THE INTERNAL AUDIT ROLE

Introduction
This chapter covers the role of internal auditing and describes what it taes to beco!e a good
auditor" The areas covered are#
$"% &h' Auditing(
$") De*ning Internal Audit
$"+ The Audit ,harter
$"- Audit .ervices
$"$ Independence
$"/ Audit Ethics
$"0 1olice Of*cer versus ,onsultant
$"2 3anaging E4pectations through &eb Design
$"5 Audit ,o!petencies
$"%6 Training and Develop!ent
.u!!ar' and ,onclusions
,hapter $# 3ulti7,hoice 8uestions
5.1 Why Auditing?
9efore we delve into the standard features of the internal audit role: we issue a challenge to the
reader" The challenges for the internal audit profession are found in the earl' chapters of the
boo: that is corporate governance: ris !anage!ent and control" These develop!ents set the
conte4t for the audit role" Now we need to e4plore how such challenges !a' be !et"
5.2 Dening Internal Audit
The starting place for internal audit theor' is the de*nition of internal audit" A standard de*nition
is !ade up of i!portant issues that for! the basic fra!ewor of internal audit principles" The
Institute of Internal Auditors; <IIA= de*nition appears once again#
Internal auditing is an independent: ob>ective assurance and consulting activit' designed to add
value and i!prove an organisation;s operations" It helps an organisation acco!plish its ob>ectives
b' bringing a s'ste!atic: disciplined approach to evaluate and i!prove the effectiveness of ris
!anage!ent: control and governance processes"
&e can anal'se the IIA;s for!al de*nition in detail b' e4a!ining each of the !aterial concepts#
Internal auditing The service is provided within the organi?ation and is distinct fro! the
e4ternal audit role <but see @activit'; below=" Aears ago the IIA considered changing the na!e of
internal auditing to reBect the !odern and increasingl' professional approach" No alternative was
forthco!ing and the idea was dropped"
%%6 THE E..ENTIAL HAND9OOC OD INTERNAL AUDITINE
Independent The concept of independence is funda!ental" Internal auditing cannot survive if
it is not ob>ective" All de*nitions of internal audit feature an ele!ent of independence: although
its e4tent: and how it is achieved: is a topic in its own right" The audit function !ust have suf*cient
status and be able to stand bac fro! the operation under review for it to be of use" If this is not
achieved: then this for!s a funda!ental Baw in the audit service and so!e internal audit functions
!a' not be able to subscribe to the standards"
Assurance and consulting This part of the de*nition refers to the funda!ental shift in the
role of internal audit" The shift !aes clear that the past tinering with the advice and consulting
aspect of auditing is now a full7blown additional consultanc' ar! of the function" Internal audit
!a' provide advice and assistance to !anage!ent in a wa' that best suits each !anager;s
needs" Even consulting wor should tae on board the i!pact of riss and IIA I!ple!entation
.tandard )%%6",% sa's that# @during consulting engage!ents: internal auditors should address
ris consistent with the engage!ent;s ob>ectives and should be alert to the e4istence of other
signi*cant riss;" 3eanwhile the pri!ar' role of internal audit is to provide independent assurances
that the organi?ation is: or is not: !anaging ris well" Internal audit can provide assurance on the
e4tent to which controls are able to address riss but cannot give an' absolute guarantees" There
is help at hand and I!ple!entation .tandard %))6"A+ clari*es this point b' sa'ing that# @The
internal auditors should be alert to the signi*cant riss that !ight affect ob>ectives: operations: or
resources" However assurance procedures alone: even when perfor!ed with due professional
care: do not guarantee that all signi*cant riss will be identi*ed";
Activity The fact that the internal audit function is an activit' is i!portant" This !eans it
is a de*ned service: although not necessaril' located within the organi?ation <e"g" it !a' be
outsourced="
Designed to add value As a service: auditing has to for! a client base and understand
the needs of the organi?ation" Here the service role should lead to a de*ned bene*t to the
organi?ation rather than internal audit woring for its own !'sterious goals" Adding value should
be upper!ost in the !inds of chief audit e4ecutives <,AE= and this feature should drive the
entire audit process"
And improve an organizations operations This brings into pla' the notion of continuous
i!prove!ent" The auditors are reall' there to !ae things better and not inspect and catch
people out" In one sense: if the ,AE cannot de!onstrate how the auditors i!prove the business:
there is less reason to resource the service"
It helps an organization accomplish its objectives The tas of internal audit is set *r!l'
around the organi?ation;s corporate ob>ectives" 3aing an organi?ation successful is the e'
driver for corporate governance <a badl' governed organi?ation will not be successful=: for ris
!anage!ent <where riss to achieving ob>ectives are the !ain focus= and internal controls <that
see to ensure ob>ectives are reali?ed=" 3oreover: it is the search for long7ter! corporate success
that !ust steer the internal audit shop: or there is little point setting up the tea!"
Systematic, disciplined approach Internal audit is now a full7blown profession" This !eans
it has a clear set of professional standards and is able to wor to best practice guidelines in
delivering a Fualit' service" One !easure of this professionalis! is that the organi?ation can
e4pect its auditors to appl' a s'ste!atic and disciplined approach to its wor" 9e it consulting or
THE INTERNAL AUDIT ROLE %%%
assurance wor: IIA 1erfor!ance .tandard )6-6 reFuires that# @The ,AE should establish policies
and procedures to guide the internal audit activit'";
Evaluate and improve &e have !entioned the need to focus on !aing i!prove!ents in
the organi?ation and part of this search for i!prove!ent entails !aing evaluations" Internal audit
set what is found during an audit against what should be present to ensure good control" This
necessaril' entails the use of evaluation techniFues that are applied in a professional and i!partial
!anner to give reliable results" 3an' review tea!s leave out the evaluation aspect of review wor
and si!pl' as a few Fuestions or chec a few records and their results are not robust" Internal
audit: on the other hand: has built into its de*nition the for!al use of evaluation procedures to
support steps to i!prove operations"
Effectiveness Effectiveness is a botto!7line concept based on the notion that !anage!ent
is able to set ob>ectives and control resources in such a wa' as to ensure that these goals are in
fact achieved" The lin between controls and ob>ectives beco!es clear: and audit !ust be able
to understand the funda!ental needs of !anage!ent as it wors to its goals" The co!ple4ities
behind the concept of effectiveness are great: and b' building this into the audit de*nition: the
audit scope beco!es potentiall' ver' wide"
is! management, control and governance processes These three related concepts have
been covered in earl' chapters of the boo and set the para!eters for the internal audit role"
Organi?ations that have not developed vigorous s'ste!s for these !atters will fail in the long run
and fall foul of regulators in the short ter!" The internal auditors are the onl' professionals who
have these di!ensions of corporate life as a living and breathing co!ponent of their role" The'
should therefore be the *rst port of call for an'one who needs to get to grips with corporate
governance and IIA 1erfor!ance .tandard )%+6 !aes it clear that the internal audit activit'
should assess and !ae appropriate reco!!endations for i!proving the governance process in
its acco!plish!ent of the following ob>ectives#
G 1ro!oting appropriate ethics and values within the organi?ation"
G Ensuring effective organi?ational perfor!ance !anage!ent and accountabilit'"
G Effectivel' co!!unicating ris and control infor!ation to appropriate areas of the organi?ation"
G Effectivel' coordinating the activities of and co!!unicating infor!ation a!ong the board:
e4ternal and internal auditors and !anage!ent"
The assurance role of internal auditing needs to be understood" Assurance i!plies a for! of
guarantee that what appears to be the case is in fact the case: based on a reliable source of
con*r!ation that all is well" The !ore i!partial and professional the source of these assurances:
the !ore reliable the' beco!e"
The Dour 3ain Ele!ents
The scope of internal auditing is found in the Institute of Internal Auditors; I!ple!entation
.tandard )%%6"A) which states that#
The internal audit activit' should evaluate ris e4posures relating to the organi?ation;s governance:
operations and infor!ation s'ste!s regarding the#
G Reliabilit' and integrit' of *nancial and operational infor!ation"
%%) THE E..ENTIAL HAND9OOC OD INTERNAL AUDITINE
G Effectiveness and ef*cienc' of operations"
G .afeguarding of assets"
G ,o!pliance with laws: regulations: and contracts"
eliability and integrity of "nancial and operational information Internal auditors review
the reliabilit' and integrit' of *nancial and operating infor!ation and the !eans used to identif':
!easure: classif' and report such infor!ation"
Effectiveness and ef"ciency of operations Internal auditors should appraise the econo!'
