Foundations of Internal Auditing

Question 1

Mission of Internal Audit
defined by the IIA

Answer 1

1. To enhance and protect organizational value by providing risk-based and objective assurance, advice, and insight.
2. Facilitating the achievement of this mission is the IPPF.

Question 2

The mandatory guidance consists of four elements:

Answer 2

1. The Core Principles for the Professional Practice of Internal Auditing
2. The Definition of Internal Auditing
3. The Code of Ethics
4. The Standards

Question 3

The Core Principles are

Answer 3

the basis for internal audit effectiveness. The internal audit function is effective if all principles are present and operating effectively. Failure to achieve any one of the Principles suggests that the activity is not as effective as it could be.

Question 4

The 10 core principles

Answer 4

1. Demonstrates integrity
2. Demonstrates competence and due professional care
3. Is objective and free from undue influence
4. Aligns with the strategies, objectives, and risks of the organization
5. Is appropriately positioned and adequately resourced
6. Demonstrates quality and continuous improvement
7. Communicates effectively
8. Provides risk-based assurance
9. Is insightful, proactive, and future-focused
10. Promotes organizational improvement

Question 5

Definition of Internal Auditing

Answer 5

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

Question 6

The Standards serve the following four purposes described by The IIA:

Answer 6

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

Question 7

Attribute Standards

Answer 7

describe the characteristics of organizations and parties providing internal audit services. They govern the responsibilities, attitudes, and actions of the organization’s internal audit activity and the people who serve as internal auditors.

Question 8

Performance Standards

Answer 8

describe and govern the nature of internal auditing and provide quality criteria for evaluation of internal audit performance.

Question 9

Interpretation of Attribute and Performance Standards

Answer 9

are provided by The IIA to clarify terms and concepts.

Question 10

Implementation Standards

Answer 10

apply to specific types of engagements. They expand upon the individual Attribute or Performance Standards by providing the requirements applicable to assurance (A) or consulting (C) services.

Question 11

Recommended Guidance

Answer 11

Implementation Guidance and Supplemental Guidance constitute recommended guidance. They describe practices for effective implementation of the mandatory elements of the IPPF.

Question 12

The missions of Internal Audit is deliberately placed in the IPPF,

Answer 12

demonstrating how practitioners should leverage the entire framework to facilitate their ability to achieve the Mission.

Question 13

Audit committee should be made up of

Answer 13

external members of the board of directors or other similar oversight committees

Question 14

Informal consulting services include routine activities, such as

Answer 14

participation in standing committees, limited-life projects, or ad hoc meetings, and routine information exchange

Question 15

Conformance with the Code and the Standards demonstrates

Answer 15

conformance with all mandatory elements of the IPPF.

Question 16

Assurance service (nature, scope and participants)

Answer 16

• The nature and scope of an assurance engagement are determined by the internal auditor
• The process owner, the internal auditor, and the user are the three participants in assurance services

Question 17

Example of assurance services include

Answer 17

1. Financial 2. Performance 3. Compliance 4. System security 5. Due diligence

Question 18

Consulting services (nature, scope and participants)

Answer 18

• The nature and scope of consulting engagement are subject to agreement with the engagement client (such agreements should be formalized in writing)
• The internal auditor and the engagement client are the two participants in consulting services

Question 19

Responsibility is defined in the charter

Answer 19

It should provide the organization with assurance and consulting services that will add value and improve the organization’s operations. The internal audit activity must evaluate and improve the effectiveness of the organization’s governance, risk management, and control processes.

Question 20

Responsibility is defined in the charter (provide, evaluate)

Answer 20

It should provide the organization with assurance and consulting services that will add value and improve the organization’s operations. The internal audit activity must evaluate and improve the effectiveness of the organization’s governance, risk management, and control processes.

Question 21

Violation of rules of ethics should be reported

Answer 21

to The IIA’s board of directors

Question 22

The Standards serve the following four purposes described by The IIA:

Answer 22

1. Guiding adherence with the mandatory elements of the IPPF
2. Providing a framework for performing and promoting a broad range of value-added internal auditing
3. Establishing the basis for the evaluation of internal audit performance
4. Fostering improved organizational processes and operations

Question 23

Engagement clients must be informed…

Answer 23

of the internal audit activity’s purpose, authority, and responsibility.

Question 24

The purpose of the internal audit activity is to

Answer 24

Provide independent, objective assurance and consulting services designed to add value and improve an organization’s operations.

Question 25

Assurance services

Answer 25

involve the internal auditor’s objective assessment of evidence to provide opinions or conclusions regarding an entity, operation, function, process, system, or other subject matters.

Question 26

Consulting services

Answer 26

are advisory in nature and are generally performed at the specific request of an engagement client.

Question 27

Engagement supervision provides opportunities for

Answer 27

mentoring new internal auditors to ensure work was completed with due care and to develop their competencies.

Question 28

Key indicators (Competence)

Answer 28

• Skills required to audit key risk areas of the organization can be matched to in-house team and/or with cosourced provider.
• Percentage of internal auditors who have undergone 40+ hours of training per annum
• Percentage of internal auditors with above average evaluations in performance appraisals
• Percentage of team who have earned certifications or designations.

Question 29

Key indicators (Competence)

Answer 29

• Skills required to audit key risk areas of the organization can be matched to in-house team and/or with cosourced provider.
• Percentage of internal auditors who have undergone 40+ hours of training per annum
• Percentage of internal auditors with above average evaluations in performance appraisals
• Percentage of team who have earned certifications or designations.

Question 30

Key indicators (due professional care)

Answer 30

• Limited or no disagreement with audit client after final reports issued (i.e., report has been agreed with client or any disagreement are highlighted in the report)
• No cases of major errors or omissions in reports are identified after final reports are issued.
• Percentage of internal audit management oversight and review of audit engagements compared to total hours.
• No instances of internal audit activity failing to escalate delayed closure of high-risk audit observations.

Question 31

Key indicators (integrity)

Answer 31

• No cases of disciplinary action against internal auditors to violations of The IIA Code of Ethics or the organization’s code of conduct/ethics.
• Internal audit team member survey result indicate that employees believe the department operates with integrity and that concerns raised by employees will be properly addressed.
• Feedback from surveys or interviews from areas under review indicates that team members demonstrate integrity.
• Internal audit team has completed ethics-related CPE/CPD requirements.