Internal Audit Standards and Practices, Exams of Sociology

Download Internal Audit Standards and Practices and more Exams Sociology in PDF only on Docsity! CIA Part 1 Study Guide 2024 Mission of Internal Audit ✔ To enhance and protect organizational value by providing risk-based and objective assurance, advice, and insight. Core Principles for the Professional Practice of Internal Auditing ✔ Demonstrates integrity. Demonstrates competence and due professional care. Is objective and free from undue influence (independent). Aligns with the strategies, objectives, and risks of the organization. Is appropriately positioned and adequately resourced. Demonstrates quality and continuous improvement. Communicates effectively. Provides risk-based assurance. Is insightful, proactive, and future-focused. Promotes organizational improvement. Risk Categories ✔ 1. Business Disruption and System Failures 2. Clients, Products, & Business Practices 3. Credit 4. Damage to Physical Assets 5. External Fraud 6. Employment Practices and Workplace Safety 7. Execution, Delivery & Process Management 8. Internal Fraud 9. Insurance 10. Market Types of Controls ✔ 1. Analytical Procedures 2. Approvals and Authorizations 3. Confirmations 4. Exception Reporting and Tracking 5. Ongoing Monitoring 6. Physical Security 7. Reconciliations 8. Segregation of Duties 9. Transaction/Application Controls 10. Information and Communication 11. Risk Assessment 12. Training Definition of Internal Auditing ✔ 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. Code of Ethics — Principles ✔ 1. Integrity 2. Objectivity 3. Confidentiality 4. Competency Integrity ✔ Internal auditors: Shall perform their work with honesty, diligence, and responsibility. Shall observe the law and make disclosures expected by the law and the profession. 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. Shall respect and contribute to the legitimate and ethical objectives of the organization. Objectivity ✔ Internal auditors: 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. Shall not accept anything that may impair or be presumed to impair their professional judgment. Shall disclose all material facts known to them that, if not disclosed, may distort the reporting of activities under review. Confidentiality ✔ Internal auditors: Shall be prudent in the use and protection of information acquired in the course of their duties. 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. Human resource policies and practices. Competence of personnel. Control Processes ✔ The policies, procedures (both manual and automated), and activities that are part of a control framework, designed and operated to ensure that risks are contained within the level that an organization is willing to accept. Engagement ✔ A specific internal audit assignment, task, or review activity, such as an internal audit, control self-assessment review, fraud examination, or consultancy. An engagement may include multiple tasks or activities designed to accomplish a specific set of related objectives. Engagement Opinion ✔ The rating, conclusion, and/or other description of results of an individual internal audit engagement, relating to those aspects within the objectives and scope of the engagement. Engagement Work Program ✔ A document that lists the procedures to be followed during an engagement, designed to achieve the engagement plan. External Service Provider ✔ A person or firm outside of the organization that has special knowledge, skill, and experience in a particular discipline. Fraud ✔ Any illegal act characterized by deceit, concealment, or violation of trust. These acts are not dependent upon the threat of violence or physical force. Frauds are perpetrated by parties and organizations to obtain money, property, or services; to avoid payment or loss of services; or to secure personal or business advantage. Governance ✔ The combination of processes and structures implemented by the board to inform, direct, manage, and monitor the activities of the organization toward the achievement of its objectives. Impairment ✔ Impairment to organizational independence and individual objectivity may include personal conflict of interest, scope limitations, restrictions on access to records, personnel, and properties, and resource limitations (funding). Independence ✔ The freedom from conditions that threaten the ability of the internal audit activity to carry out internal audit responsibilities in an unbiased manner. Information Technology Controls ✔ Controls that support business management and governance as well as provide general and technical controls over information technology infrastructures such as applications, information, infrastructure, and people. Information Technology Governance ✔ Consists of the leadership, organizational structures, and processes that ensure that the enterprise's information technology supports the organization's strategies and objectives. Internal Audit Activity ✔ A department, division, team of consultants, or other practitioner(s) that provides independent, objective assurance and consulting services designed to add value and improve an organization's operations. The internal audit activity helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of governance, risk management and control processes. International Professional Practices Framework ✔ The conceptual framework that organizes the authoritative guidance promulgated by The IIA. Authoritative Guidance is comprised of two categories - (1) mandatory and (2) strongly recommended. Must ✔ The Standards use the word "must" to specify an unconditional requirement. Objectivity (Definition) ✔ 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. Overall Opinion ✔ The rating, conclusion, and/or other description of results provided by the chief audit executive addressing, at a broad level, governance, risk management, and/or control processes of the organization. An overall opinion is the professional judgment of the chief audit executive based on the results of a number of individual