and ef*cienc' with which resources are e!plo'ed" The' should also review operations or
progra!!es to ascertain whether results are consistent with established ob>ectives and goals and
whether the operations are being carried out as planned"
Safeguarding of assets Internal auditors should review the !eans of safeguarding and: as
appropriate: verif'ing the e4istence of such assets"
#ompliance $ith la$s, regulations and contracts Internal auditors should review the
s'ste!s established to ensure co!pliance with those policies: plans: procedures: laws: regulations
and i!portant contracts that could have a signi*cant i!pact on operations and reports: and
should deter!ine whether the organi?ation is in co!pliance"
Internal audit reviews the e4tent to which !anage!ent has established sound s'ste!s of
internal control so that ob>ectives are set and resources applied to these ob>ectives in an ef*cient
!anner" This includes being protected fro! loss and abuse" AdeFuate infor!ation s'ste!s should
be established to enable !anage!ent to assess the e4tent to which ob>ectives are being achieved
via a series of suitable reports" ,ontrols are reFuired to co!bat riss to the achieve!ent of value
for !one' and it is these areas that internal audit is concerned with" ,o!pliance: infor!ation
s'ste!s and safeguarding assets are all prereFuisites to good value for !one'"
I!plications of the &ide .cope
The scope of internal auditing de*ned above is necessaril' wide and this has several i!plications#
%& E'pertise Ereat e4pertise is reFuired fro! auditors to enable the! to provide advice on
the wide range of e' control ob>ectives"
(& Safeguarding assets It is necessar' to establish who is responsible for investigating frauds
since this is resource7intensive"
)& *he compliance role ,ontrols over co!pliance !a' include an inspection routine and
audit;s role in this should be clearl' de*ned"
+& Information systems The audit of !anage!ent infor!ation s'ste!s <3I.= is crucial
since this !a' involve reviewing 3I. as part of operational audits: or these s'ste!s can be
audited separatel'"
,& -alue for money The concept of econo!': ef*cienc' and effectiveness <or HD3= is another
sensitive issue" Auditors can assist !anage!ent;s tas in securing good arrange!ents for pro!oting
HD3 or alternativel' undertae a continual search for waste and other poor HD3"
THE INTERNAL AUDIT ROLE %%+
.& /anagement needs A wide scope reFuires a good understanding of the operations being
reviewed and it is necessar' to include !anage!ent;s needs in the ter!s of reference b' adopting
a !ore participative st'le"
0& Specialists The four ele!ents of the e' control ob>ectives !a' reFuire specialists in each
of the de*ned areas and the level of e4pectation !a' place great de!ands on the audit service"
5.3 The Audit Charter
The audit charter !a' be used in a positive fashion to underpin the !areting tas that is
discharged b' audit !anage!ent" It can also be used to defend audit services in the event of
a dispute or an awward audit" The charter for!all' docu!ents the raison detre of the audit
function" It is i!portant that all audit depart!ents both develop and !aintain a suitable charter"
The Institute of Internal Auditors has issued a state!ent of responsibilities that covers the role of
internal auditing and this docu!ent !a' be used to for! the basis of such a charter" The audit
charter constitutes a for!al docu!ent that should be developed b' the ,AE and agreed b' the
highest level of the organi?ation" If an audit co!!ittee e4ists then it should be agreed in this
foru! although the *nal docu!ent should be signed and dated b' the chief e4ecutive of*cer" The
audit charter establishes audit;s position within the organi?ation and will address several issues#
%" The nature of internal auditing
+" The scope of audit wor
$" Audit;s authorit'
.tructure of the ,harter
)" The audit ob>ectives
-" Audit;s responsibilities
/" Outline of independence
It is possible to outline a suitable structure for the charter bearing in !ind the different !odels
that will be applied b' different t'pes of organi?ations per Digure $"%"
DEFINITIN!
for!al definition of internal audit
!C"E F W#$
covers the four e' control areas
!E#%ICE!
!anage!ent;s responsibilities: planned
assurance wor: investigations and consultanc'
ACCE!!
rights of access
INDE"ENDENCE
cornerstone of IA# organi?ational status and professional standards
FI&'#E 5.1 .tructure of the audit charter"
%%- THE E..ENTIAL HAND9OOC OD INTERNAL AUDITINE
The Audit ,harterIan E4a!ple
Each individual charter will var' depending on the needs of the organi?ation: views of the ,IA
and t'pe of services offered" &e have produced a charter for a *ctional co!pan': Ce'stone Ltd"
CEA.TONE AUDIT .ERHI,E.IAUDIT ,HARTER
This audit charter sets out the role: authorit' and responsibilities of the internal audit function
and has been for!all' adopted b' Ce'stone Ltd" on % Januar' )644"
1. #ole
Internal auditing is an independent: ob>ective assurance and consulting activit' designed
to add value and i!prove an organi?ation;s operations" It helps organi?ations acco!plish
their ob>ectives b' bringing a s'ste!atic: disciplined approach to evaluate and i!prove
the effectiveness of ris !anage!ent: control and governance processes" Internal audit is
concerned with controls that ensure#
G reliabilit' and integrit' of *nancial and operating infor!ation
G effectiveness and ef*cienc' of operations
G safeguarding of assets
G co!pliance with laws: regulations and contracts"
2. #e()on(i*ilitie(
3anage!ent is responsible for !aintaining an adeFuate s'ste! of internal control to !anage
riss to the organi?ation" Internal audit will provide assurance services to !anage!ent: the
board and the audit co!!ittee in ter!s of reviewing the adeFuac' of these s'ste!s of internal
control" Internal audit will also provide a consulting role in helping pro!ote and facilitate the
develop!ent of effective s'ste!s of ris !anage!ent and internal control" In addition: and
sub>ect to the availabilit' of resources: audit will see to respond to !anage!ent;s reFuests
for investigations into !atters of fraud: probit' and co!pliance" Internal audit will provide
advice on addressing these proble!s: which re!ain the responsibilit' of !anage!ent"
Durther!ore: internal audit shall have no responsibilities over the operations that it audits over
and above the furnishing of reco!!endations to !anage!ent" The results of consulting and
ad hoc pro>ects reFuested b' !anage!ent will be used to infor! internal audit;s position on
assurances where appropriate"
3. "lan(
Internal audit is reFuired to publish an annual audit plan to the board and audit co!!ittee
and perfor! the audits that are contained within this plan: to the standards set out in the audit
!anual" Annual audit plans will be based on the ris assess!ents carried out b' !anage!ent
and the board and tae into account issues derived fro! the current audit strateg' that is
approved b' the audit co!!ittee"
+. #e)ort(
All audit reports will be cleared with the relevant !anage!ent and once agreed will be
copied to the appropriate director: the audit co!!ittee and e4ternal audit" 3anage!ent is
e4pected to i!ple!ent all agreed audit reco!!endations within a reasonable ti!e fra!e
THE INTERNAL AUDIT ROLE %%$
and each audit will be followed up to assess the e4tent to which this has happened" The
audit co!!ittee will be given a su!!ar' of audits where agreed reco!!endations have not
been i!ple!ented b' !anage!ent without reasonable e4planation" The audit co!!ittee will
also receive a su!!ar' of all audits where !anage!ent have decided not to i!ple!ent an
audit reco!!endation without reasonable e4planation" The overall results of audit wor will
