to achieve those objectives ; while at the same time making sure that the structure functions to maintain the organization's integrity, reputation, and accountability to its relevant constituencies. enforcement alone cannot guarantee good corporate governance. whilst measures to enhance corporate governance are primarily aimed at boards of directors, who are seen as the agents responsible for protecting shareholder value, the internal audit fraternity is another industry group that is of particular importance. it is evident that the significance of internal auditing as a key contributor to corporate governance has emerged as a theme. this new paradigm in internal auditing will see the profession becoming a front player in ensuring good corporate governance structures. in this demanding environment, boards and senior management need quality advice from sources that can be trusted and that can offer an objective viewpoint. much of the focus of sarbanes - oxley in the united states and basle committee has been on the external audit function. equally, however, there is a need to ensure that internal audit is organised, resourced and empowered so that it can provide competent, impartial and fearless advice. in contrast to external auditors, however, our sense is that internal audit is still evolving as a profession and has further to go in promoting its own professional standards and profile in papua new guinea. we in bpng observe that internal audit in our supervised institutions is not based on widely utilised standards, recognised by audit committees for example, and it is not always focused on the same set of issues. internal audit functions vary from a narrow concern with compliance or financial accounts to a broader remit reviewing efficiency and effectiveness or acting as an internal consultant. my address today offers a prudential perspective on the role of internal audit. it starts with the separate roles of internal audit in the corporate governance framework. specific references will be made to the internal audit setup in the bank of png. it then sets out the expectations of internal audit held by prudential regulators at the international level and how the regulator assesses whether internal audit in the institutions it supervises meets these expectations. finally, i discuss some regulatory issue, the problems and challenges. my comments are offered in a constructive spirit to encourage debate within the internal audit profession. i will start by borrowing the definition of internal audit approved by the board of directors of your institute : “ internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organisation ’ s operations. it helps an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and

improve the effectiveness of risk management, control, and governance processes. ” as we see it, the basic function of internal audit is independent appraisal of an institution ’ s internal controls, including controls over financial reporting. simply put, it is about reviewing activities to ensure that they are carried out as intended. of course, a by - product of internal audit will be recommendations on internal control and process improvements that could be made, an important role for internal audit at large and complex financial institutions in particular. the bank of png internal audit charter was drawn up with the assistance from the imf technical advisor and reviewed periodically – by the internal audit department ; it was approved by senior management ( governor ) and subsequently confirmed by the board of directors as part of its oversight role. in the charter, the bank ’ s senior management gives the internal audit department the right of initiative and authorises it to have direct access to and communicate with any member of staff, to examine any activity or entity of the bank, as well as to access any records, files or data of the bank, including management information and the minutes of all consultative and decision - making bodies, whenever relevant to the performance of its assignments. the charter states the terms and conditions according to which the internal audit department can be called upon to provide consulting or advisory services or to carry out other special tasks and the charter is communicated throughout the organisation. to perform their role effectively, internal audit requires organizational independence from management to enable unrestricted evaluation of management activities and personnel. to ensure independence, manager internal audit reports directly to the governor and also has direct access to the audit committee on matters considered of significant importance to the functioning of the bpng. audit committees require the help of internal auditing departments in order for them to be able to effectively fulfill their obligations to the board, the shareholders, and other outside parties who have a stake in the organisation. the contribution of internal auditors as business advisors or consultants to the organisation and their role in ensuring compliance with various statutes, policies and procedures cannot be overemphasized. these new challenges that are faced by internal auditors require them to acquire the necessary skills and competencies on a continuous basis. this makes it necessary for them to place them on a learning path so that they could update themselves with new developments. he / she should know all aspects of the operations in order to perform an effective job as an internal auditor. in this respect, the work done by the institute of internal auditors in