Introduction to

Internal Auditing
Topics
Define internal auditing.
Discuss the difference between accounting and auditing.
Discuss the difference between internal and external
auditing.
Discuss independence and objectivity.
Discuss the value proposition for internal auditing services.
Discuss available certifications for internal auditors.
Discuss job opportunities for internal auditors.
Discuss the dilemma with being a professional internal
auditor.



IIA Definition
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 Institute of
Internal Auditors
IIA Scope
The scope of internal auditing should
encompass the examination of the adequacy
and effectiveness of the organizations system of
internal control and the quality of performance in
carrying out assigned responsibilities. Internal
Auditors should:
Review the reliability and integrity of financial and operating information and the means
used to identify, measure, classify, and report such information.
Review the systems established to ensure compliance with those policies, plans,
procedures, laws, and regulations which could have a significant impact on operations
and reports, and should determine whether the organization is in compliance.
Review the means of safeguarding assets and, as appropriate, verify the existence of
such assets.
Appraise the economy and efficiency with which resources are employed.
Review operations or programs to ascertain whether results are consistent with
established objectives and goals and whether the operations or programs are being
carried out as planned.
Relationship Between Auditing and Accounting
Accounting includes the collection, classification, summarization, and
communication of financial data; it involves the measurement and
communication of business events and conditions as they affect and
represent an enterprise. The task of accounting is to reduce a tremendous
amount of detailed information to manageable and understandable
proportions. Auditing does none of these things. Auditing must consider
business events and conditions too, but it does not have the task of
measuring or communicating them. Its task is to review the measurement
and communications of accounting for propriety. Auditing is analytical, not
constructive; it is critical, investigative, concerned with the basis for
accounting measurement and assertions. Auditing emphasized proof, the
support for financial statements and data. Thus, auditing has it principle
roots, not in accounting, which it reviews, but in logic on which it leans
heavily for ideas and methods. Mautz and Hussein (1961)
Financial Reporting Assurance Services:
External versus Internal Audit
External Auditing is a form of assurance service where the CPA firm
issues written attestation reports that expresses an opinion about
the effectiveness of internal controls over financial reporting and
whether the financial statements are fairly stated in accordance with
GAAP.

Internal Audit also provides financial reporting assurance services
but for a different audience (management and BOD). The CEO and
CFO must certify the financial statements and assess and report on
the effectiveness of internal controls over financial reporting.
Differences Between Internal and External
Auditors
External Auditor Internal Auditor
Is an independent contractor. Is an organizations employee, or can be an
independent entity (outsourced or co-sourced).
Serves third parties who need reliable financial
information.
Serves the needs of the organization.
Focuses on the accuracy and understandability of
historical events as expressed in the financial
statements.
Focuses on future events by evaluating controls
designed to assure the accomplishment of entity
goals and objectives.
Is incidentally concerned with prevention and
detection of fraud in general, but is directly
concerned when the financial statements may be
materially affected.
Is directly concerned with the prevention of fraud
in any form or extent in any activity reviewed.
Is independent of management and the board of
directors both in fact and in mental attitude.
Is independent of the activities audited, but is
ready to respond to the needs of all elements of
mgmt and the board.
Review records supporting financial statements
periodically.
Reviews governance, risk management and
control processes as needed.
Is not part of the organizations internal control
structure.
Is a part of the organizations internal control
structure.
Adapted from Sawyers Guide for Internal Auditors (2012)
Independence of Internal Audit
Chief Audit Executive (CAE) must report to a
level within the organization that has
sufficient authority to ensure
Broad engagement coverage.
Due consideration of engagement outcomes.
Appropriate responses to engagement outcomes.

IIA recommends the CAE reports functionally to the board of
directors and administratively to the CEO (Practice Advisory 1110-1:
Organizational Independence)
Objectivity of Internal Auditor
To ensure objectivity, internal auditors should
not:
Involve themselves in day-to-day operations.
Make management decisions.
Or put themselves in situations that result in
actual or potential conflicts of interest.
IIA Value Proposition
1.) Assurance = Governance, Risk and Control
Internal Audit helps the organization meet strategic, operation,
compliance and financial objectives by providing assurance on
the organizations governance, risk management and internal
control processes.