be reported Fuarterl' to the audit co!!ittee <who in turn report to the board of directors="
Internal audit is also reFuired to furnish an annual assurance on the state of internal control in
the organi?ation"
5. Acce((
Internal audit has access to all of*cers: buildings: infor!ation: e4planations and docu!entation
reFuired to discharge the audit role" An' interference with this right of access will be
investigated and: if found to be unreasonable: will be dee!ed a breach of organi?ational
procedure and dealt with accordingl'"
,. Inde)endence
Internal audit is reFuired to provide an ob>ective audit service in line with professional auditing
standards <as e!bodied within the audit !anual= and the auditor;s code of ethics" To this
end it is essential that suf*cient independence attaches to this wor for it to have an' i!pact
on Ce'stone Ltd" This is dependent on suf*cient organi?ational status and the abilit' to wor
to professional standards and the audit co!!ittee will undertae an ongoing review of the
i!pact of these two factors"
C-IEF E.EC'TI%E C-AI# F A'DIT C//ITTEE
DATE
5.+ Audit !er0ice(
DATE
The role of internal auditing is wide" &ithin the conte4t of i!proving ris !anage!ent: control
and governance processes: the t'pe of wor undertaen to add value to an organi?ation will var'
greatl'" It all depends on the conte4t and best use of resources" Internal audit shops that focus on
the corporate governance arrange!ents: rather than tae on an' wor that co!es its wa': will
tend to have a better direction" The re!it is the audit charter: the para!eters are the professional
standards while the conte4t is the success criteria that is set b' the organi?ation" &ithin these
factors will fall the range of audit products that are on offer" These !a' include one or !ore of
the following possible interpretations of the audit role" Note the following are listed internal audit
services selected at rando! fro! various websites that feature internal audit shops fro! both
private and public sector organi?ations#
G ,'clical audit <stoc pett' cash pa'roll="
G Investigations into speci*c proble!s"
G Responding to reFuests b' !anage!ent"
G Operational ef*cienc' and effectiveness reviews"
G Internal control reviews"
G Draud investigations"
G ,o!pliance reviews"
%%/ THE E..ENTIAL HAND9OOC OD INTERNAL AUDITINE
G Reviewing controls over revenue: contracts ad!inistration and operational e4penses"
G Acting as a contact point for allegations of fraud: waste and abuse"
G Infor!ation s'ste! reviews"
G Dinancial and co!pliance audits"
G 1erfor!ance audits"
G Internal control reviews and testing poor areas"
G Investigative audits into reported irregularities"
G Herif' assets and review safeguards"
G Evaluation of reporting s'ste!s and procedures"
G ,ost saving reviews"
G Review of ad!inistration and accounting controls"
G Dinancial and perfor!ance audits"
G Revenue audits"
G 3anage!ent studies into cost savings: proble!s in technical support and perfor!ance"
G .pecial reviews of pro>ects"
G ,ontrol self7assess!ent facilitation"
G Environ!ental audits"
G Auditing the change !anage!ent process"
G Operational audits"
G ,o!puter audits"
G ,ontrol self7assess!ent Fuestionnaire design and anal'sis"
G Issuing guidance to staff on internal control"
G Halue driven internal consultanc': acting as change agents"
G 9usiness process anal'sis"
G 9usiness ris assess!ents"
G 8ualit' advocates and reviews"
G 1roviding !easures to strengthen !echanis!s to achieving ob>ectives"
G Evaluation of corporate governance processes"
G &oring with !anage!ent on their ris !anage!ent practices"
G Advising clients on ris e4posures and !easures to re!ed'"
G Review ris !anage!ent arrange!ents"
G 1rovide practical solutions and supporting !anage!ent in i!ple!enting the!"
G 1articipating in !a>or infor!ation s'ste!s pro>ects"
G Reviews to i!prove Fualit' of !anage!ent processes"
G ,o!!unicate ris infor!ation to clients"
G Operational auditing <or !anage!ent audits="
G Dinancial s'ste!s audits: accounting and *nancial reporting"
G ,o!pliance auditing on adherence to laws: regulations: policies and proceduresIconcentrating
on i!proved controls to help co!pliance"
G ,o!puter auditing during develop!ent stage"
G Audit approach deter!ined b' discussion with !anage!ent but *nal result re!ains an internal
audit prerogative"
G Advice to !anagers when !aing changes to procedure"
G Training in ris and control awareness"
G 1rovision of independent assurance on internal controls"
G Eeneral advice and guidance on control related issues"
G Operate follow7up s'ste! for outstanding audit reco!!endations"
G Evaluate action plans !ade in response to audit reco!!endations"
G Liaison and >oint pro>ects with e4ternal audit"
G .pecial pro>ects as reFuested b' !anage!ent"
THE INTERNAL AUDIT ROLE %%0
G 3anage!ent reviews of new or e4isting progra!!es: s'ste!s: procedures"
G ,ontrol consciousness se!inars"
G Reco!!endations for enhancing cost7effective control s'ste!s"
G 3onitoring *nancial infor!ation and reporting results"
G Reviews of *4ed assets: cash receipts: budgets: purchasing and accounting routines"
G .urprise audits over cash funds: accounting records: e!plo'ee records: observation of opera7
tions: and inventor' records"
G Accountabilit' and fraud awareness training"
G 1ro>ects to i!prove Fualit' of infor!ation or its conte4t for decision !aing"
G Reviews of e7co!!erce arrange!ents and securit'"
G Audits of internal control structures: ef*cienc' and effectiveness and best practice"
G .afeguarding assets <and infor!ation= using veri*cation of asset registers: inventories and the
adopted securit' polic'"
5.5 Inde)endence
There are several e' IIA Attribute .tandards that !ae clear the signi*cance of auditors;
independence#
G %%66# the internal audit activit' should be independent: and internal auditors should be ob>ective
in perfor!ing their wor"
G %%%6# the internal audit activit' should report to a level within the organi?ation that allows the
internal audit activit' to ful*l its responsibilities"
G %%%6"A%# the internal audit activit' should be free fro! interference in deter!ining the scope
of internal auditing: perfor!ing wor: and co!!unicating results"
G %%)6# internal auditors should have an i!partial: unbiased attitude and avoid conBicts of interest"
G %%+6# if independence or ob>ectivit' is i!paired in fact or appearance: the details of the
i!pair!ent should be disclosed to appropriate parties" The nature of the disclosure will
depend upon the i!pair!ent"
G %%+6"A%# internal auditors should refrain fro! assessing speci*c operations for which the' were
previousl' responsible" Ob>ectivit' is presu!ed to be i!paired if an auditor provides assurance
services for an activit' for which the auditor had responsibilit' within the previous 'ear"
G %%+6"A)# assurance engage!ents for functions over which the ,AE has responsibilit' should
be overseen b' a part' outside the internal audit activit'"
G %%+6",%# internal auditors !a' provide consulting services relating to operations for which the'
had previous responsibilities"
G %%+6",)# if internal auditors have potential i!pair!ents to independence or ob>ectivit' relating
to proposed consulting services: disclosure should be !ade to the engage!ent client prior to
accepting the engage!ent"
The 3eaning of Independence
Independence !eans that !anage!ent can place full reliance on audit *ndings and reco!!en7
dations" There are !an' positive i!ages that are con>ured up b' this concept of independence#
%& 1bjectivity 9ehind this word is a whole !ultitude of issues that together for! a co!ple4
!a?e" The !ain proble! is that the whole basis of ob>ectivit' ste!s fro! a hu!an condition of
%%2 THE E..ENTIAL HAND9OOC OD INTERNAL AUDITINE
