Bank supervisors should evaluate the work of the bank’s internal audit department and, if satisfied, can rely on it to identify areas of potential risk. Supervisory authorities have issued various regulatory provisions covering banks’ internal control systems.
Although the extent of this regulation may vary across countries, it generally includes some basic principles aimed at promoting an adequate system of controls as well as a regulation with regard to adequate capital. To evaluate the quality of internal controls, supervisors can take a number of approaches.