In March 2025, the Institute of Internal Auditors (IIA) released new guidelines for conforming with Standard 12.2 Performance Measurement.
These guidelines are designed to help internal audit functions develop a robust methodology for performance measurement, ensuring alignment with the board’s expectations, the Standards, the internal audit charter and the internal audit function’s strategy.
Purpose of Performance Measurement
The primary goal of performance measurement is to ensure that the internal audit function is aligned with the board’s expectations, the Global Internal Audit Standards (Standards), the internal audit charter and the internal audit function’s strategy. This alignment is crucial for the effectiveness and efficiency of the internal audit function.
Design Process
The design process for performance measurement involves several key components:
- Outcome Areas: These are high-level categories that are further subdivided into performance categories. Examples include the extent of coverage of organizational or business unit conclusions, stakeholder expectations, financial and operational efficiency, human resource needs and learning and development.
- Performance Categories: These are bundles of multiple related performance measures.
- Performance Measures: These can be either quantitative or qualitative and correspond to criteria that are monitored over time.
Effective performance measures can be characterized by the acronym SMART: Specific, Measurable, Achievable, Relevant and Timely.
Implementation
During the implementation phase, it is essential to ensure that performance measures reflect stakeholders’ input and align with organizational objectives. Communication between the Chief Audit Executive, the board, and senior management is crucial for determining responsibilities and ensuring successful implementation.
Reporting and Continuous Improvement
Per Standard 8.3, the Chief Audit Executive must communicate the results of the quality assurance and improvement program, including reporting on the internal audit function’s conformance with the Standards. Dashboards and weighted scorecards can be useful tools for communicating performance measures and ensuring continuous improvement.
Performance Measure Examples
Here are some examples of performance measures that can be used by your internal audit department:
- Coverage of High-risk Auditable Units: Ensuring the audit plan covers targeted risks.
- Stakeholder Satisfaction: Surveys measuring satisfaction with engagement objectives and timeliness.
- Financial and Operational Efficiency: Evaluating progress against the audit plan and staff utilization.
- Human Resource Needs: Quality assurance reviews confirming adequate competencies.
- Learning and Development: Tracking completion of development plans and training hours.
Considerations and Challenges
While performance measurement is essential, it is important to avoid relying too heavily on certain measures, as this can lead to potential drawbacks such as time-limited applicability, low recommendation implementation rates, and disagreement with management. A balanced approach allows for meaningful recommendations and continuous improvement.
The IIA’s Performance Measurement Tool provides a comprehensive framework for internal audit functions to align with organizational objectives, ensuring continuous improvement and effective stakeholder communication.
By adopting these guidelines, internal audit functions can enhance their performance and contribute to the overall success of their organizations.
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