correctness and fair pla'" An' !odels that involve a consideration of the hu!an condition have
to deal with !an' ps'chological !atters: and at ti!es irrational behaviour" Although ob>ectivit' is
located in the !ind: it is heavil' inBuenced b' the procedures and practices adopted"
(& Impartiality Ob>ectivit' !a' be seen as not being inBuenced b' i!proper !otives while
i!partialit' is not taing sides" The Fuestion of i!partialit' is i!portant because there is a view
that internal audit: lie all other units: will wor in a politicall' advantageous wa'" This !a' result in
audit taing the side of the !ost powerful part' in an' wor that i!pacts on the political balances
within an organi?ation" If this is allowed to occur uncheced then the audit evidence that supports
an' audit report !a' be secured with a view to assisting one side onl'"
)& 2nbiased vie$s &hen an audit report states that @the audit view is " " "; this should provide
a co!!ent on the state of internal controls" &here used to provide an advantage for the audit
function: credibilit' is rised" The other aspect of audit bias is where certain of*cersKsections
have been ear!ared as @poor: uncooperative or suspect " " "; &e go into an audit looing for
an' !aterial that supports our original contentions" If taen to the e4tre!e: the audit function
will beco!e a hit sFuad: con>uring up cases against people it does not lie" It is dif*cult to build
professional audit standards using this !odel"
+& -alid opinion Readers of audit reports reFuire the auditors to co!plete wor to pro7
fessional standards with the audit opinion properl' derived fro! this wor" This opinion !ust
!ae sense having reference to all relevant factors" The audit role is not to please no!inated
parties or si!pl' !aintain the status FuoL it is to present audit wor in a professional and
ob>ective !anner"
,& 3o spying for management 1rofessional ob>ectivit' !eans that audit does not fall into
the trap of acting as spies for !anage!ent: particularl' where !anagers feel that their staff are
not perfor!ing"
.& 3o no4go areas There are senior !anagers who adopt a particularl' aggressive stance to
!anaging their areas of responsibilit'" All outsiders are treated with great suspicion" In fact there
is a correlation between professional inco!petence and this threatening posture: i"e" the less able
the !anager the !ore aggressive heKshe beco!es" If this results in certain areas being dee!ed
out of bounds to internal audit then this !eans that audit;s independence is i!paired and the'
will have a lesser role" If audit can be ept awa' fro! certain areas then this restricts the audit
*eld: and if this trend is allowed to continue it could set a da!aging precedent" The net result
!a' be that the audit *eld beco!es relegated to de*ned parts of the organi?ation onl'" This is
pla'ing at auditing far re!oved fro! the de!ands of an' professionall' based audit practice"
0& Sensitive areas audited To achieve its full status internal audit !ust be able to audit
sensitive areas" Unlie the no7go areas: this potential barrier arises where the necessar' sills
and techniFues are not available to the audit unit thus !aing it i!possible to cover high7level
areas" &here the audit scope is set within basic accounting s'ste!s for low7level checing: little
i!portant wor can be undertaen and audit independence will not have been secured"
5& Senior management audited There is a view that s'ste! controls are pri!aril' located
within the !anage!ent processes that underpin the operations" &here audit fails to incorporate
this factor into the scope of audit wor: a great deal will be !issed" The proble! is that !anagers
!a' not wish to be audited: particularl' where this e4poses gaps in their responsibilit' to establish
THE INTERNAL AUDIT ROLE %%5
sound controls" The ,AE will have a Fuiet life where heKshe wors onl' at a detailed operational
level and ignores the whole !anage!ent process" Again this restricts the audit role and so
adversel' i!pacts on the auditor;s independence"
6& 3o bac!ing4off &e do not e4pect auditors to bac down without a valid reason when
confronted b' an assertive !anager" This is not to sa' that auditors !arch uncheced across the
organi?ation: unaware of an' disruption the' !ight be causing to front line operations" It does:
however: !ean that the' will pursue audit ob>ectives to the full in a diplo!atic and professional
!anner" If this is not the case then audit will be vulnerable to criticis! fro! all sides" Audit reports
would then reBect what !anagers allowed the auditor to do rather than the wor reFuired to
discharge the ter!s of reference for the audit" In this instance audit can clai! ver' little real
independence"
The above provides a foundation for the audit practice at the heart of the audit role" This
distinguishes it fro! !anage!ent consultanc' and other review agencies who provide professional
review services but onl' to the ter!s of reference set b' !anage!ent" These factors !ust be in
place for the audit function to have an' real i!pact on the organi?ation"
Reconciling the ,onsultanc' 9ranch
The internal auditing arena is now facing a real threat to independence where it is being ased
to reconcile two forces that are at ti!es in conBict" The client !ight wish to have internal audit
perfor! a series of consultanc' pro>ects generated b' ad hoc proble!s that the' as !anagers
!a' e4perience" The professional auditing standards see to pro!ote audits that involve reviews
of control s'ste!s as a service to the entire organi?ation as a wider concept" The conBict arises
where the proble!s referred to audit b' !anage!ent result fro! inadeFuacies in controls"
The act of propping up !anage!ent reinforces the view that !anage!ent need not concern
itself about controls and that: if there are control faults: audit will solve the ensuing proble!s"
Here independence falls b' the wa'side and a response7based audit service is resourced to the
detri!ent of organi?ational controls"
5., Audit Ethic(
The Institute;s ,ode of Ethics e4tends be'ond the de*nition of internal auditing to include two
essential co!ponents#
%" 1rinciples that are relevant to the profession and practice of internal auditingL
)" Rules of conduct that describe behaviour nor!s e4pected of internal auditors" These rules are
an aid to interpreting the 1rinciples into practical applications and are intended to guide the
ethical conduct of internal auditors"
7rinciples
Internal auditors are e4pected to appl' and uphold the following principles#
Integrity
The integrit' of internal auditors establishes trust and thus provides the basis for reliance on
their >udge!ent"
%)6 THE E..ENTIAL HAND9OOC OD INTERNAL AUDITINE
1bjectivity
Internal auditors e4hibit the highest level of professional ob>ectivit' in gathering: evaluating: and
co!!unicating infor!ation about the activit' or process being e4a!ined" Internal auditors !ae
a balanced assess!ent of all relevant circu!stances and are not undul' inBuenced b' their own
interests or b' others in for!ing >udge!ents"
#on"dentiality
Internal auditors respect the value and ownership of infor!ation the' receive and do not disclose
infor!ation without appropriate authorit' unless there is a legal or professional obligation to
do so"
#ompetency
Internal auditors appl' the nowledge: sills and e4perience needed in the perfor!ance of internal
auditing services"
ules of #onduct
%& Integrity
Internal auditors#
%"% .hall perfor! their wor with honest': diligence: and responsibilit'"
%") .hall observe the law and !ae disclosures e4pected b' the law and the profession"
%"+ .hall not nowingl' be a part' to an' illegal activit': or engage in acts that are discreditable to