engagements and other activities for a specific time interval. Risk ✔ The possibility of an event occurring that will have an impact on the achievement of objectives. Risk is measured in terms of impact and likelihood. Risk Appetite ✔ The level of risk that an organization is willing to accept. Risk Management ✔ A process to identify, assess, manage, and control potential events or situations to provide reasonable assurance regarding the achievement of the organization's objectives. Should ✔ The Standards use the word "should" where conformance is expected unless, when applying professional judgment, circumstances justify deviation. Significance ✔ The relative importance of a matter within the context in which it is being considered, including quantitative and qualitative factors, such as magnitude, nature, effect, relevance, and impact. Professional judgment assists internal auditors when evaluating the significance of matters within the context of the relevant objectives. Standard ✔ A professional pronouncement promulgated by the Internal Audit Standards Board that delineates the requirements for performing a broad range of internal audit activities, and for evaluating internal audit performance. Technology-based Audit Techniques ✔ Any automated audit tool, such as generalized audit software, test data generators, computerized audit programs, specialized audit utilities, and computer-assisted audit techniques (CAATs). Governance ✔ The combination of processes and structures implemented by the board to inform, direct, manage, and monitor the activities of the organization toward the achievement of its objectives. 1000 - Purpose, Authority, and Responsibility ✔ The purpose, authority, and responsibility of the internal audit activity must be formally defined in an internal audit charter, consistent with the Definition of Internal Auditing, the Code of Ethics, and the Standards. The chief audit executive must periodically review the internal audit charter and present it to senior management and the board for approval. 1010 - Recognition of the Definition of Internal Auditing, the Code of Ethics, and the Standards in the Internal Audit Charter ✔ The mandatory nature of the Definition of Internal Auditing, the Code of Ethics, and the Standards must be recognized in the internal audit charter. The chief audit executive should discuss the Definition of Internal Auditing, the Code of Ethics, and the Standards with senior management and the board. 1100 - Independence and Objectivity Knowledge, skills, and other competencies is a collective term that refers to the professional proficiency required of internal auditors to effectively carry out their professional responsibilities. Internal auditors are encouraged to demonstrate their proficiency by obtaining appropriate professional certifications and qualifications, such as the Certified Internal Auditor designation and other designations offered by The Institute of Internal Auditors and other appropriate professional organizations. 1210.A1 - The chief audit executive must obtain competent advice and assistance if the internal auditors lack the knowledge, skills, or other competencies needed to perform all or part of the engagement. 1210.A2 - Internal auditors must have sufficient knowledge to evaluate the risk of fraud and the manner in which it is managed by the organization, but are not expected to have the expertise of a person whose primary responsibility is detecting and investigating fraud. 1210.A3 - Internal auditors must have sufficient knowledge of key information technology risks and controls and available technology-based audit techniques to perform their assigned work. However, not all internal auditors are expected to have the expertise of an internal auditor whose primary responsibility is information technology auditing. 1210.C1 - The chief audit executive must decline the consulting engagement or obtain competent advice and assistance if the internal auditors lack the knowledge, skills, or other competencies needed to perform all or p 1220 - Due Professional Care ✔ Internal auditors must apply the care and skill expected of a reasonably prudent and competent internal auditor. Due professional care does not imply infallibility. 1220.A1- Internal auditors must exercise due professional care by considering the: Extent of work needed to achieve the engagement's objectives; Relative complexity, materiality, or significance of matters to which assurance procedures are applied; Adequacy and effectiveness of governance, risk management, and control processes;Probability of significant errors, fraud, or noncompliance; and Cost of assurance in relation to potential benefits. 1220.A2 - In exercising due professional care internal auditors must consider the use of technology-based audit and other data analysis techniques. 1220.A3- Internal auditors must be alert to the significant risks that might affect objectives, operations, or resources. However, assurance procedures alone, even when performed with due professional care, do not guarantee that all significant risks will be identified. 1220.C1- Internal auditors must exercise due professional care during a consulting engagement by considering the: Needs and expectations of clients, including the nature, timing, and communication of engagement results; Relative complexity and extent of work needed to achieve the engagement's objectives; and Cost of the consulting engagement in relation to potential benefits. 1230 - Continuing Professional Development ✔ Internal auditors must enhance their knowledge, skills, and other competencies through continuing professional development. 1300 - Quality Assurance and Improvement Program ✔ The chief audit executive must develop and maintain a quality assurance and improvement program that covers all aspects of the internal audit activity. Interpretation - A quality assurance and improvement program is designed to enable an evaluation of the internal audit activity's conformance with the Definition of Internal Auditing and the Standards and an evaluation of whether internal auditors apply the Code of Ethics. The program also assesses the efficiency and effectiveness of the internal audit activity and identifies opportunities for improvement. 