ACC 451 Chapter 2
Terms in this set (36)
Summarize the nature and scope of Internal Auditing Services.
-Operational effectiveness/efficiency of business processes
-Reliability of info systems and the quality of decision-making info produced
-Compliance with organization policies, contracts, laws, and regs
What are the 7 inherent personal qualities that are common among successful IAs?
3. Work ethic
Why is it imperative that IAs have integrity?
Because it builds trust which is crucial to selling professional judgements.
Why is the IPPF Important to the Internal Audit Profession?
Specifies core attributes to separate from others. Defines and provides assurance of quality and professionalism in internal auditing.
Why is the IPPF Important to Each Internal Auditor?
It's the sole global set of professional requirements. Helps contribute to each professional being able to perform to a certain fundamental level of performance.
Identify IPPF 2015 substantive enhancements to the IPPF's content and structure.
Mission and Core principles
What are the 2 categories of guidance included in the IPPF?
Mandatory Guidance and Recommended Guidance
An internal auditor engages in the preparation of income tax forms during tax season. For which of the following activities would the auditor most likely be considered in violation of the IIAs Code of Ethics?
Preparing the personal tax return, for a fee, for one of the company's divisional managers.
Which of the following is/are components of the Standards?
III. The glossary
I, II, and III
An element of authority that should be included in the charter of the internal audit activity is:
Access to records, personnel, and physical properties relevant to the performance of engagements.
Which of the following are "mandatory guidance" in The IIA's IPPF?
1. Practice Advisories
2. The Code of Ethics
3. The Definition of Internal Auditing
4. The Standards
2, 3, and 4
What is the purpose of the IIA's Code of Ethics?
1) To promote an ethical culture in the profession of internal auditing
2)To set appropriate aspirations (objectives/desires) and behavioral expectations for which IA's should strive
4 principles of the Code of Ethics
Why should IA strive to comply with these principles?
1) Establishes trust/provides basis for reliance on our judgement
2) Assures we are unbiased
3) Assures prudence in the use/protection of info
4) Assures we are not working outside of our skill set
Define "conflict of interest"
A situation in which an internal auditor, who is in a position of trust, has a competing professional or personal interest
How do conflicts of interest arise?
1) Auditing the area of an org for which they were recently responsible
2) Auditing an area of the org in which a relative/close friend works
3) Having economic stake in the outcome of his/her work
What is the difference between independence and objectivity as they pertain to internal auditors?
Independence- Idea that you have the freedom to voice professional judgement without fear of threats. Reflects status of the IA function of the corp.
Individual objectivity- The mental attitude of the IA. Don't allow anything to compromise thoughts. Requires independence from corporation to survive.
Describe functional reporting of IA function to the BOD (6 events)
The fact that the IA answers to BOD instead of management, is its ultimate source of independence.
1) Approve internal audit charter
2) Approve the audit team's risk assessment, audit plan, and budget
3) Receive communications from the CAE on the results, including private meetings w/o management
4) Approve the appointment, removal, eval, and compensation of the CAE
5)Determine whether there are scope/budgetary limitations that impeded the ability of the IA activity to execute its responsibilities
Define the IA charter, explain its importance to the IA function
Key document for IA's. Defines the purpose, authority, and responsibility to be able to access information without pausing for approval. Management pre-consenting to authority.
Identify the differences between internal assurance services and internal consulting services?
-Primary purpose: Providing assurance to BOD
-Party that determines nature and scope: IA function
-Number of parties involved: Audit client, IAF, BOD/Audit Committee
2) Internal Consulting
-Primary purpose: Provide advice and other assistance at the specific request of customers without IA assuming management responsibilities
-Part that determines the nature and scope: Customer and IA mutually agree
Number of parties involved: Client, IA
The internal auditors are frequently asked to make accounting entries for complex transactions that the company's accountants do not have the expertise to handle.
Is this ok?
No, objectivity would be impaired. You can't audit your own work.
A staff accountant reconciles the company's monthly bank statements. An internal auditor reviews the bank reconciliations to make sure they are completed properly. Is this ok?
No, objectivity would be impaired. IA's should test whether this control is operating effectively.
An internal auditor reviews the procedures for a new electronic data interchange (EDI) connection to a major customer before it is implemented. Is this okay?
This is fine, IA's can review procedures/ make recommendations.
A company plans to include the Chief Audit Executive (CAE, the head of Internal Audit Function) in its company's stock option program.
This should not create a conflict of interest of the organization and the duties of the CAE in the long run. It could be argued that short-term conflict of interest could occur.
Assume that an internal auditor is auditing a division in which the divisions chief financial officer is a close personal friend. The auditor learn that the friend is to be replaced after a series of critical contract negotiations with the U.S. Department of Defense. The auditor relays this information to the friend. Which principle of the IIAs Code of Ethics has been violated?
According to the Standards, which of the following must the internal audit manager think about when considering appropriate due care while planning an assurance engagement?
The cost of assurance in relationship to potential benefits.
Which Standards apply to organizations and individuals performing specific types of internal auditing services (assurance or consulting)?
In which of the following situations does an internal auditor potentially lack objectivity?
A former purchasing assistant performs a review of internal control over purchasing four months after being transferred to the internal audit department.
Which of the following are required of the internal audit function per the Standards?
Assess whether the information technology governance of the organization sustains and supports the organization's strategies and objectives.
In exercising due professional care, an internal auditor should consider which of the following?
I. The relative complexity, materiality, or significance of matters to which assurance procedures are applied.
II. The extent of assurance procedures necessary to ensure that all significant risks will be identified.
III. The probability of significant errors, irregularities, or noncompliance.
I and III only.
In conducting an assurance engagement, the Standards require that the internal auditor exercise due professional care. Which of the following is not something an internal auditor is required to consider in determining what is needed for the exercising of due care in an assurance engagement of treasury operations?
a. The audit committee has requested assurance on the treasury function's compliance with a new policy on use of financial instruments.
b. Treasury management has not instituted any risk-management policies.
c. The independent outside auditors have requested to see the report and workpapers from the engagement.
d. The treasury function just completed implementation of a new real-time investment tracking system.
C. The independent outside auditors have requested to see the report and workpapers from the engagement.
A primary purpose of establishing a code of conduct within a professional organization is to
Promote an ethical culture among professionals who serve others
In the IIAs Professional Practice Framework, which of the following is mandatory guidance?
I. Implementation Guidance
II. The Code of Ethics
III. The definition of internal auditing
IV. The International Standards for the Professional Practice of Internal Auditing (The Standards)
II, III, and IV only.
A major purpose of the International Standards for the Professional Practice of Internal Auditing (The Standards) is to:
Establish a basis for the evaluation (measurement) of internal audit performance
A primary purpose of the Standards is to
Establish a basis for evaluating internal audit performance
Which of the following types of IPPF guidance require(s) an exposure to the various IIA national institutes prior to its issuance?
I. A new practice advisory
II. A new standard
III. A new position paper
IV. A new definition in the Standards glossary
III. a new position paper