4 TH EDITION

Internal Auditing:
Assurance &
Advisory Services

Internal Auditing: Assurance & AdvisoryInternal 4th Edition

Services,Auditing: Assurance
© 2017 & by
Advisory
the Internal 4th Edition
Services,Audit Foundation.
© 2017 by the Internal Audit Foundation.
CHAPTER 1

Introduction to
Internal Auditing

Internal Auditing: Assurance & AdvisoryInternal 4th Edition

Services,Auditing: Assurance
© 2017 & by
Advisory
the Internal 4th Edition
Services,Audit Foundation.
© 2017 by the Internal Audit Foundation.
Chapter 1: Introduction to Internal Auditing

LEARNING OBJECTIVES

◼ Understand the value proposition that

stakeholders expect from the internal audit
function.
◼ Obtain a basic understanding of internal
auditing and the internal audit process.
◼ Understand the relationship between auditing
and accounting.
◼ Distinguish between financial reporting
assurance services provided by internal auditors
and those provided by independent outside
auditors.
◼ Become familiar with the internal audit
profession and The IIA.
◼ Understand the competencies needed to excel
as an internal auditor.
◼ Be aware of the various internal audit career
opportunities it is possible to pursue.

Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Chapter 1: Introduction to Internal Auditing

THE VALUE PROPOSITION

❑ Assurance = Governance, Risk, &

Control
❑ Insight = Catalyst, Analyses, &
Assessments
❑ Objectivity = Integrity,
Accountability, & Independence

Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Chapter 1: Introduction to Internal Auditing

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.

The IIA’s Definition of Internal Auditing states the fundamental purposes, nature, and
scope of internal auditing:
❑ Helping the organization accomplish its objectives.
❑ Evaluating and improving the effectiveness of risk management, control, and
governance processes.
❑ Assurance and consulting activity designed to add value and improve operations.
❑ Independence and objectivity.
❑ A systematic and disciplined approach (specifically, the engagement process).

Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
 Chapter 1: Introduction to Internal Auditing

OBJECTIVES

An organization’s objectives define what the organization

wants to achieve, and its ongoing success depends on the
accomplishment of its objectives.
❑ Strategic objectives are those goals that management
sets specifically related to stakeholder interests.
Throughout this textbook, the term objectives will be
used when discussing what an organization wants to
achieve and the term strategy when discussing the way
management intends to achieve those objectives.
❑ Operations objectives pertain to the effectiveness and
efficiency of the entity’s operations, including
operational and financial performance goals, and
safeguarding resources against loss.
❑ Reporting objectives pertain to internal and external
financial and nonfinancial reporting and may
encompass reliability, timeliness, transparency, or other
terms as set forth by regulators, standard setters, or the
entity’s policies.*
*Internal Control – Integrated Framework (Jersey City, NJ: Committee of Sponsoring Organizations of the
Treadway Commission, 2013), 2. th
Internal Auditing: Assurance & Advisory Services, 4 Edition © 2017 by the Internal Audit Foundation.
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
 Chapter 1: Introduction to Internal Auditing

RISK MANAGEMENT, CONTROL,

AND GOVERNANCE

An organization cannot achieve its objectives and sustain success without effective risk
management, control, and governance processes.

❑ Risk management is the process conducted by management to understand and

deal with uncertainties (risks and opportunities) that could affect the
organization’s ability to achieve its objectives.

❑ Governance is the process conducted by the board of directors to authorize,

direct, and oversee management toward the achievement of the organization’s
objectives.

❑ Control is the process conducted by management to mitigate risks to acceptable

levels.
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Chapter 1: Introduction to Internal Auditing

A SYSTEMATIC AND DISCIPLINED

APPROACH
To truly add value and improve operations, internal assurance and consulting engagements must be
performed in a systematic and disciplined manner. There are three fundamental phases in the audit
engagement process:

❑ Planning
• Obtaining an understanding of the auditee or costumer
• Setting the engagement objectives
• Determining the required evidence
• Deciding the nature, timing, and extent of the audit tests

❑ Performing
• Making inquiries, observing operations, inspecting documents, Gathering evidence, and analyzing the
reasonableness of information
• Evaluating the evidence gathered and reaching logical conclusions

❑ Communicating
• Providing the results of the assessments made of the information and documentation gathered

Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Chapter 1: Introduction to Internal Auditing

Auditing is not a subset of accounting.

Internal Auditing: Assurance & AdvisoryInternal 4th Edition
Services,Auditing: Assurance
© 2017 & by
Advisory
the Internal 4th Edition
Services,Audit Foundation.
© 2017 by the Internal Audit Foundation.
Chapter 1: Introduction
to Internal Auditing

Internal Auditing: Assurance & AdvisoryInternal 4th Edition

Services,Auditing: Assurance
© 2017 & by
Advisory
the Internal 4th Edition
Services,Audit Foundation.
© 2017 by the Internal Audit Foundation.
Chapter 1: Introduction to Internal Auditing

The IIA is the internal audit profession’s global voice, standard-setter,

and resource for professional development and certification.
Internal Auditing: Assurance & AdvisoryInternal 4th Edition
Services,Auditing: Assurance
© 2017 & by
Advisory
the Internal 4th Edition
Services,Audit Foundation.
© 2017 by the Internal Audit Foundation.
Chapter 1: Introduction to Internal Auditing

The IIA offers many certifications that help internal auditors

become more proficient and advance their careers.
Internal Auditing: Assurance & AdvisoryInternal 4th Edition
Services,Auditing: Assurance
© 2017 & by
Advisory
the Internal 4th Edition
Services,Audit Foundation.
© 2017 by the Internal Audit Foundation.
 Chapter 1: Introduction to Internal Auditing

COMPETENCIES NEEDED BY
INTERNAL AUDITORS

Characteristics of successful internal

auditors:
❑ Competence
❑ Credibility
❑ Connectivity
❑ Communication
❑ Courage

Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Chapter 1: Introduction to Internal Auditing

INTERNAL AUDIT CAREER PATHS

Pathways into Internal Auditing

❑ Directly out of college, particularly schools with IIA endorsed internal audit programs
❑ From public accounting
❑ As a rotational part of a management trainee program

Pathways out of Internal Auditing

❑ Into financial or nonfinancial management positions
❑ Into a position with a professional services firm that provides internal assurance and
consulting services

Careers in Internal Auditing

❑ Move up the ladder into a management position within one organization
❑ Move up the ladder into management positions across different organizations
❑ Move upward through the various levels in a professional services firm that provides
internal assurance and consulting services

Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.