Cia Part 1 - Su 2: Independence, Objectivity, And Due Care

Front 1

Attribute Standard 1100: Independence and Objectivity

Back 1

The internal audit activity must be independent, and internal auditors must be objective in performing their work

Front 2

Interpretation of Standard 1100 (Independence)

Back 2

Independence is freedom from conditions that threaten the ability of the internal audit activity to carry out responsibilities in an unbiased manner

Front 3

How does on achieve the degree of independence necessary to carry out the activity?

Back 3

CAE has direct and unrestricted access to senior management and the board, achieved through a dual-reporting relationship.

Front 4

Attribute Standard 1110 - Organizational Independence

Back 4

CAE must report to a level within the organization that allows the internal audit activity to fulfill its responsibilities. The CAE must confirm to the board, at least annually, the organizational independence of the internal audit activity

Front 5

Interpretation of Standard 1110 (Organization Independence)

Back 5

Organization independence is achieved when the CAE reports functionally to the board.

Front 6

Examples of functional reporting

Back 6

The board:

- Approves the internal audit charter

- Approves the risk based internal audit plan

- Approving the budget and resource plan

- Approving decision regarding the appt and removal of the CAE

Front 7

Dual-Reporting Relationship

Back 7

Reporting functionally to the board and administratively to the the CEO

Front 8

Administrative Reporting

Back 8

Reporting relationship that facilitates day to day operations:

- Budget and mgmt accounting

- HR administration

- Internal communications and info flows

- Administration of the activity's policies and procedures

Front 9

Implementation Standard 1110.A1 - how internal audit independence is applied as a practical matter

Back 9

The internal audit activity must be free from interference in determining the scope of internal auditing, performing work, and communicating results.

Front 10

Attribute Standard 1111 - Direct Interaction with the Board

Back 10

The CAE must communicate and interact directly with the board

Front 11

Interpretation of Standard 1100 (Objectivity)

Back 11

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 no quality compromises are made. Requires that auditors do not subordinate their judgement to others

Front 12

How must threats to objectivity be managed

Back 12

At the individual auditor, engagement, functional, and organizational levels

Front 13

Attribute Standard 1120: Individual Objectivity

Back 13

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

Front 14

Define: Conflict of Interest

Back 14

Any relationship that is, or appears to be, not in the best interest of the organization. A conflict of interest would prejudice an individual's ability to perform his duties and responsibilities objectively

Front 15

Interpretation of Standard 1120 - Importance of Identifying Potential Conflict of Interest

Back 15

A conflict of interest can create an appearance of impropriety that can undermine confidence and impair ability to perform an individual's ability to perform his duties and responsibilities objectively. A conflict of interest exists even if no unethical or improper act results.

Front 16

Who is responsible for maintaining objectivity

Back 16

CAE and internal auditors themselves

Front 17

How can the CAE assess the objectivity of individual internal auditors

Back 17

Periodic reviews of conflicts of interest or as-needed assessments during the staffing requirements phase of each engagement

Front 18

Attribute Standard 1130: Impairment to Independence or Objectivity

Back 18

If independence or objectivity is impaired in fact or appearance, the details of the impairment must be disclosed to appropriate parties. The nature of the disclosure will depend on the impairment

Front 19

Interpretation of Standard 1130 - examples of impairment to organizational independence and individual objectivity

Back 19

- Personal conflict of interest

- Scope limitation

- Restrictions on access to records, personnel, and properties

- Resource limitations, such as funding

Front 20

Who should scope limitations be reported to

Back 20

A scope limitation, along with its potential effect, needs to be communicated, preferably in writing, to the Board.

Front 21

Implementation Standard 1130.A1 - Objectivity Impaired by Previous Assignment of Internal Audit Personnel

Back 21

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

Front 22

How long must an auditor refrain from assessing operations for which they were previously responsible?

Back 22

One year

Front 23

Implementation Standard 1130.A2 - Internal Audit's Responsibility for Other (Non-audit) Functions

Back 23

Assurance engagements for functions over which the CAE has responsibility must be overseen by a party outside the internal audit activity (may not accept responsibility for non-audit functions that are subject to periodic internal audit assessments)

Front 24

Attribute Standard 1200 - Proficiency and Due Professional Care

Back 24

Engagements must be performed with proficiency and due professional care

Front 25

Define: Proficiency

Back 25

The knowledge, skills, and other competencies needed to fulfill internal audit responsibilities

Front 26

Define: Due Care

Back 26

The care and skill expected of a reasonably prudent and competent internal auditor

Front 27

Attribute Standard 1210 - Proficiency

Back 27

Internal auditors must possess the knowledge, skills, and other competencies needed to perform their individual responsibilities.

Front 28

Components of auditor proficiency

Back 28

Proficiency, Knowledge, Understanding, Appreciation

Front 29

What must all internal auditors have proficiency in applying?

