ICAI Issues Revised Preface to Standards on Internal Audit

The Institute of Chartered Accountants of India (ICAI) has released a revised Preface to the Standards on Internal Audit (SIAs), setting out a robust and standardized framework for internal audit practices in India. 

Issued under the authority of ICAI’s Internal Audit Standards Board (IASB), the Preface redefines the scope, authority, and principles governing internal audits conducted by ICAI members, reinforcing the profession’s commitment to governance, transparency, and accountability.

Evolution of the Internal Audit Standards Board (IASB)

The document traces the evolution of the Board responsible for formulating and reviewing internal audit standards. Initially established in 2004 as the Committee for Internal Audit (CIA), it was later renamed the Committee on Internal Audit in 2005, and subsequently, the Internal Audit Standards Board (IASB) in 2008.
Over the years, the Board has absorbed related functions to strengthen its mandate — notably merging with the Committee on Management Accounting in 2023 to form the Board of Internal Audit and Management Accounting. In March 2025, it was once again renamed as the Internal Audit Standards Board (IASB), reflecting its renewed focus on aligning internal audit and management accounting under a cohesive professional framework.

Functions and Responsibilities of the IASB

The IASB serves as the primary standard-setting body for internal audit practices within the ICAI framework. Its key responsibilities include:

• Reviewing global internal audit practices and identifying areas for development of new SIAs.
• Formulating Standards on Internal Audit (SIAs), Guidance Notes, and Technical Papers to ensure uniformity and quality.
• Conducting research, training, seminars, and certification programs on internal audit, governance, and management accounting.
• Advising government and regulatory authorities, including the Ministry of Corporate Affairs (MCA), Reserve Bank of India (RBI), and Securities and Exchange Board of India (SEBI), on policy matters related to internal audit.
• Developing best practice benchmarks and dissemination tools to promote audit excellence across industries.

Definition of Internal Audit: Assurance with Independence and Objectivity

The Preface defines internal audit as:

“An independent, reasonable assurance on the effectiveness of internal controls and risk management processes to enhance governance and achieve organisational objectives.”

This definition emphasizes that internal auditors must operate independently while evaluating management’s control and risk frameworks. It underscores four key elements:

1. Independence – Achieved through appropriate organizational positioning and reporting lines.
2. Internal Controls and Risk Management – Core areas of evaluation by internal auditors.
3. Governance – A mechanism linking the organization with its stakeholders.
4. Organizational Objectives – Goals aligned with both short-term and long-term stakeholder interests.

This foundation informs all subsequent SIAs issued by the Board.

Framework Governing Internal Audits

The Framework Governing Internal Audits provides a structured approach for standardization and quality assurance. It comprises four key components:

1. Basic Principles of Internal Audit
   These include independence, integrity, objectivity, due professional care, confidentiality, competence, risk-based auditing, process orientation, stakeholder sensitivity, and a commitment to continuous improvement.
2. Core Concepts
   Covering key areas such as terms of engagement, management of the internal audit function, internal controls, compliance, risk management, and value addition.
3. Standards on Internal Audit (SIAs)
   Principle-based standards that set uniform criteria for internal audit procedures and reporting.
4. Guidance Notes
   Implementation and Technical Guides that provide practical clarity for industry-specific or situational applications.

Each component ensures a consistent vocabulary, interpretation, and application across audit engagements.

Code of Ethics: The Cornerstone of Professional Conduct

Reinforcing ethical standards, the ICAI’s Code of Ethics forms an integral part of the internal audit framework. It enshrines the principles of integrity, objectivity, confidentiality, professional competence, and ethical behavior.
The Code guides auditors in resolving ethical dilemmas and ensures that professional judgment remains aligned with the public interest and the trust reposed in the accounting profession.

Mandatory Compliance and Professional Accountability

The ICAI Council has decided that the SIAs will be implemented in a phased manner, progressively becoming mandatory.
Members conducting internal audits are required to comply with all applicable SIAs, read along with the Preface and Framework. In cases where full compliance is not possible — due to regulatory conflicts or exceptional circumstances — the internal auditor must document and disclose such deviations with justifications in the audit report.

The ICAI emphasized that adherence to SIAs is a “mark of professional excellence and ethical responsibility.”

Standard-Setting Process: Transparency and Public Consultation

The IASB follows a well-defined Standard Setting Process to ensure transparency, inclusivity, and technical rigor.
The key steps include:

1. Identification of Topics and Timelines – Based on emerging global and domestic audit practices.
2. Formation of Study Groups (SGs) – Comprising professionals and experts who prepare draft Standards.
3. Review by IASB – The Board reviews and refines the drafts before exposure.
4. Public Exposure Drafts (EDs) – Issued for a minimum of 30 days to solicit comments from stakeholders including regulators like MCA, RBI, SEBI, IRDAI, C&AG, CBDT, and CBIC.
5. Council Approval and Issuance – The finalized draft, after incorporating feedback, is approved by the ICAI Council and issued under its authority.

This inclusive process aligns the SIAs with both international best practices and Indian regulatory frameworks.

Classification of Standards

The SIAs will be numbered and categorized for clarity and structured application:

• Series 100 – Core Concepts and Principles
• Series 200 – Audit Execution
• Series 300 – Internal Audit Reporting

Each SIA will contain key sections including its objective, requirements, explanatory material, and effective date.

Guidance and Implementation Support

To ensure smooth adoption, the IASB will continue issuing non-mandatory Implementation and Technical Guides to aid practitioners in applying SIAs effectively. These guides will address best practices, industry-specific considerations, and technical clarifications.

Effective Date and Transition

The revised Preface will apply to all internal audits beginning on or after a date to be notified by the ICAI Council.
Further, any Guidance Notes that overlap with a newly issued SIA will automatically stand withdrawn from the date the corresponding Standard becomes effective.

Significance of the Revised Preface

The updated Preface marks a significant milestone in India’s internal audit ecosystem, aiming to elevate professional standards to global benchmarks. By institutionalizing independence, ethics, and quality assurance, ICAI seeks to enhance stakeholder confidence in internal audit reports and strengthen governance structures across corporate and public sector entities.

In an era of heightened regulatory scrutiny and dynamic risk landscapes, the Preface — backed by the comprehensive SIA framework — represents a forward-looking effort to ensure that Indian internal auditors remain trusted advisors and key contributors to organizational resilience and accountability.

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