1310 - Requirements of the Quality Assurance and Improvement Program ✔ The quality assurance and improvement program must include both internal and external assessments. 1311 - Internal Assessments ✔ Internal assessments must include: Ongoing monitoring of the performance of the internal audit activity; and Periodic self-assessments or assessments by other persons within the organization with sufficient knowledge of internal audit practices. Interpretation - Ongoing monitoring is an integral part of the day-to-day supervision, review, and measurement of the internal audit activity. Ongoing monitoring is incorporated into the routine policies and practices used to manage the internal audit activity and uses processes, tools, and information considered necessary to evaluate conformance with the Definition of Internal Auditing, the Code of Ethics, and the Standards. Periodic assessments are conducted to evaluate conformance with the Definition of Internal Auditing, the Code of Ethics, and the Standards. Sufficient knowledge of internal audit practices requires at least an understanding of all elements of the International Professional Practices Framework. 1312 - External Assessments ✔ External assessments must be conducted at least once every five years by a qualified, independent assessor or assessment team from outside the organization. The chief audit executive must discuss with the board: The form and frequency of external assessments; and The qualifications and independence of the external assessor or assessment team, including any potential conflict of interest. Interpretation - External assessments can be in the form of a full external assessment, or a self- assessment with independent external validation. A qualified assessor or assessment team demonstrates competence in two areas: the professional practice of internal auditing and the external assessment process. Competence can be demonstrated through a mixture of experience and theoretical learning. Experience gained in organizations of similar size, complexity, sector or industry, and technical issues is more valuable than less relevant experience. In the case of an assessment team, not all members of the team need to have all the competencies; it is the team as a whole that is qualified. The chief audit executive uses professional judgment when assessing whether an assessor or assessment team demonstrates sufficient competence to be qualified. An independent assessor or assessment team means not having either a real or an apparent conflict of interest and not being a part of, or under the control of, the organization to which the internal audit activity belongs. 1320 - Reporting on the Quality Assurance and Improvement Program ✔ The chief audit executive must communicate the results of the quality assurance and improvement program to senior management and the board. Interpretation - The form, content, and frequency of communicating the results of the quality assurance and improvement program is established through discussions with senior management and the board and considers the responsibilities of the internal audit activity and chief audit executive as contained in the internal audit charter. To demonstrate conformance with the Definition of Internal Auditing, the Code of Ethics, and the Standards, the results of external and periodic internal assessments are communicated upon completion of such assessments and the results of ongoing monitoring are communicated at least annually. The results include the assessor's or assessment team's evaluation with respect to the degree of conformance. ✔ The chief audit executive should share information and coordinate activities with other internal and external providers of assurance and consulting services to ensure proper coverage and minimize duplication of efforts. 2060 - Reporting to Senior Management and the Board ✔ The chief audit executive must report periodically to senior management and the board on the internal audit activity's purpose, authority, responsibility, and performance relative to its plan. Reporting must also include significant risk exposures and control issues, including fraud risks, governance issues, and other matters needed or requested by senior management and the board. Interpretation - The frequency and content of reporting are determined in discussion with senior management and the board and depend on the importance of the information to be communicated and the urgency of the related actions to be taken by senior management or the board. 2070 - External Service Provider and Organizational Responsibility for Internal Auditing ✔ When an external service provider serves as the internal audit activity, the provider must make the organization aware that the organization has the responsibility for maintaining an effective internal audit activity. Interpretation - This responsibility is demonstrated through the quality assurance and improvement program which assesses conformance with the Definition of Internal Auditing, the Code of Ethics, and the Standards. 2100 - Nature of Work ✔ The internal audit activity must evaluate and contribute to the improvement of governance, risk management, and control processes using a systematic and disciplined approach. 2110 - Governance ✔ The internal audit activity must assess and make appropriate recommendations for improving the governance process in its accomplishment of the following objectives: Promoting appropriate ethics and values within the organization; Ensuring effective organizational performance management and accountability; Communicating risk and control information to appropriate areas of the organization; andCoordinating the activities of and communicating information among the board, external and internal auditors, and management. 