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CIA Part 1 > 1-Foundations Of Internal Auditing > Flashcards

1-Foundations Of Internal Auditing Flashcards

1
Q

What are two types of guidance outlined by the International Professional Practices Framework (IPPF?)

A
  1. Mandatory Guidance

2. Recommended Guidance

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2
Q

What is the
Mission of Internal Audit?
(know word-for-word)

A

To enhance and protect organizational value

risk-based and objective
assurance,
advice, and
insight.

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3
Q

What are the elements of Mandatory Guidance?

A

1-Core Principles for the Professional Practice of Internal Auditing
2-Definition of Internal Auditing
3-Code of Ethics
4-International Standards for the Professional Practice of Internal Auditing (Standards)

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4
Q

What are the purposes of the Standards?

A

1-Guide adherence with the mandatory elements of the International Professional Practices Framework.
2-Provide a framework for performing and promoting a broad range of value-added internal auditing services.
3-Establish the basis for the evaluation of internal audit performance.
4-Foster improved organizational processes and operations.

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5
Q

What are the Standards?

A

Guide adherence with mandatory elements of IPPF
Framework for performing and promoting value added IA services
Establish basis for evaluating performance
Foster improved organizational process and operations

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6
Q

What are the three types of Standards?

A

1-Attribute Standards- attributes for the org and individual IAs
2-Performance Standards- criteria to measure IA services against
3-Implementation Standards- requirements for assurance and consulting services

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7
Q

What are the two types of Recommended Guidance?

A

1) Implementation Guidance

2) Supplemental Guidance

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8
Q

What are Implementation Guides?

A

Implementation Guides assist internal auditors in applying the Standards.

IGs collectively address internal auditing’s approach, methodologies, and consideration, but do not detail processes or procedures.

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9
Q

What is Supplemental Guidance?

A

Supplemental Guidance provides detailed guidance for conducting internal audit activities. These include topical areas, sector-specific issues, as well as processes and procedures, tools and techniques, programs, step-by-step approaches, and examples of deliverables.

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10
Q

What is the definition of internal auditing? (know word-for-word)

A

independent, objective
assurance and consulting activity
add value and improve an organization’s operations
accomplish its objectives by bringing a
systematic, disciplined approach
evaluate and improve the effectiveness of
risk management, control, and governance processes.

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11
Q

What writes the Internal Audit Charter and who approves it?

A

The charter should be written by (and periodically reviewed by) the CAE and approved by senior management and the board or audit committee.

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12
Q

What are the seven sections in the Internal Audit Charter?

A

Purpose and Mission
Standards for the Professional Practice of Internal Auditing
Authority
Independence and Objectivity
Scope of Internal Audit Activities
Responsibility
Quality Assurance and Improvement Program

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13
Q

What is the definition of assurance services?

A

Objective examination of evidence
Entity, operation, function, process, system or other
Nature and scope determined by internal auditor
Three parties involved: Process owner (OPI), internal auditor and the user of the process

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14
Q

What is the definition of consulting services?

A

“Advisory and related client services, the nature and scope of which are agreed upon with the client and which are intended to add value and improve an organization’s operations. Examples include counsel, advice, facilitation, process design and training.” (from the IIA Glossary)

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15
Q

What consulting services may internal auditors perform?

A

The Standards state that internal auditors can only perform consulting services specifically defined in the internal audit charter.

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16
Q

What is the difference between assurance and consulting engagements?

A

In an assurance engagement, the auditor provides an assessment and states an opinion about whether or not something within the company is operating or performing correctly. The auditor should be objective in the investigation and independent in the decision.

In a consulting engagement, the auditor provides advice or makes a suggestion.

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17
Q

What is the Code of Ethics?

A

“The Code of Ethics states the principles and expectations governing the behavior of individuals and organizations in the conduct of internal auditing. It describes the minimum requirements for conduct, [sic] and behavioral expectations rather than specific activities.” (from the Code of Ethics)

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18
Q

What are the four principles in the Code of Ethics?

A

Integrity
Objectivity
Confidentiality
Competency

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19
Q

What are the Rules of Conduct related to integrity?

A

Internal auditors:

    1. Shall perform their work with honesty, diligence, and responsibility.
    1. Shall observe the law and make disclosures expected by the law and the profession.
    1. Shall not knowingly be a party to any illegal activity, or engage in acts that are discreditable to the profession of internal auditing or to the organization.
    1. Shall respect and contribute to the legitimate and ethical objectives of the organization.
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20
Q

What are the Rules of Conduct related to objectivity?

