IIA Standards Briefing

CUAV 2011Williamsburg Virginia

May 23, 2011

Your Instructor Dr. Doug Ziegenfuss

• Chair and Professor• Department of Accounting• Constant Hall, Room 2157• Old Dominion University• Norfolk, Virginia 23529-0229• Office 757-683-3514• FAX 757-683-3258• E-Mail dziegenf@odu.edu

Ground rules!(Continued)

• PLEASE TURN OFF YOUR CELL PHONES AND PAGERS!

• PLEASE GIVE ME YOUR HONEST EVALUATION!

• I AM CONSTANTLY TRYING TO IMPROVE MY PRESENTATIONS!

Two Ways to Present This Material!

• The first is to merely go through the standards – line by line – word by word.

• Boring, Boring, Boring!• The second is to quickly summarize the

framework and through case studies and exercises show how it can improve your practice!

• Who chooses the first and who chooses the second?

The Second Approach Wins in a Landslide!

Issue Number 1

• Why comply with the IIA Standards?

• Comments Please!

International Professional Practices Framework (IPPF)

• Notice the Word International!• Notice it is a framework!• The IPPF comes in many forms• Free on line at:• http://www.theiia.org/guidance/standards-

and-guidance/

International Professional Practices Framework (IPPF)

The International Professional Practices Framework (IPPF) is the conceptual framework that organizes authoritative guidance promulgated by The Institute of Internal Auditors. IPPF guidance includes:

Mandatory GuidanceDefinition of Internal AuditingCode of EthicsInternational Standards for the Professional Practice of Internal Auditing

Strongly Recommended GuidancePosition PapersPractice AdvisoriesPractice Guides

New Definition of Internal Auditing

• 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.

IIA Code of Ethics

• Codes of Conduct face a dilemma?• Can anyone tell me what it is?• Codes of Conduct have to be changed or they

become obsolete and irrelevant.• Let’s go through the IIA Code very quickly.• Please refer to your handout.• Then we will do a couple of exercises.

Ethics Case-Conflict of Interest

• Hawkins, an internal auditor, was performing an audit of the marketing department.

• Bailey, the VP for marketing, asked him to join him for dinner at his club to discuss some elements of the audit.

• Hawkins agreed.

Ethics Case-Professional Competence

• Howard, an internal auditor, was under pressure to complete an audit on the disposal of surplus.

• He had recently come upon a transaction that could have been an indication of a serious problem.

• Due to the time pressure, he did not investigate the problem or record it in his workpapers.

Ethics Case-Morality and Dignity

• Green, an internal auditor, was sent to a training seminar in another city.

• Green interviews for another job and misses an afternoon session of the seminar.

The International Standards for the Professional Practice of Internal Auditing

• Minimum Performance Standards• Attribute Standards• Performance Standards

Attribute Standards

• 1000 – Purpose, Authority, and Responsibility• 1100 – Independence and Objectivity• 1200 – Proficiency and Due Professional Care• 1300 – Quality Assurance and Improvement

Program

Performance Standards

• 2000 – Managing the Internal Audit Activity• 2100 – Nature of Work• 2200 – Engagement Planning• 2300 – Performing the Engagement• 2400 – Communicating Results• 2500 – Monitoring Results• 2600 – Resolution of Senior Management’s

Acceptance of Risks

Let’s Look at some issues and apply the International Standards for the

Professional Practice of Internal Auditing!

Internal Audit Manual

• How many audit shops have these?• Are they required by the standards?• Yes, see 2040. Policies and Procedures.

The Charter

• How many folks have these?• Why have them?• What should go into them?

THE CHARTER

• SIMILAR TO ENGAGEMENT LETTER• DOCUMENTS UNDERSTANDING BETWEEN

INTERNAL AUDIT AND MANAGEMENT• MARKETING TOOL

THE CHARTER (CONTENTS)• PURPOSE• NATURE AND DESCRIPTION OF INTERNAL AUDITING• ORGANIZATIONAL STATUS OF INTERNAL AUDITING• REPORTING RELATIONSHIPS• SCOPE OF INTERNAL AUDITING• RESPONSIBILITIES AND AUTHORITY• FRAUD• PROHIBITED ACTS• SIGNATURES AND APPROVAL

Risk Assessment and Audit Scheduling

• How many folks do this?• How many folks are happy with their current

procedure for doing this?

RISK ASSESSMENT

• DIVIDE ORGANIZATION INTO AUDITABLE UNITS• DETERMINE RISK FACTORS• ASSESS AUDITABLE UNITS ACCORDING TO RISK

FACTORS• RANK AUDITABLE UNITS BY TOTAL RISK FACTORS• SCHEDULE AUDITS

Quality Assurance!

• Supervision• Internal Review• External Review• TQM/Benchmarking

Performing the Individual Audit Assignment!

• Audit Planning• Audit Fieldwork• Audit Reporting• Audit Follow-up• The standards give guidance on each of these

issues.

Lastly!

• What does it mean to say that your internal audit function, “Conforms with the International Standards for the Professional Practice of Internal Auditing?”