Back 29

- Internal audit standards, procedures, and techniques in performing engagements

- Accounting principles and techniques if internal auditors work extensively with financial records and reports

Front 30

What must the internal auditor have knowledge of

Back 30

- The indicators of fraud sufficient to identify them

- Key IT risks and controls and available technology-based audit techniques

Front 31

What must the internal auditor have an understanding of

Back 31

Management principles to recognize and evaluate the materiality and significance of deviations from good business practices

Front 32

What is an understanding (as relates to proficiency)

Back 32

The ability to apply broad knowledge to situations likely to be encountered, to recognize significant deviations, and to reach reasonable solutions

Front 33

What is an appreciation (as relates to proficiency)

Back 33

The ability to recognize the existence of problems or potential problems and to identify the additional research to be undertaken or the assistance to be obtained

Front 34

What fundamentals of business subjects must the internal auditor have an appreciation of

Back 34

- Accounting

- Economics

- Commercial law

- Taxation

- Finance

- Quantitative methods

- Fraud

- Risk Management

- IT

Front 35

Acronym:

Paul

Is

A

Studen

Back 35

Proficiency in:

- Internal

- Audit

- Standards, etc

Front 36

Acronym:

Under

My

Pillow

Back 36

Understanding of:

- Management

- Principals

Front 37

Acronym:

Katie

Fixes

Information

Technology

Back 37

Knowledge of:

- Fraud and

- Information

- Technology

Front 38

Acronym:

An

Accounting

Education

Lets

Tim

Feel

Intelligent

Back 38

Appreciation of:

- Accounting

- Economics

- Commercial Law

- Taxation

- Fraud, and

- IT

Front 39

IIA Competency Framework

Back 39

- Interpersonal Skills

- Tools and Techniques

- Internal audit standards, theory, and methodology

- Knowledge areas

Front 40

Implementation Standard 1210.A1 - External Resources

Back 40

The CAE 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

Front 41

Attribute Standard 1220 - Due Professional Care

Back 41

Internal auditors must apply the care and skill expected of a reasonably prudent and competent internal auditor. Due professional care does not imply infallibility

Front 42

Implementation Standard 1220.A1 - Considerations in exercising due professional care

Back 42

- Extent of work needed to achieve the objectives

- Relative complexity, materiality, or significance of maters to which assurance procedures are applied

- Adequacy and effectiveness of governance, risk management, and control processes

- Probability of significant errors, fraud, or noncompliance

- Cost of assurance in relation to potential benefits

Front 43

Implementation Standard 1220.A2 - what techniques should be considered

Back 43

Technology-based audit and other data analysis techniques

Front 44

Implementation Standard 1220.A3 - What must internal auditors be alert do

Back 44

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

Front 45

Attribute Standard 1230 - Continued Professional Development

Back 45

Internal auditors must enhance their knowledge, skills, and other competencies through continuing professional development

Front 46

Attribute Standard 1300 - Quality Assurance and Improvement Program

Back 46

The CAE must develop and maintain a QA and improvement program that covers all aspects of the internal audit activity

Front 47

Attribute Standard 1310 - Requirements of the Quality Assurance and Improvement Program

Back 47

The QA and improvement program must include both internal and external assessments

Front 48

Attribute Standard 1320 - Reporting on the Quality Assurance and Improvement Program

Back 48

The CAE must communicate the results of the QA and improvement program to senior management and the board

Front 49

Attribute Standard 1321 - Use of "Conforms with the Int'l Standards for the Professional Practice of Internal Auditing"

Back 49

The CAE may state that the internal audit activity conforms with the International Standard for the Professional Practice of Internal Auditing only if the results of the QA and improvement program support this statement (cannot claim to comply with the Standards without a successfully functioning QAIP)

Front 50

Attribute Standard 1322 - Disclosure of Nonconformance

Back 50

When nonconformance with the Definition of Internal Auditing, the Code of Ethics, or the Standards impacts the overall scope or operation of the internal audit activity, the CAE must disclose the nonconformance and the impact to senior management and the board

Front 51

Attribute Standard 1311 - Internal Assessments

Back 51

Internal assessments must include:

- Ongoing monitoring of the performance of the internal audit activity

- Periodic self-assessments by other persons within the organization with sufficient knowledge of internal audit practices

Front 52

Processes and tools used in ongoing internal assessments

Back 52

- Engagement supervision

- Checklists and procedures are being followed

- Feedback from audit customers and other stakeholders

- Selective peer reviews of workpapers by staff not involved in the respective audits

- Project budgets, timekeeping systems, audit plan completion, and cost recoveries

- Analysis of other performance metrics

Front 53

How often must the results of internal assessments be reported

Back 53

At least annually

Front 54

Attribute Standard 1312 - External Assessments

Back 54

- Must be conducted at least once every 5 years by a qualified, independent assessor from outside the organization.

CAE must discuss with the board:

- Form and frequency of external assessments

- Qualifications and independence of the external assessor, including any potential conflict of interest

Front 55

What do external assessments cover

Back 55

The entire spectrum of audit and consulting work performed by the internal audit activity