Session 2 IAP

The internal audit activity (IAA) must be able to satisfy its responsibilities in an unbiased manner. For this reason,

• Threats to independence must be managed at the organizational and functional levels.

• The IAA must be objective.

• The chief audit executive must confirm to the board the IAA’s organizational objectivity.

• Internal auditors must be independent.

Which of the following statements is an appropriate reason for the internal audit activity not to participate in the systems development process?

• Participation will cause the internal auditors to be labeled as partial owners of the application, and they will then have to share the blame for any problems that remain in the system.

• None of the answers are correct.

• Recommendations prior to implementation will affect independence, and the internal auditors will not be able to perform an objective evaluation after the system is implemented.

• Participation will delay implementation of the project.

To achieve the effective organizational independence of the internal audit activity (IAA), the chief audit executive (CAE) most likely should

• Communicate with the board about the IAA’s performance.

• Inquire of the board about resource limitations.

• Submit the internal audit budget to a senior manager.

• Be appointed or removed by the CEO.

Which of the following combinations best illustrates a scope limitation and the appropriate response by the CAE?

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George is the new internal auditor for XYZ Corporation. George was in charge of payroll for XYZ just 10 months ago. Performing what services in regard to payroll is considered an impairment of independence or objectivity if performed by George?

• Assurance or consulting services.

• Consulting services.

• Neither assurance nor consulting services.

• Assurance services.

Which of the following would not be an appropriate responsibility for an internal audit activity?

• Reviewing the implementation of organizational policies.

• Undertaking research on factors impacting the organization’s share price.

• Assessing management’s performance against the achievement of the organization’s mission.

• Designing and implementing appropriate controls.

Effective management of internal auditor objectivity most likely results from

• Internal auditor self-assessments.

• Assignments based on familiarity with areas where auditors previously worked.

• Training that reinforces professional skepticism.

• Determining that an area to be audited is acceptable given past experience.

The internal audit activity encounters a scope limitation from senior management that will affect the activity’s ability to meet its goals and objectives for a potential engagement client. The nature of the scope limitation needs to be

• Communicated to the external auditors, so they can investigate the area in more detail.

• Communicated to management stating that the limitation will not be accepted because it would impair the internal audit activity’s independence.

• Communicated, preferably in writing, to the board.

• Noted in the engagement working papers, but the engagement should be carried out as scheduled and the scope limitation worked around, if possible.

Conformance with Attribute Standard 1110, Organizational Independence, regarding the position of the internal audit activity (IAA) is best demonstrated by

• A description in the audit committee’s charter of its oversight duties.

• A human resources departmental operations manual on internal audit reporting relationships.

• An internal audit policy manual providing for an annual meeting with the board and the supervising manager.

• An internal audit charter providing for functional reporting to senior management.

The organizational independence of the internal audit activity (IAA) is most effectively achieved when

• The board inquires about whether the IAA is subject to inappropriate resource limitations.

• The chief audit executive reports administratively to the audit committee.

• The chief audit executive (CAE) reports functionally to the CEO.

• A member of senior management approves the appointment of the chief audit executive.