2110.A1- The internal audit activity must evaluate the design, implementation, and effectiveness of the organization's ethics-related objectives, programs, and activities. 2110.A2 - The internal audit activity must assess whether the information technology governance of the organization supports the organization's strategies and objectives. 2120 - Risk Management ✔ The internal audit activity must evaluate the effectiveness and contribute to the improvement of risk management processes. Interpretation - Determining whether risk management processes are effective is a judgment resulting from the internal auditor's assessment that: Organizational objectives support and align with the organization's mission;Significant risks are identified and assessed;Appropriate risk responses are selected that align risks with the organization's risk appetite; andRelevant risk information is captured and communicated in a timely manner across the organization, enabling staff, management, and the board to carry out their responsibilities. The internal audit activity may gather the information to support this assessment during multiple engagements. The results of these engagements, when viewed together, provide an understanding of the organization's risk management processes and their effectiveness. Risk management processes are monitored through ongoing management activities, separate evaluations, or both. 2120.A1- The internal audit activity must evaluate risk exposures relating to the organization's governance, operations, and information systems regarding the: Achievement of the organization's strategic objectives;Reliability and integrity of financial and operational information.Effectiveness and efficiency of operations and programs:Safeguarding of assets; andCompliance with laws, regulations, policies, procedures, and contracts. 2120.A2 - The internal audit activity must evaluate the potential for the occurrence of fraud and how the organization manages fraud risk. 2120.C1 - During consulting engagements, internal auditors must address risk consistent with the engagement's objectives and be alert to the existence of other significant risks. 2120.C2 - Internal auditors must incorporate 2130 - Control ✔ The internal audit activity must assist the organization in maintaining effective controls by evaluating their effectiveness and efficiency and by promoting continuous improvement. 2130.A1- The internal audit activity must evaluate the adequacy and effectiveness of controls in responding to risks within the organization's governance, operations, and information systems regarding the: Achievement of the organization's strategic objectives; Reliability and integrity of financial and operational information; Effectiveness and efficiency of operations and programs; Safeguarding of assets; and Compliance with laws, regulations, policies, procedures, and contracts. 2130.C1 - Internal auditors must incorporate knowledge of controls gained from consulting engagements into evaluation of the organization's control processes. 2200 - Engagement Planning ✔ Internal auditors must develop and document a plan for each engagement, including the engagement's objectives, scope, timing, and resource allocations. 2201 - Planning Considerations ✔ In planning the engagement, internal auditors must consider: The objectives of the activity being reviewed and the means by which the activity controls its performance; The significant risks to the activity, its objectives, resources, and operations and the means by which the potential impact of risk is kept to an acceptable level; The adequacy and effectiveness of the activity's governance, risk management, and control processes compared to a relevant framework or model; and The opportunities for making significant improvements to the activity's governance, risk management, and control processes. 2201.A1- When planning an engagement for parties outside the organization, internal auditors must establish a written understanding with them about objectives, scope, respective responsibilities, and other expectations, including restrictions on distribution of the results of the engagement and access to engagement records. 2201.C1- Internal auditors must establish an understanding with consulting engagement clients about objectives, scope, respective responsibilities, and other client expectations. For significant engagements, this understanding must be documented. 2210 - Engagement Objectives ✔ Objectives must be established for each engagement. 2210.A1- Internal auditors must conduct a preliminary assessment of the risks relevant to the activity under review. Engagement objectives must reflect the results of this assessment. 2210.A2- Internal auditors must consider the probability of significant errors, fraud, noncompliance, and other exposures when developing the engagement objectives. 2210.A3- Adequate criteria are needed to evaluate governance, risk management, and controls. Internal auditors must ascertain the extent to which management and/or the board has established adequate criteria to determine whether objectives and goals have been accomplished. If adequate, internal auditors must use such criteria in their retention requirements must be consistent with the organization's guidelines and any pertinent regulatory or other requirements. 2330.C1- The chief audit executive must develop policies governing the custody and retention of consulting engagement records, as well as their release to internal and external parties. These policies must be consistent with the organization's guidelines and any pertinent regulatory or other requirements. 2340 - Engagement Supervision ✔ Engagements must be properly supervised to ensure objectives are achieved, quality is assured, and staff is developed. Interpretation - The extent of supervision required will depend on the proficiency and experience of internal auditors and the complexity of the engagement. The chief audit executive has overall responsibility for supervising the engagement, whether performed by or for the internal audit activity, but may designate appropriately experienced members of the internal audit activity to perform the review. Appropriate evidence of supervision is documented and retained. 