ere ee eee eee eee eee eee eee eee eee eee eee ee eee eee 15 STUDY UNIT ONE MANDATORY GUIDANCE (13 pages of outine) 1 Applicable Standards... esu vant 2». Codes of Ethical Conduct for Professionals... .3 Internal Audit Ethios ~ Introduction and Principles: 4 Intemak Audit Ethics — Integrity 5 6 Internal Audit Ethics ~ Objectivity Intemal Audit Ethies ~ Confidentiality. 4.7,... Interrial Audit Ethics = Competency»... 8 _Infemal Audit Charter... 1 3 4 : 1 1 1. The Institute of Internal Auditors (The IIA), headquartered in Altamonte Springs, Florida, governs the professional practice of internal auditing worldwide. Since its founding in 1941, The IIA has issued an extensive body of professional literature. This literature serves both to provide guidance for internal auditors in carrying out their job duties and to provide a level of respect for the profession among businesspeople and the general public. This study unit is the first of two covering Section |: Mandatory Guidance from The llA’s CIA Exam Syllabus. This section makes up 35% to 45% of Part 1 of the CIA exam and is tested at the proficiency level. The relevant portion of the syllabus is highlighted below. (The complete syllabus is in Appendix B.) _—— L. MANDATORY GUIDANCE (5%45%) ' ‘A. Definition of Internal Auditing 1, Define purpose, authority, and responsibility of the internal audit activity: B. Code of Ethics I Abide'by arid promote compliance with The IIA. Code of Ethics . International Standards 1, Comply. with The HAs Auribute Standards ‘a. Deteemine ifthe purpose, authority, and respoisibility of the internal att activity are documented in the audit chatter, approved by the Board, and communicated to the engagement clits by; Demonstrate arrunderstanding of the purpose, authority, and responsibility ofthe intemal audit activity “Maintain independence and bjetvity Determine ifthe required knowledge sls and competencies ae avaiable Develop andor procure necessary knowlege kills, and competencies eolectvely required by ie intemal aut activity ercise de professional care Promote continuing poressinal development Promote quality assurance and improvement te internal aut activity —_— 1.4 APPLICABLE STANDARDS 1. Mandatory Guidance The Institute of Internal Auditors’ (The IIA's) International Professional Practices Framework (IPPF) contains both mandatory guidance and strongly recommended guidance. . 4) The IIA considers adherence to the mandatory guidance essential for the professional practice of intemal auditing,6 SU4: Mandatory Guidance b. The mandatory guidance consists of three parts: the Definition of Internal Auditing, the Code of Ethics, and the Standards. 1) The Definition of internal Auditing is a concise statement of the role of the = internal audit activity in the organization. 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, cisciplined approach to evaluate and, jmprove the effectiveness of risk management, control, and governance processes. 2) The detailed text of the Code of Ethics can be found in Subunits 1.2 through 1.7 3) The Standards (known formally as the intemational Standards for the Professional Practice of Internal Auditing) serve the following four ourposes described by The IIA: Purpose of the Standards 4. Delineate basic principles that represent the practice of internal auditing. 2. Provide a framework for performing and promoting a broad range of value-added internal auditing. 3. Establish the basis for the evaluation of internal audit performance. 4, Foster improved organizational processes and operations. . The Standards are vital to the practice of internal auditing, but CIA candidates need fot memorize them. However, the principies they establish should be thoroughly understood and appropriately applied +) Attribute Standards, numbered in the 1000s, govern the responsibilities, attitudes, and actions of the organization's internal audit activity and the people who serve as internal auditors. They are displayed in gteen boxes throughout this text. 2) Performance Standards, numbered in the 2000s, govern the nature of interci auditing and provide quaiity criteria for evaluating the internal audit function'= performance. Performance Standards also are displayed in green boxes: 3) Interpretations are provided by The IIA to clarify terms and concepts veferred to in Attribute or Performance Standards. Interpretations are in light blue. 3) Implementation Standards expand upon the individual Attribute oF Performance Standards that apply to al internal audit engagements 4) Each implementation Standard describes the requirements of either an ‘assurance or @ consulting engagement. b) Implementation Standards are displayed in grey boxes. 2. Strongly Recommended Guidance a. The pronouncements that constitute strongly recommended guidance have been developed by The IIA through a formal approval process. They describe practioes for Sffective implementation of the Definition of Internal Auditing, Code of Ethics, anc Standards. : +) The three sirongly recommended elements of the IPPF are (a) Position Papers, (b) Practice Advisories, and (c) Practice Guides‘SU 5: Mandatory Guidance 7 3, Graphical Depiction of the Hierarchy of fiA Standards: The IIA’s International Professional Practices Framework Strongh Position | Practice | Practice y j Papers | Advisories | Guides Aecopmenced Implementation Standards» © Performance fp © Standards: Mand: rosie A The FPF contains aon broad dontongané a vareteove amour oFlbald quence. Asa whol hs ‘omen provaes an vale a pg.engogod in ares) pracie ars cucing. n'y certain key provisions, hole gare of ssing the. ‘The purpose of the Gleim Cin Rens fmsh yoo sith ce re peril oe teas moat itt be std. Your chances of sug Tyodgey ase and undoond how fo ‘otomert and‘ he Sigs WBptctons,ankeicoeAciory excets presente nese outlines. ° x ‘sponsibility 6f the Internal Audit Activity a" in The wBlossary, the purpose of the internal aut activity is to st, objective assurance and consulting services designed to prove an organization's operations. The internal audit activity ization accomplish its objectives by bringing a systematic, pproach to evaluate and improve the effectiveness of governance, Es ‘agement and control processes.” as support of management and the board is crucial when inevitable conflicts & arise between the internal audit activity and the department or function under review. Thus, the internal audit activity should be empowered to require auditees to grant access to all records, personnel, and physical properties relevant to the performance of every engagement. a) A formal charter for the internat audit activity that defines the internal audit activity’s purpose, authority, and responsibility must be adopted, and it should contain a grant of sufficient authority. Final approval of the charter resides with the board. c. Responsibility 1) The internal audit activity's responsibility is to provide the organization with assurance and constiting services that will add value and improve the organization's operations. Specifically, the internal audit activity must evaluate and improve the effectiveness of the organization's governance, risk management, and control processes.