A

Internal auditors:

    1. Shall not participate in any activity or relationship that may impair or be presumed to impair their unbiased assessment. This participation includes those activities or relationships that may be in conflict with the interests of the organization.
    1. Shall not accept anything that may impair or be presumed to impair their professional judgment.
    1. Shall disclose all material facts known to them that, if not disclosed, may distort the reporting of activities under review.
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21
Q

What are the Rules of Conduct related to confidentiality?

A

Internal auditors:

    1. Shall be prudent in the use and protection of information acquired in the course of their duties.
    1. Shall not use information for any personal gain or in any manner that would be contrary to the law or detrimental to the legitimate and ethical objectives of the organization.
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22
Q

What are the Rules of Conduct related to competency?

A

Internal auditors:

    1. Shall engage only in those services for which they have the necessary knowledge, skills, and experience.
    1. Shall perform internal auditing services in accordance with the International Standards for the Professional Practice of Internal Auditing.
    1. Shall continually improve their proficiency and the effectiveness and quality of their services.
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23
Q

What is independence?

A

“Independence is the freedom from conditions that threaten the ability of the internal audit activity to carry out internal audit responsibilities in an unbiased manner. To achieve the degree of independence necessary to effectively carry out the responsibilities of the internal audit activity, the chief audit executive has direct and unrestricted access to senior management and the board. This can be achieved through a dual-reporting relationship. Threats to independence must be managed at the individual auditor, engagement, functional, and organizational levels.” (from Standard 1100)

24
Q

What is objectivity?

A

“Objectivity is an unbiased mental attitude that allows internal auditors to perform engagements in such a manner that they believe in their work product and that no quality compromises are made.Objectivity requires that internal auditors do not subordinate their judgment on audit matters to others. Threats to objectivity must be managed at the individual auditor, engagement, functional, and organizational levels.” (from Standard 1100)

25
Q

What does organizational independence mean?

A

Organizational Independence means that the internal audit activity must not have any current or previous relationships with the departments that it audits.

Organizational independence can be achieved through a properly designed Internal Audit Charter.

26
Q

What are examples of functional reporting?

A

Approving the internal audit charter;
Approving the risk based internal audit plan;
Approving the internal audit budget and resource plan;
Receiving communications from the chief audit executive on the internal audit activity’s performance relative to its plan and other matters;
Approving decisions regarding the appointment and removal of the chief audit executive;
Approving the remuneration of the chief audit executive; and
Making appropriate inquiries of management and the chief audit executive to determine whether there are inappropriate scope or resource limitations.
(from Standard 1110)

27
Q

What are examples of administrative reporting?

A

Budgeting and management accounting.
Human resource administration, including personnel evaluations and compensation.
Internal communications and information flows.
Administration of the internal audit activity’s policies and procedures.
(from PA 1110-1)

28
Q

Who does the CAE report to?

A

The CAE should report to an audit committee, or its equivalent, for any functional and engagement issues.

For administrative issues, the CAE should report to the CEO (or a similar position).

29
Q

What is individual objectivity?

A

“Internal auditors must have an impartial, unbiased attitude and avoid any conflict of interest.”

(from Standard 1120)

30
Q

What are common impairments?

A

A personal conflict of interest.
A scope limitation, including a restriction of access to records, personnel, or properties.
Resource limitation, which includes funding limitations.
Situations where the auditor is assessing operations for which they were previously responsible.
Assurance engagements for functions over which the CAE previously had responsibility.
Consulting engagements in areas where assurance engagements are also performed.

31
Q

What is a conflict of interest?

A

A situation in which an internal auditor, who is in a position of trust, has a competing professional or personal interest. Such competing interests can make it difficult to fulfill his or her duties impartially. A conflict of interest exists even if no unethical or improper act results. A conflict of interest can create an appearance of impropriety that can undermine confidence in the internal auditor, the internal audit activity, and the profession. A conflict of interest could impair an individual’s ability to perform his or her duties and responsibilities objectively. (from Standard 1120)

32
Q

May auditors assess operations that they were previously responsible for?

A

Internal auditors must refrain from assessing specific operations for which they were previously responsible. Objectivity is presumed to be impaired if an auditor provides assurance services for an activity for which the auditor had responsibility within the previous year.
(from PA 1130)

33
Q

May auditors provide consulting for operations that they were previously responsible for?

A

Yes, internal auditors may provide consulting services relating to operations for which they had previous responsibilities.

34
Q

What must be done if independence is impaired in fact or in appearance?

A

“The details of the impairment must be disclosed to appropriate parties.” (from Standard 1130)

35
Q

What responsibilities does the CAE have to report independence and objectivity issues to the board?

A

1-The CAE will confirm at least annually to the board that the IAA is organizationally independent. The CAE will need to make certain that the IAA maintains its organizational independence at all times.

2-The CAE will disclose to the board any interference with the IAA determining the scope of work, performing the work, or communicating the results.

