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Add Value - Organizations
exist to create value or benefit to their owners, other stakeholders,
customers, and clients. This concept provides purpose for their existence.
Value is provided through their development of products and services and
their use of resources to promote those products and services. In the
process of gathering data to understand and assess risk, internal auditors
develop significant insight into operations and opportunities for
improvement that can be extremely beneficial to their organization. This
valuable information can be in the form of consultation, advice, written
communications, or through other products all of which should be properly
communicated to the appropriate management or operating personnel.
Adequate
Control - Present
if management has planned and organized (designed) in a manner that provides
reasonable assurance that the organization's risks have been managed
effectively and that the organization’s goals and objectives will be
achieved efficiently and economically.
Assertions
- Implied or expressed representations by management about the accounts in
the financial statements. Management assertions are obtained in the
following five broad categories:
-
Existence
or occurrence assertion
-
All
assets and liabilities actually existed at the balance sheet date
-
All
revenues and expenditures included in the financial statements
actually occurred during the period covered by the financial
statements
-
The
events recognized in the financial statements represent real
transactions
-
No
account balances are overstated
-
The
financial statements contain information pertaining to the current
period only
-
Completeness
assertion
-
Rights
and obligations assertion
-
Valuation
or allocation assertion
-
All
account balances represent their true value
-
Includes
an evaluation of adequacy of reserves (e.g. allowance for doubtful
accounts)
-
Includes
an evaluation of appropriate allocation of costs (e.g.
depreciation)
-
Presentation
and disclosure assertion
Assurance
Services - An objective examination of evidence for the purpose of
providing an independent assessment on risk management, control, or
governance processes for the organization. Examples may include financial,
performance, compliance, system security, and due diligence engagements.
Audit Scope - The
activities covered by an internal audit, which may include, when
appropriate:
Auditee - Any
individual, unit, or activity of the organization that is audited.
Authorization -
Implies that the authorizing authority has verified and validated that the
activity or transaction conforms with established policies and procedures.
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Cause - The reason
for the difference between the expected and actual conditions (why the
difference exists).
Charter -
The charter of the internal audit activity is a formal
written document that defines the activity’s purpose, authority, and
responsibility. The charter should (a) establish the internal audit
activity’s position within the organization; (b) authorize access to
records, personnel, and physical properties relevant to the performance of
engagements; and (c) define the scope of internal audit activities.
Code of Ethics -
The
purpose of the Code of Ethics of The Institute of Internal
Auditors (IIA) is to promote an ethical culture in the global profession of
internal auditing. A code of ethics is necessary and appropriate for
the profession of internal auditing, founded as it is on the trust placed in
its objective assurance about risk, control, and governance. The Code
of Ethics applies to both individuals and entities that provide
internal audit services. The Code of Ethics provides
principles and rules of conduct in the areas of integrity, objectivity,
confidentiality, and competency.
Compensating
Controls - Are used to "counterbalance" the effects of an
internal control weakness.
Compliance - The
ability to reasonably ensure conformity and adherence to organization
policies, plans, procedures, laws, regulations, and contracts.
Conclusions
- The
internal auditor's evaluations of the effects of the findings on the
activities reviewed. Conclusions usually put the findings in perspective
based upon their overall implications. Conclusions are sometimes
referred to as opinions.
Condition - The
factual evidence which the internal auditor found in the course of the
examination (what does exist).
Conflict of Interest
- Any
relationship that is or appears to be not in the best interest of the
organization. A conflict of interest would prejudice an individual’s
ability to perform his or her duties and responsibilities objectively.
Consulting
Services - Advisory and related client service activities, the nature
and scope of which are agreed upon with the client and which are intended to
add value and improve an organization’s operations. Examples
include counsel, advice, facilitation, process design, and training.
Control - Any
action taken by management, the board, and other parties to enhance risk
management and increase the likelihood that established objectives and goals
will be achieved. Management plans, organizes, and directs the performance
of sufficient actions to provide reasonable assurance that objectives and
goals will be achieved.
Control Environment
- The attitude
and actions of the board and management regarding the significance of
control within the organization. The control environment provides the
discipline and structure for the achievement of the primary objectives of
the system of internal control. The control environment includes the
following elements:
-
Integrity
and ethical
values.
-
Management’s philosophy and operating
style.
-
Organizational
structure.
-
Assignment of authority and
responsibility.
-
Human
resource policies and
practices.
-
Competence of personnel.
Cost-Benefit Relationship
- Indicates that the potential loss associated with any exposure or risk is
weighed against the cost to control it.
Criteria - The
standards, measures, or expectations used in making an evaluation and/or
verification (what should exist).
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Detective Controls
- Actions taken to detect and correct undesirable events which have
occurred.
Directing -
Involves, in addition to accomplishing objectives and planned activities,
authorizing and monitoring performance, periodically comparing actual with
planned performance, and documenting these activities to provide additional
assurance that systems operate as planned.
Directive Controls
- Actions taken to cause or encourage a desirable event to occur.
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Economical Performance
- Accomplishes objectives and goals at a cost commensurate with the
risk.
Effect - The risk
or exposure the auditee organization and/or others encounter because the
condition is not the same as the criteria (the impact of the
difference).
Effective Control
- Is present when management directs systems in such a manner as to provide
reasonable assurance that the organizations objectives and goals will be
achieved.