the profession of internal auditing or to the organi?ation"
%"- .hall respect and contribute to the legiti!ate and ethical ob>ectives of the organi?ation"
(& 1bjectivity
Internal auditors#
)"% .hall not participate in an' activit' or relationship that !a' i!pair or be presu!ed to i!pair
their unbiased assess!ent" This participation includes those activities or relationships that !a'
be in conBict with the interests of the organi?ation"
)") .hall not accept an'thing that !a' i!pair or be presu!ed to i!pair their professional
>udge!ent"
)"+ .hall disclose all !aterial facts nown to the! that if not disclosed: !a' distort the reporting
of activities under review"
)& #on"dentiality
Internal auditors#
+"% .hall be prudent in the use and protection of infor!ation acFuired in the course of their duties"
+") .hall not use infor!ation for an' personal gain or in an' !anner that would be contrar' to
the law or detri!ental to the legiti!ate and ethical ob>ectives of the organi?ation"
+& #ompetency
Internal auditors#
-"% .hall engage onl' in those services for which the' have the necessar' nowledge: sills
and e4perience"
-") .hall perfor! internal auditing services in accordance with the .tandards for the 1rofessional
1ractice of Internal Auditing"
-"+ .hall continuall' i!prove their pro*cienc' and the effectiveness and Fualit' of their services"
THE INTERNAL AUDIT ROLE %)%
The code of ethics is in fact a series of codes: each of which depends on the individual auditor:
the audit unit and the entire organi?ation" If there are gaps in an' of these three parts: then a
subopti!al position arises" The code of ethics creates a special bond between the auditor and
the e!plo'er" The internal auditor;s position is easil' abused and there are not !an' of*cers
who will Fuestion the auditor;s behaviour particularl' where it appears that audit reports to
so!e unseen higher authorit'" The code counters this proble! and should be applied in an
educational !ode where auditors are encouraged to adopt the code as part of the training and
develop!ent process"
5.1 "olice 2cer 0er(u( Con(ultant
3ost audit te4tboos !ae reference to the i!pact that internal audit has not onl' on s'ste!s but
also on people: and stress the i!portance of understanding hu!an behaviour" This is so!eti!es
e4tended b' the view that auditors face various co!plicated issues because of their special
position in the organi?ation" The alternatives to the word @Audit; fro! a standard thesaurus
include the following ter!s#
examination
investigation
scrutiny
review
inspection
These ter!s do not con>ure up the concept of a helpful: value7add service and here we tacle
the fallout of negativit' and the need to !anage this proble! b' adopting the stance that !erel'
being genuine is not enough" One has to seriousl' consider one;s position and the i!pact of the
applied audit policies on the behavioural aspects of this role: to uncover an' actual or potential
barriers to good perfor!ance" Alan 3arshall outlines his approach when ased b' so!eone: @.o
what do 'ou do for a living(;# @The word @@audit;; has negative connotations: fostering the i!age of
tic and turn " " " &hen announcing that I wor as internal auditor " " " perhaps the !ost frustrating
reaction is @@AhM Aou;re an accountant" Aou chec people;s boos: don;t 'ou(;; ;
%
Hu!an 9ehavioural Aspects
This covers a wide area and touches on topics such as industrial ps'cholog': co!!unication
sills and group theor'" Auditors should be silled in dealing with people and as such this aspect
is seen as a valid audit sill" Unfortunatel' this sill does not alwa's for! part of the auditors;
professional training and develop!ent progra!!e" In fact a poor recruit!ent polic' !a' result in
bringing in auditors who see little value in developing good interpersonal sills" The old7fashioned
detailed checer had little ti!e to discuss the real7life issues that fall outside the scope of the audit
progra!!e" Nowada's auditors are reFuired to do !ore than operate on a detailed technical
levelL the' are e4pected to be able to converse openl' with senior !anage!ent"
Dealing with 1eople
There are certain obstacles that the internal auditor !a' co!e across when carr'ing out audit
wor: !an' of which relate to the behavioural aspects of wor#
%& *raditional tic! and chec! 3an' auditors are seen as checers who spend their ti!e
ticing thousands of docu!ents and records"
%)) THE E..ENTIAL HAND9OOC OD INTERNAL AUDITINE
(& *he audit snoop Line !anage!ent and the various operatives !a' resent the audit as being
!ainl' based on !anage!ent;s wishes to sp' on the! using audit staff for this unsavour' tas"
)& ole of audit There are audits that are undertaen and co!pleted with a *nal report issued
so!e ti!e after the event that have little !eaning to the operatives affected b' the wor"
+& Intervie$ing An audit interview !a' be a highl' pressuri?ed event for a !ore >unior
!e!ber of staff and: if the auditor fails to recogni?e this: !an' barriers to co!!unications
!a' arise"
,& Audit committee The relationship with the audit co!!ittee is a factor in the success of
the audit function"
.& 7oor cousin of e'ternal audit &here the internal auditors !erel' support the e4ternal
audit function: the relationship !a' leave little scope for professional develop!ent"
0& 8ear and hostility Auditors who feel that hostile !anage!ent has so!ething to hide will
perpetuate a c'cle where the' probe: !anage!ent resists: the' probe harder and so on"
5& Advisor9inspector con:ict 1roble!s will ensue where auditors are convinced that the'
are advisors whereas the' are seen b' !anage!ent as onl' checers"
6& Image problems Internal audit depart!ents can have a poor reputation" This will affect the
t'pe of contact that is had with other !e!bers of the organi?ation since one has to earn rather
than de!and respect"
Understanding and 1articipating with 3anage!ent
&here an auditor understands !anage!ent and the !anage!ent process it is easier to wor in
a partnership !ode" The participative approach brings audit closer to a consultanc' role where
!anage!ent needs are fore!ost" 3an' audit depart!ents have !oved along this route and the
e4planator' !odels suggest that a continuu! !a' be designed where one !a' !ove further
along the direction of participation" It !ust: however: be noted that the !ore participation that
is pro!oted: the greater the strain in !aintaining a satisfactor' level of independence" As such
there will be li!its on how far one !ight go" It is possible to use an established !odel of audit
st'les ranging fro! a traditional through to a participative st'le" There is a continuu! for each of
the co!ponents of this established !odel as shown in Table $"%"
TA34E 5.1 Traditional versus participative st'les"
Factor
#ole
Authority
!ource o2 authority
!anction
Traditional style
1olice!an
Dor!al
Of*ce
,oercion
Participative
style
Advisor
Infor!al
1ersonal attributes
.uggestion
THE INTERNAL AUDIT ROLE %)+
These are two e4tre!es which !ight on the one hand !ean that an audit function is i!posed
on !anage!ent to police the organi?ation" Alternativel': the audit service !a' be !ore lie a
partnership with audit providing professional advice in line with !anage!ent;s needs" ,learl'
!odern internal auditing is !oving towards the partnership role with !anage!ent as it does
not report to itself: or wor towards its own !'sterious goals" The auditor should recogni?e the
culture that e4ists in the area being audited and ensure that audit reco!!endations are fra!ed in
a wa' that *ts into !anage!ent;s needs" 1articipative auditing !eans woring with !anage!ent
rather than auditing the!" This is in line with the view that controls belong to !anage!ent and
the' should be encouraged to !aintain and i!prove the!"