Internal Audit does not lead governance, risk management or
control processes.
Assurance and Consulting Services
Differ in three aspects:
Purpose
Who determine the nature and scope of
engagement.
Parties involved
Assurance Services
Purpose: to assess evidence relevant to a subject matter
of interest to someone and provide conclusions
regarding the subject matter.
Who determines the nature and scope of engagement?
Internal Audit function
Parties involved? Three parties: the auditee directly
involved in the subject matter of interest, the internal
auditor making the assessment and providing the
conclusions, and the user relying on the internal auditors
assessment and conclusions.
Consulting Services
Purpose: Provide advice and other assistance, generally
at the request of engagement customer.
Who determines the nature and scope of engagement?
The customer and the internal audit function mutually
agree on the nature and scope of the engagement.
Parties involved? Two parties: the customer seeking
advice and the internal auditor providing the advice.
IIA Value Proposition
2.) Insight = Catalyst, Analyses and Assessment.
Internal Audit provides a catalyst for improving organizational
effectiveness and efficiency.
Internal Auditors provide insight and recommendations for
improvements based on analyses and assessments of data and
business processes.

IIA Value Proposition
3.) Objectivity = Integrity, Accountability and Independence
Internal Audit is an objective source of independent advice that
provides value to governing bodies and management.
Modern Internal Auditing
Has been impacted by:
Globalization
Increasingly complex corporate structures
Technological advances (E-commerce, mobile
computing, etc.)
Large corporate scandals
Certified Internal Auditor (CIA)
Is the only globally accepted certification for
internal auditors.

To obtain CIA certification, a candidate must:
Pass a three part exam
Internal Audit Basics
Internal Audit Practice
Internal Audit Knowledge Elements
Have a minimum of two years internal audit experience or its
equivalent.
Specialty Certifications
IIA sponsors:
Certification in Control Self-Assessments
Certified Government Auditing Professional
Certified Financial Services Auditor
Certification in Risk Management Assurance

ISACA sponsors:
Certified Information Systems Auditor

Association of Certified Fraud Examiners sponsors:
Certified Fraud Examiner
Competencies to Excel as an
Internal Auditor
Inherent personal qualities key to be a
successful internal auditor are:
Integrity
Passion
Work ethic
Curiosity
Creativity
Initiative
Flexibility
Interpersonal
Skills

Tools and
Techniques

Standards

Knowledge
Areas

Communication

Leadership

Conflict Mgmt

Collaboration

Team Capabilities

Influence

Management

Operational and
Management
Research Tools

Forecasting

Project Mgmt

Risk and Control
Assessment
Techniques

Data Collection
and Analysis
Tools and
Techniques

CAATTs
International
Standards for the
Professional
Practice of
Internal Auditing

Code of Ethics
Financial
Accounting and
Finance

Managerial
Accounting

Regulatory, Legal
and Economics

Quality
Framework

Ethics and Fraud

IT

Governance, Risk
and Controls
IIA Internal Auditor Competency Framework
Pathways into Internal
Auditing
Public/private companies, government
entities, not-for-profit and firm specializing in
internal audit hire new college graduates.

Experience public accounting professional
often take internal audit positions sometime
within clients they used to audit as an
external auditor.
Pathways out of Internal
Auditing
Internal auditors may pursue executive
positions.
Internal auditors may pursue positions with
professional service firms that provide
assurance or consulting services (especially
internal auditors with specialized, highly-
valued expertise in a particular industry or
subject matter).

Internal Auditors Dilemma
A profession is characterized as having a
code of ethics, professional standards, and
require specialized training, among others.

Compared to other professions, the difficult
choices an internal auditor may face may be
more extreme and/or damaging to one
career.
Summary
We learned about internal auditing and how it
differs from external auditing.
We defined independence and objectivity, as
it relates to the internal audit function.
We talked about the value proposition that
supports having an active internal audit
function within an enterprise.
We talked about internal audit certifications
and jobs.