001, the transnational Basel Committee on Banking Supervision (the “Committee”) issued its latest guidance on the development of an independent internal audit policy for banking organizations. With the release of “Internal Audit in Banks and the Supervisor’s Relationship with Auditors ” (the “Audit Paper”), the Committee sets out twenty best practice principles for banks to incorporate into their specific supervisory and management structures. In addressing the internal audit function of banks, the Committee examines a wide array of issues ranging from the duties of audit committees to the importance of the board of directors’ role in the oversight of internal controls and risk assessment. This article highlights the Committee’s efforts aimed at harmonizing and enhancing internal audit standards internationally. Though the repercussions of this work have not manifested themselves to date, these internal audit guidelines should have a favorable impact on the international banking community by underscoring the importance of the internal audit function and detailing the methodology to maximize its value.