The E4pectation Eap
,lient e4pectations of traditional internal audit services t'picall' consist of#
G A chec on re!ote establish!ents to ensure that the' are co!pl'ing with procedures"
G The investigation of frauds where the' have been detected within the organi?ation"
G Investigations into e!plo'ees who cause concern to !anage!ent in ter!s of breach7
ing procedure"
G A continuous progra!!e of checs over the output fro! various *nancial s'ste!s to assess
whether these are correct"
G On7the7spot advice as to whether proposed !anage!ent decisions are acceptable in ter!s of
co!pliance with procedure and best practice"
G Ad hoc investigations reFuested b' !e!bers of the corporate !anage!ent tea!"
G Additional resources for co!puter s'ste! develop!ent pro>ects"
The rules to be applied to !anaging this situation !a' be set out as#
%" Isolate two ranges of clients" The audit co!!ittee who will be the client for audit wor
<ris7based s'ste!s auditing=: and !anagers who can receive additional consultanc' services"
)" 3ae sure the audit co!!ittee understands the concept of planned s'ste!s audits and that a
basic bloc of resources !ust be reserved for this tas"
+" 1rovide consultanc' as additional services that are clearl' distinguished fro! audit wor" Ensure
that !anage!ent understands that the' are responsible for co!pliance: infor!ation s'ste!s:
fraud investigations and achieving value for !one'"
-" 1ublici?e the audit role through suitable brochures: website presentations and correspondence"
$" Encourage !anagers to tae a long7ter! view in pro!oting sound controls and so avoid the
!an' proble!s that are derived fro! poor arrange!ents" This is a long process but is assisted
b' oral presentations in control that audit !a' provide to !anage!ent"
In ter!s of dealing with !anage!ent: there are several i!portant considerations to be borne
in !ind#
%& *ime; 9us' !anagers *nd it dif*cult to assign ti!e <and their staff;s ti!e= to deal with the
auditor" Arrange!ents will have to be agreed to suit all sides and it is here that negotiation sills
will co!e to the fore"
(& *erms of reference; The opening ter!s of reference for the audit are alwa's a dif*cult
!atter as each side feels the other out" There is alwa's an ele!ent of suspicion fro! the client
%)- THE E..ENTIAL HAND9OOC OD INTERNAL AUDITINE
which itself is located in the whole issue of change !anage!ent" The auditor !ust recogni?e the
two !ain worries of the client#
G That the auditor !a' wish to reco!!end changes that will adversel' affect the !an7
ager;s position"
G That the auditor !a' in fact be investigating hi!: the operating !anager"
)& Audit approach; The audit approach and general attitude will have an i!pact on the
resulting negotiations" It is generall' accepted that negotiation is about co!pro!ise and securing
bene*ts for all sides in contrast to a winKlose stance"
+& <ottom line; .aw'er;s view of internal audit sees it as a function that sees to leave the
operation in a better position than it was before the audit" This does not !ean that ever'
detailed reco!!endation !ust be i!!ediatel' i!ple!ented b' !anage!ent" It is based !ore
on the view that !anage!ent should be consulted and: where essential: the' will tae on
board reco!!endations: although open to negotiation" It reFuires the auditor to negotiate
reco!!endations and differentiate between those that are essential: i!portant and !erel' useful"
Using this approach: a little !a' be given up for the sae of progress in other areas"
5.5 /anaging E6)ectation( through We* De(ign
This section gives a brief review of so!e of the !aterial that is being set up on internal audit
websites" A consideration of a sa!ple of the websites of various internal audit shops !aes for
interesting reading" .o!e of the !aterial that is being posted on these websites includes the
following freFuentl' ased Fuestions <the reader !a' wish to choose so!e of these for their
own website=#
%" &h' this guide(
)" &hat is internal audit(
+" Overall !ission state!ent(
-" Hision(
$" &hat is the audit ob>ective(
/" &h' do we have internal audit(
0" &ho are the internal auditors(
2" How are we organi?ed(
5" Difference between the audit and !anage!ent role(
%6" Difference between e4ternal and internal audit(
%%" &h' do we need internal audit(
%)" How is internal audit independent(
%+" How does the audit co!!ittee co!e in(
%-" &here does internal audit authorit' co!e fro!(
%$" .cope of audit wor(
%/" &hat does internal audit do(
%0" How are areas selected for audit(
%2" How does this *t in with ris !anage!ent(
%5" &hat is ,R.A and do we not do our own audit using this tool(
)6" Does !anage!ent have an' involve!ent in setting audit ter!s of reference(
)%" &hat if 'ou feel 'ou do not need to be audited(
))" How can 'ou facilitate the progress of the audit(
)+" Do we have an' set values(
)-" 1rofessional standards(
)$" &hat taes place during an audit(
)/" How long do audits last(
)0" &hat is audit testing(
)2" &hat occurs after the audit(
)5" &here do the reports go(
+6" Dollow7up procedures(
+%" Do we accept reFuests fro! !anage!ent(
+)" &hat do !anagers need to now about ris and controls(
++" Do we conduct surprise audits(
+-" &hat do we do about fraud(
+$" &hat does internal audit not do(
+/" &ho audits the auditors(
+0" ,o!plaints procedure(
5.7 Audit Co8)etencie(
THE INTERNAL AUDIT ROLE %)$
The *rst thing that needs to be in place to ensure co!petent internal auditors is effective hu!an
resource policies and practices" Here we are concerned with the attributes of successful internal
auditors" The IIA 1ractice Advisor' %)%67% deals with pro*cienc' and reFuires that each internal
auditor should possess certain nowledge: sills: and other co!petencies#
G pro*ciencies in appl'ing internal auditing standards and procedures " " "
G pro*cienc' in accounting principles and techniFues " " "
G an understanding of !anage!ent principles " " "
G appreciation of accounting: econo!ics: co!!ercial law: ta4ation: *nance: Fuantitative !ethods
and IT"
G silled at dealing with people and co!!unicating " " "
G silled in oral and written co!!unications " " "
,AE should establish suitable criteria for education and e4perience for *lling internal auditing
positions " " " the IA staff should collectivel' possess the nowledge and sills essential to the
practice of the profession within the organi?ation"
The organi?ation of the future will be a conve'or of ideas with the sourcing of products and
services a secondar' issue" The custo!er sa's what the' want: and the organi?ation delivers"
3eanwhile the organi?ation also helps the custo!er raise their sights in envisioning what is
available" In this wa': the organi?ation of the future is a collection of visions and intellects brought
together b' a d'na!ic infor!ation and co!!unications networ" The i!portance of getting the
right co!petencies in staff has never been !ore crucial to business success: and internal auditing
is no e4ception" .o!e of the attributes that the co!petent internal auditor needs to de!onstrate
include the following <in no particular order=#
G Abilit' to appl' innovative and creative thining"
G Abilit' to wor to agreed ti!escales and account for ti!e"
G Able to add value to the organi?ation"
G Able to appreciate concerns of staeholders and focus on needs of the custo!er"
G Able to appreciate new ideas and e!brace and encourage change"
%)/ THE E..ENTIAL HAND9OOC OD INTERNAL AUDITINE
G Able to establish credibilit' with senior !anage!ent and at grassroots"
G Able to function within Be4ible woring arrange!ents"
G Able to plan wor and have a sense of urgenc' in perfor!ing the audits"
G Able to Fuicl' build relationships but retain professional stance"
G Able to wor under pressure and set priorities"
G A!bitious and con*dent without being overbearing"
G Appreciation of business environ!ent and new ventures"
G Appreciative enFuir'Ilooing for the positive in hu!an undertaings based on the great
energies that co!e fro! success and acco!plish!ents"
G 9alance and co!!on sense with an overall sense of fairness and diplo!ac'"
G 9asic technical sillI*nancial: legal: econo!ics: accounting: auditing: co!puting: statistics: other
