Internal Auditing

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Welcome!
CHAPTER 1

• Internal Auditing

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Definition

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

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Key components

• Helping the organization accomplish its
  objectives
• Strategic objectives choices management makes
  on behalf of the organizations stakeholders.
  Example increase market share by acquiring other
  companies.
• Operations objectives effectiveness and
  efficiency of the operations, including
  performance and profitability goals and
  safeguarding resources against loss.

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Key components

• Helping the organization accomplish its
  objectives (continued)
• Reporting objectives reliability of internal
  and external reporting of financial and non
  financial information
• Compliance objectives pertain to adherence to
  applicable laws and regulations
• See Exhibit 1-1

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Key components

• 2. Evaluating and Improving the Effectiveness of
  Risk Management, Control, and Governance
  Processes
• Risk management deal with risks that could
  affect the organizations ability to achieve its
  objectives.
• Control process conducted by management to
  reduce risks to acceptably low levels.
• Governance process conducted by the Board of
  Directors to authorize, direct and oversee
  management toward the achievement of objectives.

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Key components

• 3. Assurance and Consulting Activity Designed to
  Add Value and Improve Operations
• Assurance activity examination
• Consulting advisory services for customers

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Key components

• 4. Independence and Objectivity
• Independence the internal audit function must
  report to a level within the organization that
  has sufficient authority to ensure broad
  engagement coverage, due consideration of
  outcomes, and appropriate responses to those
  outcomes. The audit function should report
  functionally to the Board of Directors
  administratively to the Chief Executive Officer.
• Objectivity means that the auditor is able to
  make impartial, unbiased judgments.

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Key components

• 5. Systematic and Disciplined Approach
• Planning the engagement
• Performing the engagement, and
• Communicating engagement outcomes

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Financial Reporting Assurance ServicesExternal
Audits

• Required by Federal Laws
• Assurance service in which a CPA firm issues a
  written report that expresses an opinion about
  whether the financial statements are fairly
  stated in accordance with generally accepted
  accounting principles.
• US Sarbanes-Oxley Act of 2002 requires the
  external auditor to also attest to the
  effectiveness of the companys internal control
  over financial reporting.
• Cpa firms provide their services for the benefits
  of third parties.

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The INTERNAL AUDIT Profession

• The targets of internal audit include
• Operational effectiveness and efficiency of
  business processes.
• Reliability of information systems and the
  quality of the decision-making information
  produced by those systems.
• Safeguarding assets against loss, including
  losses resulting from management and employee
  fraud.
• Compliance with organization policies, contracts,
  laws, and regulations.

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The Institute of Internal Auditors

• The internal audit professions leader in
  certification, education, research, and
  technological guidance.
• Certified Internal Auditor the only globally
  accepted certification for internal auditors
• Internal auditor the IIAs bi monthly magazine,
  publishes articles of widespread interest to
  internal auditors around the world.

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Competencies Needed to Excel as an Internal
Auditor

• Integrity
• Passion
• Work ethic
• Curiosity
• Creativity
• Initiative
• Flexibility