Efficient Performance
- Accomplishes objectives and goals in an accurate and timely fashion with
minimal use of resources.
Error - An
unintentional misstatement or omission of significant information in a final
audit report.
External Auditors
refers to those audit professionals who perform independent annual audits of
an organization's financial statements.
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Findings -
Pertinent statements of fact. Audit findings emerge by a process of
comparing what should be with what is.
Follow-up - A
process by which internal auditors determine the adequacy, effectiveness,
and timeliness of actions take by management on reported audit findings
(include relevant findings made by external auditors and
others).
Fraud - Any
illegal acts characterized by deceit, concealment, or violation of trust.
These acts are not dependent upon the application of threat of violence or
of physical force. Frauds are perpetrated by individuals and organizations
to obtain money, property, or services; to avoid payment or loss of
services; or to secure personal or business advantage. Frauds are
intentional, while errors are unintentional.
Goals - Specific
objectives of specific systems and may be otherwise referred to as operating
or program objectives or goals, operating standards, performance levels,
targets, or expected results.
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Illegal Acts
-
Refers to violations of laws and governmental regulations.
Impairments - Impairments
to individual objectivity and organizational independence may include
personal conflicts of interest, scope limitations, restrictions on access to
records, personnel, and properties, and resource limitations (funding).
Independence -
Allows internal auditors to carry out their work freely and
objectively. This concept requires that internal auditors be
independent of the activities they audit. Independence is achieved
through organizational status and objectivity.
Information - Data
the internal auditor obtains during an audit to provide a sound basis for
audit findings and recommendations. Information should be sufficient,
competent, relevant, and useful.
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.
Internal Auditor
is an individual within an organization's internal auditing department who
is assigned the responsibility of performing internal auditing functions.
Internal Control -
A
process, affected by an entity’s board of directors, management, and other
personnel, designed to provide reasonable assurance regarding the
achievement of objectives in the following categories:
-
Reliability of financial reporting;
-
Effectiveness and efficiency of operations; and
-
Compliance with applicable laws and regulations.
Internal Control System -
The collective
effort made toward the achievement of organizational objectives. The
primary objectives of the internal control system are as follows:
-
Compliance
with policies and procedures
-
Accomplishment
of goals and objectives
-
Reliability
and integrity of information
-
Economical
and efficient use of resources
-
Safeguarding
of assets
Irregularity - The
intentional misstatement or omission of significant information in
accounting records, financial statements, other reports, documents or
records. Irregularities include fraudulent financial reporting which
renders financial statements misleading and misappropriation of
assets. Irregularities involve:
-
Falsification or alteration of
accounting or other records and supporting documents
-
Intentional misapplication of
accounting principles
-
Misrepresentation or intentional
omission of events, transactions, or other significant information
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Management - Those
individuals with responsibilities for setting and/or achieving the
organization's objectives.
Monitoring -
Encompasses supervising, observing, and testing activities and appropriately
reporting to responsible individuals. Monitoring provides an ongoing
verification of progress toward achievement of objectives and goals.
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Objectives - The
broadest statements of what the organization chooses to accomplish.
Objectivity - An
unbiased mental attitude that requires internal auditors to perform
engagements in such a manner that they have an honest belief in their work
product and that no significant quality compromises are made. Objectivity
requires internal auditors not to subordinate their judgment on audit
matters to that of others.
Opportunity for Improvement
- Pertinent statements of fact, which emerge by a process of comparing what
should be with what is. Opportunities for improvement provide facts
geared toward bringing what is in alignment with what should be.
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Preventive Controls
- Actions taken to deter undesirable events from occurring.
Professional
Skepticism - An attitude that includes a questioning mind and
critical assessment of audit evidence. Some examples demonstrating the
application of professional skepticism in response to the auditor's
assessment of the risk of material misstatement due to fraud include
...
-
increased sensitivity in the
selection of the nature and extent of documentation to be examined in
support of material transactions, and
-
increased recognition of the
need to corroborate management explanations or representations
concerning material matters, such as further analytical procedures,
examination of documentation, or discussion with others within or
outside the entity.
Recommendations -
Actions the internal auditor believes necessary to correct existing
conditions or improve operations.
Risk - The
uncertainty of an event occurring that could have an impact on the
achievement of objectives. Risk is measured in terms of consequences and
likelihood.
Risk Assessment -
The identification and analysis of relevant risks associated with the
achievement of objectives.
Risk Factors - The
criteria used to identify the relative significance of, and likelihood that,
conditions and/or events may occur that could adversely affect the
organization. Risk factors can be external or internal. External
risk factors are outside the organization, usually beyond management's span
of control. Internal risk factors are within the university, usually
within management's span of control.
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Significant - The
level of importance or magnitude assigned to an item, event, information, or
problem by the internal auditor.
Substance
over form - The auditor considers whether the financial statements
reflect the financial reality of the entity rather than the legal form of
the transactions and events which underlie them
Standards for the Professional
Practice of Internal Auditing (the Standards) - The criteria by
which the operations of an internal auditing department are evaluated and
measured. The
purpose of the Standards is to (a) Delineate basic
principles that represent the practice of internal auditing as it should be;
(b) Provide a framework for performing and promoting a broad range of
value-added internal audit activities; (c) Establish the basis for the
measurement of internal audit performance; and (d) Foster improved
organizational processes and operations.
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