36
Q

List the four elements of the International Professional Practices Framework’s (IPPF’s) mandatory guidance.

A

Core Principles
Definition of Internal Auditing
Code of Ethics
The Standards

37
Q

List and define the three different Standards under the International Professional Practices Framework’s (IPPF’s) mandatory guidance.

A

Attribute Standards:
Govern the responsibilities, attitudes, and actions of internal activity and the people who serve as internal auditors

Performance Standards:
Govern the nature of internal auditing and provide quality criteria for evaluating the internal audit function’s performance

Implementation Standards:
Expand upon Attribute and Performance Standards to provide the requirements applicable to the services

38
Q

Internal auditing evaluates and improves which three processes?

A

Governance processes
Risk management processes
Control processes

39
Q

Define assurance services.

A

An objective examination of evidence for the purpose of providing an independent assessment on governance, risk management, and control processes for the organization.

40
Q

Define consulting services.

A

Advisory activities intended to add value and improve an organization’s governance, risk management, and control processes without the internal auditor assuming management responsibility.

41
Q

The nature and scope of assurance services are determined by

A

The internal auditor.

42
Q

The nature and scope of consulting services are determined by

A

Agreement between the internal auditor and engagement client.

43
Q

The ________ defines the internal audit activity’s purpose, authority, and responsibility.

A

Internal audit charter.

44
Q

What are the four principles of The IIA’s Code of Ethics?

A

Integrity
Objectivity
Confidentiality
Competency

45
Q

The IIA’s Code of Ethics applies to both _____ (1) and _____ (2) that perform internal audit services.

A

1-Entities

2-Individuals

46
Q

What are the four rules of conduct relating to integrity?

A

Internal auditors
1-Shall perform their work with honesty, diligence, and responsibility
2-Shall observe the law and make disclosures expected by the law and the profession
3-Shall not knowingly be a party to any illegal activity, or engage in acts that are discreditable to the procession of internal auditing or to the organization
4-Shall respect and contribute to the legitimate and ethical objectives of the organization

47
Q

What are the three rules of conduct relating to objectivity?

A

Internal auditors
1-Shall not participate in any activity or relationship that may impair or be presumed to impair their unbiased assessment. This participation includes those activities or relationships that may be in conflict with the interests of the organization.
2-Shall not accept anything that may impair or be presumed to impair their professional judgment.
3-Shall disclose all material facts known to them that, if not disclosed, may distort the reporting of activities under review.

48
Q

What are the two rules of conduct relating to confidentiality?

A

Internal auditors
1-Shall be prudent in the use and protection of information acquired in the course of their duties.
2-Shall not use information for any personal gain or in any manner that would be contrary to the law or detrimental to the legitimate and ethical objectives of the organization.

49
Q

What are the three rules of conduct relating to competency?

A

Internal auditors
1-Shall engage only in those services for which they have the necessary knowledge, skills, and experience.
2-Shall perform internal audit services in accordance with the International Standards for the Professional Practice of Internal Auditing.
3-Shall continually improve their proficiency and the effectiveness and quality of their services.

50
Q

The ______ defines the scope of internal audit activities.

A

Internal audit charter.

51
Q

Who is responsible for approving the internal audit charter?

A

The entity’s board of directors.

52
Q

Who is responsible for retaining the internal audit charter?

A

The chief audit executive (CAE).

53
Q

Which elements of the IPPF need to receive public exposure prior to becoming official.

A 
The mandatory guidance from the IPPF:
Core principles
Definition
Code of Ethics
Standards
54
Q

Name the 10 Core Principles for the Professional Practice of Internal Auditing

A 
Demonstrates Integrity
Demonstrates competence and due professional care
Objective and Independent
Aligns with strategies, objectives and risks of org
Positioned and resources
Quality and improvement (QAIP)
Communicates effectively
Risk based assurance
Insight, proactive, future-focused
Org improvement
55
Q

What are the primary components of the Attribute Standards

A

Purpose, Authority and Responsibility (outlined in the charter and approved by the board)
Independence and Objectivity
Proficiency and Due Professional Care
Quality Assurance and Improvement Program (does IIA conform to the Mandatory Guidance and add value to the org)

56
Q

What are the primary components of the Performance Standards?

A 
Managing the Internal Audit Activity
Nature of Work
Engagement Planning
Performing the Engagement
Communicating Results
Monitoring Progress
Resolution of Management's Acceptance of Risks
57
Q

What are the 7 parts of the internal audit charter?

A

Purpose and Mission
Standards for the Professional Practice of IA (from IPPF)
Authority
Independence and Objectivity
Scope of the IAA
Responsibility
Quality Assurance and Improvement Program

CIA Part 1 (4 decks)

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