PORT OF SEATTLE
MEMORANDUM
DATE:  January 10, 2012 
TO:     Audit Committee 
FROM:  Joyce Kirangi, Internal Audit Director
SUBJECT: Scope of Internal Audit Peer Review 

The Audit Committee has requested information regarding a peer review by the Association of Local
Government Auditors (ALGA).
Internal Audit organizations generally conduct audits under one of the following standards:
Government Auditing Standards (commonly referred to as the Yellow Book) issued by the
Comptroller General of the United States Government Accountability Office (GAO).
Government Auditing Standards are used when conducting government audits and/or other nonprofit
organizations that receive federal funds.
International Standards for the Professional Practice of Internal Auditing (commonly referred to
as the Red Book) issued by the Institute of Internal Auditors (IIA). These standards are mostly
used by private sector internal auditors.
Both professional auditing standards provide a framework for conducting high quality audits. Thereare 
many similarities between the Yellow Book and the Redbook, and there are also some key differences.
At the Port of Seattle, the Audit Committee oversees the activity of the Internal Audit Department. The
Committee, under its charter, as adopted on October 26, 2010, requires audits to "be conducted under the
United States Government Accountability Office's Government Auditing Standards (Yellow Book)."
Accordingly, the Internal Audit Department has been preparing its system of quality control in
compliance with those standards. In addition to the Yellow Book requirements, Internal Audit has
incorporated some of the Red Book elements (notably those associated with the annual work plan and risk
assessments) as industry best practices to supplement the Yellow Book. Overall, the Internal Audit
Department operates and conducts its activity in accordance with the Yellow Book.
Below are comments related to the scope of a Yellow Book and Red Book peer review. The scope refers
to the activities and periods that will be subject to the review.
The way the process for engagement proceeds is that I request a peer review from the ALGA, and then
they send me an engagement letter, rather than me sending them one, as the review elements are
determined in their procedures. The elements for the engagement letters for both the Yellow Book and
the Red Book review are as follows:
A.  Government Auditing Standards (The Yellow Book)
Once an internal audit organization contacts ALGA and indicates it needs a Yellow Book peer review,
ALGA will send a standard review engagement letter to the requesting organization, which establishes the
overall objective of a Yellow Book peer review. The following is an excerpt of such a letter:

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PORT OF SEATTLE
MEMORANDUM
The scope of the review will be to conduct a peer review following guidelines contained in the ALGA Peer
Review Guide. The objectives of the review will be to determine whether during the period under review,
the Audit Organization's internal quality control system was (1) suitably designed and (2) operating
effectively to provide reasonable assurance of complying with applicable Government Auditing Standards 
issued by the Comptroller General of the United States.
Specific procedures to accomplish the stated objectives are established by the review team. ALGA's
Yellow Book peer review in general covers the following areas:
Auditor's Independence                            Planning
Organization Independence                         Communication to management
Professional Judgment                             Follow up on Prior audits
Continuing Professional Education                    Audit Supervision
Staff Competence                                Evidence
Quality Control and Assurance                       Documentation
Audit Organization Policies and Procedures             Reporting
Monitoring Progress
B.  Professional Practice of Internal Auditing Standards (The Red Book)
Once an internal audit organization contacts ALGA and indicates it needs a Red Book peer review,
ALGA will send a standard review engagement letter to the requesting organization, which establishes the
overall objective of a Red Book peer review. The following is an excerpt of such a letter:
The scope of the review will be to conduct a peer review following guidelines contained in the ALGA Peer
Review Guide for Assessing Conformance with International Standards for the Professional Practice of
Internal Auditing. The objectives of the review will be to determine whether, during the period under
review, the Organization Under Review's internal quality control system was (1) suitably designed and (2)
operating effectively to provide reasonable assurance of conforming with applicable Standards for the
Professional Practice of Internal Auditing issued by the Institute of Internal Auditors.
Specific procedures to accomplish the stated objectives are established by the review team. ALGA's Red 
Book peer review in general covers the following areas:
Independence and Individual Objectivity             Reporting to Senior Management and the Board
Proficiency, Due Professional Care, and CPE          Governance, Risk Management, and Control
Quality Assurance and Improvement Program          Engagement Planning Considerations
In/external Assessments                         Engagement Objectives, Scope, Resource
Managing the Internal Audit Activity                Allocation, Work Program, and Supervision
Communication and Approval                     Analysis, Evaluation, Recording Information
Policies and Procedures                          Communicating Results
Monitoring Progress                            Engagement Disclosure of Nonconformance
Disseminating Results                           with the Standards

The Internal Audit Department proposes a peer review starting in the 4th quarter of 2012. We anticipate
the scope of the review will cover a one-year period, beginning in 2011 and extending into 2012.


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