2400 - Communicating Results ✔ Internal auditors must communicate the results of engagements. 2410 - Criteria for Communicating ✔ Communications must include the engagement's objectives and scope as well as applicable conclusions, recommendations, and action plans. 2410.A1- Final communication of engagement results must, where appropriate, contain the internal auditors' opinion and/or conclusions. When issued, an opinion or conclusion must take account of the expectations of senior management, the board, and other stakeholders and must be supported by sufficient, reliable, relevant, and useful information. Interpretation - Opinions at the engagement level may be ratings, conclusions, or other descriptions of the results. Such an engagement may be in relation to controls around a specific process, risk, or business unit. The formulation of such opinions requires consideration of the engagement results and their significance. 2410.A2- Internal auditors are encouraged to acknowledge satisfactory performance in engagement communications. 2410.A3- When releasing engagement results to parties outside the organization, the communication must include limitations on distribution and use of the results. 2410.C1- Communication of the progress and results of consulting engagements will vary in form and content depending upon the nature of the engagement and the needs of the client. 2420 - Quality of Communications ✔ Communications must be accurate, objective, clear, concise, constructive, complete, and timely. Interpretation - Accurate communications are free from errors and distortions and are faithful to the underlying facts. Objective communications are fair, impartial, and unbiased and are the result of a fair-minded and balanced assessment of all relevant facts and circumstances. Clear communications are easily understood and logical, avoiding unnecessary technical language and providing all significant and relevant information. Concise communications are to the point and avoid unnecessary elaboration, superfluous detail, redundancy, and wordiness. Constructive communications are helpful to the engagement client and the organization and lead to improvements where needed. Complete communications lack nothing that is essential to the target audience and include all significant and relevant information and observations to support recommendations and conclusions. Timely communications are opportune and expedient, depending on the significance of the issue, allowing management to take appropriate corrective action. 2421 - Errors and Omissions ✔ If a final communication contains a significant error or omission, the chief audit executive must communicate corrected information to all parties who received the original communication. 2430 - Use of "Conducted in Conformance with the International Standards for the Professional Practice of Internal Auditing" ✔ Internal auditors may report that their engagements are "conducted in conformance with the International Standards for the Professional Practice of Internal Auditing", only if the results of the quality assurance and improvement program support the statement. 2431 - Engagement Disclosure of Nonconformance ✔ When nonconformance with the Definition of Internal Auditing, the Code of Ethics or the Standards impacts a specific engagement, communication of the results must disclose the: Principle or rule of conduct of the Code of Ethics or Standard(s) with which full conformance was not achieved;Reason(s) for nonconformance; andImpact of nonconformance on the engagement and the communicated engagement results. 2440 - Disseminating Results ✔ The chief audit executive must communicate results to the appropriate parties. Interpretation - The chief audit executive is responsible for reviewing and approving the final engagement communication before issuance and for deciding to whom and how it will be disseminated. When the chief audit executive delegates these duties, he or she retains overall responsibility. 2440.A1- The chief audit executive is responsible for communicating the final results to parties who can ensure that the results are given due consideration. 2440.A2- If not otherwise mandated by legal, statutory, or regulatory requirements, prior to releasing results to parties outside the organization the chief audit executive must: Assess the potential risk to the organization;Consult with senior management and/or legal counsel as appropriate; andControl dissemination by restricting the use of the results. 2440.C1- The chief audit executive is responsible for communicating the final results of consulting engagements to clients. 2440.C2- During consulting engagements, governance, risk management, and control issues may be identified. Whenever these issues are significant to the organization, they must be communicated to senior management and the board. 2450 - Overall Opinions ✔ When an overall opinion is issued, it must take into account the expectations of senior management, the board, and other stakeholders and must be supported by sufficient, reliable, relevant, and useful information. Interpretation - The communication will identify: The scope, including the time period to which the opinion pertains;Scope limitations;Consideration of all related projects including the reliance on other assurance providers;The risk or control framework or other criteria used as a basis for the overall opinion; andThe overall opinion, judgment, or conclusion reached.The reasons for an unfavorable overall opinion must be stated. 2500 - Monitoring Progress ✔ The chief audit executive must establish and maintain a system to monitor the disposition of results communicated to management. 2500.A1- The chief audit executive must establish a follow-up process to monitor and ensure that management actions have been effectively implemented or that senior management has accepted the risk of not taking action.