anal'tical techniFues: database and spreadsheet use: data interrogations and so on"
G ,an cope with travel reFuire!ents and overnight sta's"
G ,o!!ercial awareness"
G ,o!!itted to continuous learning and open to training and develop!ent"
G ,o!!itted to woring within set corporate policies and section procedures"
G ,o!!unications sills: oral: public speaing: writing: report writing: effective listening: written
and interpersonal sills at all levels"
G Diplo!atic but persistent where reFuired"
G E!otional intelligence and good balance of e!otions such as anger: sadness: fear: en>o'7
!ent: love: surprise: disgust: sha!e Iand hu!ilit'" The abilit' to appl' social sills such as
trustworthiness: e!path': adaptabilit'"
G Enthusiastic: tas7oriented person: able to focus on the >ob in hand"
G Dacilitation sills with an e!phasis on challenge and co7ordination"
G Dor!al report writing"
G Eeneral !anage!ent sills and able to provide direction: delegate and !onitor results through
perfor!ance review"
G Elobal perspective and interest in international develop!ents"
G Eood balance of consulting and assurance approaches and able to reconcile possible conBicts
between helping people and reviewing s'ste!s"
G Eood decision !aing and >udge!ent with no special bias to self7interests"
G Eood interviewing techniFue and able to e!pathi?e with the client"
G Eood proble! solver and able to weigh up pros and cons of different options and to see
around the proble! through to solutions"
G Intellectual capacit' and able to see things for what the' are and ascertain causal relationships
between proble!: cause and effect"
G Interpersonal sills recogni?ing group d'na!ics and people behaviour"
G Leadership and drive with a clear sense of direction"
G 3ature and professional enough to deal with different t'pes of people and operate across
different cultures"
G Negotiation sills and so!e tenacit' in sticing to crucial points"
G Ob>ectivit' and independence with an abilit' to re!ain i!partial"
G 1ractical edge in appl'ing polic' and an understanding of an' li!itations"
G 1resentation sills"
G 1ro>ect !anage!ent sills"
G .elf7!otivated with good initiative: and enthusiastic even when perfor!ing !undane tass"
G .o!e co!!it!ent to developing a career in internal audit"
G Tas7focused and good at appl'ing energies to delivering results"
THE INTERNAL AUDIT ROLE %)0
G Tea! pla'er Iable to bu' into tea! woring and tea! tass with an understanding of the
i!portance of being friendl': participative and helpful: and having fun where possible"
G Trac record of achieve!ent and co!pletion of tass"
G Understanding of internal audit procedures and Fualit' reFuire!ents"
G Understanding of !odern audit techniFues including corporate governance: ris !anage!ent
and control"
G Understands big picture but can respond to detail when reFuired: notwithstanding appar7
ent a!biguit'"
The new loo creates a ver' de!anding role" It includes all those aspects that !ae a good
traditional auditor with a hard nose and deep concern with getting to the truth: and the new
approach of being a top7Bight consultant on ris and control issues"
5.19 Training and De0elo)8ent
Training is an i!portant aspect of developing internal auditors: and has to be carefull' planned
in line with a career develop!ental progra!!e" The 'ear )66) saw the introduction of a new
s'llabus for the IIA"UCNIreland that sought a wider coverage of the audit world and related areas"
This now provides two levels of Fuali*cation: the practitioner level <1IIA= and the !ore advanced
professional level <3IIA=" The professional level builds on and e4tends the sub>ects that are
covered at practitioner stage" As well as internal auditing topics: there is coverage of *nancial and
general !anage!ent: infor!ation s'ste!s and a new !odule dedicated to the topic of corporate
governance and ris !anage!ent" The advanced internal auditing paper is based around a case
stud' that is available before the e4a!ination date: so reBecting the growing trend towards
!ore practical wor" The 1IIA topics are# organi?ation and !anage!ent: accounting and *nancial
s'ste!s: internal auditing: business infor!ation s'ste!s auditing: and corporate governance and
ris !anage!ent" The 3IIA topics are# advanced !anage!ent: *nancial !anage!ent: advanced
infor!ation s'ste!s auditing: and advanced internal auditing" There are also two sills !odules
that the students are reFuired to co!plete on co!!unication and clientKauditor relations and
effective deliver' of an audit" 3ore recentl': the IIA"UCNIreland have developed a certi*cate in
,orporate Eovernance and Ris 3anage!ent" As well as for!al Fuali*cations: there is an entire
spectru! of developing people at wor that includes#
G TrainingIprogra!!es for getting people to learn to do things differentl'"
G Develop!ent Iuntaught activit' to increaseKi!prove perfor!ance"
G EducationIfor!al courses to develop nowledge and Fuali*cations"
G LearningIacFuiring better sills: nowledge and attitudes"
There are various wa's that audit staff !a' be trained and developed#
%& Specialist s!ills training via internal or e'ternal s!ills $or!shops These can be
e4tre!el' ef*cient in ter!s of auditor develop!ent"
(& 7rofessional training This !a' be based on passing e4a!inations of a de*ned professional
bod' such as the Institute of Internal Auditors: which is a co!pletel' different for! of training
fro! sills7based courses"
)& *he training co4ordinator Appointing a training co7ordinator is a positive wa' of pro!oting
various training progra!!es: particularl' where the co7ordinator can undertae so!e of the
actual training"
%)2 THE E..ENTIAL HAND9OOC OD INTERNAL AUDITINE
+& Directed reading This is one wa' of encouraging auditors to research aspects of internal
audit" The depart!ent should subscribe to all relevant >ournals and publications"
,& *raining through $or! 1rogra!!ed audits enable audit !anage!ent to ensure auditors
are rotated and e4posed to a variet' of audits and e4periences" It is possible to designate s!aller
audits as @training audits; where the' for! part of the auditors; personal develop!ent progra!!e"
.& *he audit revie$ The audit review process enables audit !anagers and tea! leaders to
direct the wor of >unior staff and also provides e4perience in staff !anage!ent"
0& 7rofessional af"liations These can be part of continuing professional develop!ent <,1D=
and sti!ulate group discussions"
5& *he audit manual This sets out the de*ned !ethods and procedures reFuired to discharge
the audit !ission"
Training is part of the !anagerial process and as such for!s onl' one constituent of the overall
s'ste! of hu!an resource !anage!ent" It cannot be seen in isolation fro! the other techniFues
for developing audit staff" Not all auditors re!ain in the audit shop for long periods of ti!e" This
@short7sta' s'ndro!e; results because organi?ations view internal audit as an ideal place to train
!anagers" There are !an' who do not view internal audit as a career in its own right and: for
e4a!ple: trainee accountants !a' wish to return to !ain line accountanc' after a spell in audit"
This poses a proble! in that e4tensive training is lost on audit staff who will not re!ain with the
depart!ent for long" All staff should be developed and those who !a' wish eventuall' to leave
auditing will si!pl' be replaced b' other auditors" Hacancies create scope for internal pro!otions
for auditors who e4cel via their develop!ent progra!!es" The onl' concern is that short7sta'
staff should not be placed on professional Fuali*cation progra!!es as these last several 'ears
and reFuire a !a>or co!!it!ent to a career in internal auditing"
!u88ary and Conclu(ion(
The challenge has been set b' the corporate governance: ris !anage!ent and control di!ensions
that now drive both the business world and public services" The de*nition of internal auditing has
been changed to reBect this factor: and audit charters are being torn up and rewritten to secure
this i!portant focus" Ever'thing else that happens in internal audit Bows fro! the changes: charter
and heightened e4pectations"
