1-Foundations Of Internal Auditing

Question 1

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

Answer 1

1. Mandatory Guidance

2. Recommended Guidance

Question 2

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

Answer 2

To enhance and protect organizational value

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

Question 3

List the two elements of the International Professional Practices Framework’s (IPPF’s) recommended guidance

Answer 3

1. Implementation guidance
2. Supplemental guidance

Question 4

What are the 4 elements of Mandatory Guidance?

Answer 4

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)

Question 5

What are the purposes of the Standards?

Answer 5

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 6

What are the Standards?

Answer 6

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

Question 7

What are the three types of Standards?

Answer 7

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

Question 8

Internal auditing evaluates and improves which three processes?

Answer 8

1. Governance processes
2. Risk management processes
3. Control processes

Question 9

What are the two types of Recommended Guidance?

Answer 9

1.Implementation Guidance
2.Supplementation Guidance

Question 10

What are Implementation Guides?

Answer 10

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.

Question 11

What is Supplemental Guidance?

Answer 11

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.

Question 12

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

Answer 12

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.

Question 13

What writes the Internal Audit Charter and who approves it?

Answer 13

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

Question 14

What are the seven sections in the Internal Audit Charter?

Answer 14

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

Question 15

What is the definition of assurance services?

Answer 15

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

Question 16

What is the definition of consulting services?

Answer 16

“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)

Question 17

What consulting services may internal auditors perform?

Answer 17

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

Question 18

What is the difference between assurance and consulting engagements?

Answer 18

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.

Question 19

The nature and scope of assurance services are determined by:

Answer 19

The internal auditor

Question 20

The nature and scope of consulting services are determined by:

Answer 20

Agreement between the internal auditor and engagement client.

Question 21

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

Answer 21

Internal audit charter

Question 22

Conformance with the Code and the Standards demonstrates:

Answer 22

Conformance with all mandatory elements of the IPPF.

Question 23

IF the Standards and other requirements are inconsistent, internal auditors (1)____conform with the Standards and (2)____conform with the other requirements if they are more restrictive.

Answer 23

1. Must
2. May

Question 24

List the 10 Core Principles for the Professional Practice of Internal Auditing:

Answer 24

1. Demonstrates integrity.
2. Demonstrates competence and due professional care.
3. Is objective and free from undue influence (independent)
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 25

What are the four purposes of the Standards as described by the IIA?

Answer 25

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 26

The purpose of the internal audit activity is to:

Answer 26

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

Question 27

What is the Code of Ethics?

Answer 27

“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)

Question 28

What are the four principles in the Code of Ethics?

Answer 28

Integrity Objectivity Confidentiality Competency

Question 29

What are the Rules of Conduct related to integrity?

Answer 29

Internal auditors: 1. 1. Shall perform their work with honesty, diligence, and responsibility. 1. 2. Shall observe the law and make disclosures expected by the law and the profession. 1. 3. 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. 4. Shall respect and contribute to the legitimate and ethical objectives of the organization.

Question 30

What are the Rules of Conduct related to objectivity?

Answer 30

Internal auditors: 2. 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. 2. Shall not accept anything that may impair or be presumed to impair their professional judgment. 2. 3. Shall disclose all material facts known to them that, if not disclosed, may distort the reporting of activities under review.

Question 31

What are the Rules of Conduct related to confidentiality?

Answer 31

Internal auditors: 3. 1. Shall be prudent in the use and protection of information acquired in the course of their duties. 3. 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.

Question 32

What are the Rules of Conduct related to competency?

Answer 32

Internal auditors: 4. 1. Shall engage only in those services for which they have the necessary knowledge, skills, and experience. 4. 2. Shall perform internal auditing services in accordance with the International Standards for the Professional Practice of Internal Auditing. 4. 3. Shall continually improve their proficiency and the effectiveness and quality of their services.

Question 33

What is independence?

Answer 33

“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)

Question 34

What is objectivity?

Answer 34

“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)

Question 35

What does organizational independence mean?

Answer 35

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.

Question 36

What are examples of functional reporting?

Answer 36

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)

Question 37

What are examples of administrative reporting?

Answer 37

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)

Question 38

Who does the CAE report to?

Answer 38

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).

Question 39

What is individual objectivity?

Answer 39

“Internal auditors must have an impartial, unbiased attitude and avoid any conflict of interest.” (from Standard 1120)

Question 40

What are common impairments?

Answer 40

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.

Question 41

What is a conflict of interest?

Answer 41

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)

Question 42

May auditors assess operations that they were previously responsible for?

Answer 42

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)

Question 43

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

Answer 43

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

Question 44

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

Answer 44

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

Question 45

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

Answer 45

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.

Question 46

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

Answer 46

Core Principles Definition of Internal Auditing Code of Ethics The Standards

Question 47

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

Answer 47

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

Question 48

Internal auditing evaluates and improves which three processes?

Answer 48

Governance processes Risk management processes Control processes

Question 49

Define assurance services.

Answer 49

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

Question 50

Define consulting services.

Answer 50

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

Question 51

The nature and scope of assurance services are determined by

Answer 51

The internal auditor.

Question 52

The nature and scope of consulting services are determined by

Answer 52

Agreement between the internal auditor and engagement client.

Question 53

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

Answer 53

Internal audit charter.

Question 54

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

Answer 54

Integrity Objectivity Confidentiality Competency

Question 55

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

Answer 55

1-Entities | 2-Individuals

Question 56

What are the four rules of conduct relating to integrity?

Answer 56

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

Question 57

What are the three rules of conduct relating to objectivity?

Answer 57

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.

Question 58

What are the two rules of conduct relating to confidentiality?

Answer 58

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.

Question 59

What are the three rules of conduct relating to competency?

Answer 59

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.

Question 60

The ______ defines the scope of internal audit activities.

Answer 60

Internal audit charter.

Question 61

Who is responsible for approving the internal audit charter?

Answer 61

The entity’s board of directors.

Question 62

Who is responsible for retaining the internal audit charter?

Answer 62

The chief audit executive (CAE).

Question 63

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

Answer 63

``` The mandatory guidance from the IPPF: Core principles Definition Code of Ethics Standards ```

Question 64

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

Answer 64

``` 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 ```

Question 65

What are the primary components of the Attribute Standards

Answer 65

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)

Question 66

What are the primary components of the Performance Standards?

Answer 66

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

Question 67

What are the 7 parts of the internal audit charter?

Answer 67

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