IIA IIA-CIA-Part1 - Essentials of Internal Auditing

The most appropriate action for the chief audit executive to take when updating the internal audit charter is to perform a review of IIA guidance to become acquainted with the latest mandatory elements prior to updating the charter. This ensures that the charter will be updated according to the most current standards and practices required by the IIA. Staying updated with the latest guidance helps in maintaining compliance with professional standards and aligning the internal audit function's objectives and scope with organizational needs and regulatory expectations.

IIA's International Standards for the Professional Practice of Internal Auditing and guidance on internal audit charters.

The internal audit charter is a formal document that defines the internal audit activity's purpose, authority, and responsibility. According to IIA standards, the internal audit charter must define the reporting relationships within the organization, which facilitates the independence and objectivity of the internal audit function. The inclusion of reporting relationships ensures that there is clear communication and understanding regarding the internal audit activity’s position within the organization.

IIA Standard 1000: "Purpose, Authority, and Responsibility"

An example of an ethical issue that the organization should address is when an employee receives concert tickets from a vendor and asks whether she could keep them. This situation involves potential conflicts of interest and could influence the employee's objectivity and decision-making in relation to the vendor, which is a direct ethical concern.

The IIA's Code of Ethics, particularly sections dealing with gifts and hospitality.

A characteristic typical of the internal audit activity is that it responds to the needs and desires of senior management and the board, but remains independent of the areas under review. This ensures that while internal audit activities are aligned with the strategic priorities of the organization, they maintain an unbiased stance that is critical for effectively assessing risk and control processes.

IIA's International Standards for the Professional Practice of Internal Auditing.

The primary role of the internal audit activity in relation to an organization’s internal controls is to provide an independent evaluation of risk management processes and internal control systems. This involves analyzing and advising on the costs versus benefits of control activities, ensuring that the controls are not only effective but also efficient in mitigating risks.

IIA Performance Standard 2130 - Control

Insuring fixed assets is an example of a risk reduction strategy known as risk transfer. By taking out insurance, an organization transfers the financial risk associated with damage or loss of assets to an insurance company. This strategy effectively reduces the organization's exposure to potential losses from such risks.

Risk management frameworks and strategies

Internal audit fraud prevention and detection activities are the best example of an ongoing independent monitoring activity among the options provided. These activities are designed to be independent of the management and are critical in continuously monitoring and identifying potential fraudulent activities within the organization.

IIA standards on fraud and monitoring

A significant threat to internal audit objectivity arises when the chief audit executive reports directly to the chief financial officer, especially if the CFO previously led the internal audit activity. This reporting relationship can undermine the independence necessary for objective audits, as the CFO might influence the scope or outcome of audit engagements to suit certain financial reporting outcomes or to cover previous decisions made while in charge of internal audit.

The IIA's International Standards for the Professional Practice of Internal Auditing on independence and objectivity.

While the internal audit may be involved in assessing the adequacy of the organization's efforts in corporate social responsibility (CSR), the primary responsibility for ongoing monitoring of CSR activities, such as reducing carbon footprint, typically rests with operational management. In this context, the Facility Operation Manager would be the most appropriate choice, as they are directly involved in managing the day-to-day operations that affect the organization’s environmental impact.

General industry practices on CSR responsibilities

If it is a consulting engagement, the best action for the new internal auditor, who has recently transferred from being an accounts payable clerk, is to decline the assignment and ask to be reassigned. This is crucial to maintain objectivity and avoid conflicts of interest, as the auditor would be consulting on processes for which they were previously responsible.

IIA Standards on Objectivity and Independence

According to IIA guidance, the chief audit executive (CAE) must obtain competent advice and assistance if the internal audit activity lacks the knowledge, skills, or other competencies needed to complete the audit engagement. This ensures that the internal audit activity can effectively carry out its responsibilities by supplementing its capabilities where necessary to maintain quality and effectiveness.

IIA Standard 1210 - Proficiency

The indication that an internal auditor was assigned to an assurance engagement is most strongly given by the requirement that the auditor must not assume management responsibilities while performing the engagement. This aligns with the principles of objectivity and independence, which are critical in assurance engagements to provide unbiased and reliable conclusions. Taking on management responsibilities could compromise the auditor's objectivity by involving them in the operations they are auditing.

IIA's International Standards for the Professional Practice of Internal Auditing.

Advanced expertise in internal auditing is largely based on the knowledge, skills, and abilities that are generally expected of all internal auditors. According to IIA guidance, all internal auditors should be proficient in risk management, control, and governance processes, including the ability to evaluate fraud risk and the ability to assess risk management strategies. However, creating test databases is a specialized technical skill that goes beyond the typical expertise of internal auditors. This type of skill is more commonly found among IT auditors or those with specific training in information technology, and it is not typically expected of all internal auditors.

The Institute of Internal Auditors (IIA) - International Professional Practices Framework (IPPF)

The best course of action for the auditor in this scenario is to disclose the potential impairment to the customer before accepting the consulting engagement. By doing so, the auditor maintains transparency regarding any conflicts of interest and allows the customer to make an informed decision about the auditor’s objectivity. Disclosing prior involvement ensures that both the auditor and the client acknowledge and address any potential bias that could affect the outcomes of the consulting service.

IIA's International Standards for the Professional Practice of Internal Auditing and Code of Ethics.

According to the Institute of Internal Auditors (IIA), the internal audit activity can play several roles in risk management, but its involvement should be advisory and facilitative in nature. The most appropriate role from the given options for the internal audit activity in an organization's risk management process is championing the establishment of a risk management framework. This includes advocating for risk management throughout the organization and helping management establish and improve the risk management framework without taking on management responsibilities, such as setting risk appetite or maintaining sole responsibility for risk management.

IIA Position Paper: "The Role of Internal Auditing in Enterprise-wide Risk Management"