Cha)ter 5: /ulti;Choice <ue(tion(
-a0ing =or>ed through the cha)ter the 2ollo=ing 8ulti;choice ?ue(tion( 8ay *e
atte8)ted. @!ee A))endi6 A 2or (ugge(ted an(=er guide and A))endi6 3 =here
you 8ay record your (core.A
1. Which i( the lea(t a))ro)riate ite8?
1erfor!ance .tandard )%+6 !aes it clear that the internal audit activit' should assess
and !ae appropriate reco!!endations for i!proving the governance process in its
acco!plish!ent of the following ob>ectives#
a" 1ro!oting appropriate ethics and values within the organi?ation"
b" Ensuring effective organi?ational perfor!ance !anage!ent and accountabilit'"
THE INTERNAL AUDIT ROLE %)5
c" Effectivel' co!!unicating ris and control infor!ation to appropriate areas of the
organi?ation"
d" Effectivel' co7ordinating the activities of and co!!unicating infor!ation a!ong the board:
e4ternal auditors: other co!panies and regulators"
2. Which i( the 8o(t a))ro)riate ite8?
a" Internal auditors should review the s'ste!s established to ensure co!pliance with those
policies: plans: procedures: laws: regulations and i!portant contracts that could have
a signi*cant i!pact on operations and reports: and should deter!ine whether the
organi?ation is in co!pliance"
b" Internal auditors should review the s'ste!s established to ensure co!pliance with those
policies: plans: procedures: laws: regulations and i!portant contracts that could have
a signi*cant i!pact on operations and reports: and should deter!ine whether the
organi?ation is co!petent"
c" Internal auditors should ensure co!pliance with those policies: plans: procedures: laws:
regulations and i!portant contracts that could have a signi*cant i!pact on operations
and reports: and should deter!ine whether the organi?ation is in co!pliance"
d" Internal auditors should design the s'ste!s established to ensure co!pliance with those
policies: plans: procedures: laws: regulations and i!portant contracts that could have
a signi*cant i!pact on operations and reports: and should deter!ine whether the
organi?ation is in co!pliance"
3. In(ert the 8i((ing =ord(:
The " " " " " " " " " " constitutes a for!al docu!ent that should be developed b' the ,AE
and agreed b' the highest level of the organi?ation" If an audit co!!ittee e4ists then it should
be agreed in this foru! although the *nal docu!ent should be signed and dated b' the chief
e4ecutive of*cer"
a" audit plan"
b" audit charter"
c" audit !anual"
d" audit report"
+. Which i( the lea(t a))ro)riate ite8?
There are several e' IIA Attribute .tandards that !ae clear the signi*cance of auditors;
independence#
a" %%66# the internal audit activit' should be independent: and internal auditors should tr' to
be ob>ective in perfor!ing their wor"
b" %%%6# the internal audit activit' should report to a level within the organi?ation that allows
the internal audit activit' to ful*l its responsibilities"
c" %%%6"A%# the internal audit activit' should be free fro! interference in deter!ining the
scope of internal auditing: perfor!ing wor: and co!!unicating results"
d" %%)6# internal auditors should have an i!partial: unbiased attitude and avoid conBicts
of interest"
5. In(ert the 8i((ing =ord:
Independence !eans that !anage!ent can place full reliance on " " " " " " " " " "
a" the audit !anual"
b" !anage!ent assurances"
c" draft audit reports"
d" audit *ndings and reco!!endations"
%+6 THE E..ENTIAL HAND9OOC OD INTERNAL AUDITINE
,. Which ite8 i( =rong?
The IIA;s rules of conduct that appl' to internal auditors cover four areas#
a" Integrit'"
b" Ob>ectivit'"
c" ,on*dentialit'"
d" ,onsistenc'"
1. Which i( the 8o(t a))ro)riate (entence?
a" The old7fashioned detailed checer had little ti!e to discuss the real7life issues that fall
outside the scope of the audit progra!!e" Nowada's auditors are reFuired to do !ore
than operate on a detailed technical levelL the' are e4pected to be able to converse
openl' with other auditors"
b" The old7fashioned detailed checer had little ti!e to discuss the real7life issues that fall
outside the scope of the audit progra!!e" Nowada's auditors are onl' reFuired to
operate on a detailed technical levelL the' are not e4pected to be able to converse openl'
with senior !anage!ent"
c" The old7fashioned detailed checer had little ti!e to discuss the real7life issues that fall
outside the scope of the audit progra!!e" Nowada's auditors are reFuired to do !ore
than operate on a detailed technical levelL the' are e4pected to be able to converse
openl' with senior !anage!ent"
d" The old7fashioned detailed checer had a lot of ti!e to discuss the real7life issues that
fall outside the scope of the audit progra!!e" Nowada's auditors are reFuired to do
!ore than operate on a detailed technical levelL the' are e4pected to be able to converse
openl' with senior !anage!ent"
5. Which i( the lea(t a))ro)riate (entence?
As well as for!al Fuali*cations: there is an entire spectru! of developing people at wor
that includes#
a" TrainingIprogra!!es for getting people to learn to do things differentl'"
b" Develop!ent Iuntaught activit' to increaseKi!prove perfor!ance"
c" EducationIfor!al courses to develop nowledge and Fuali*cations"
d" LearningIacFuiring better Fuali*cations
7. In(ert the 8i((ing =ord:
The @ " " " " " " " " " " ; results because organi?ations view internal audit as an ideal place to
train !anagers"
a" short7sta' s'ndro!e"
b" professional auditor"
c" untrained auditor"
d" career auditor"
19. Which i( the 8o(t a))ro)riate (entence?
a" The challenge has been set b' the corporate governance: ris !anage!ent and control
di!ensions that now drive both the business world and public services" The de*nition of
internal auditing has been changed to reBect this factor: and audit charters are being torn
up and rewritten to secure this i!portant focus"
b" The challenge has been set b' the corporate governance: ris !anage!ent and control
di!ensions that now drive the private sector" The de*nition of internal auditing has been
changed to reBect this factor: and audit charters are being torn up and rewritten to secure
this i!portant focus"
THE INTERNAL AUDIT ROLE %+%
c" The challenge has been set b' the corporate governance: ris !anage!ent and control
di!ensions that now drive the public sector" The de*nition of internal auditing has been
changed to reBect this factor: and audit charters are being torn up and rewritten to secure
this i!portant focus"
d" The challenge has been set b' the corporate governance: ris !anage!ent and control
di!ensions that now drive both the business world and public services" The de*nition of
internal auditing has been changed to reBect this factor: and audit reports are being torn
up and rewritten to secure this i!portant focus"
#e2erence
%" 3arshall: Alan @.o what do 'ou do for a living(; Internal Auditing: 3a' %55-: p" %0"