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 he 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
The financial statements contain all the information that is
related to the current period
No account balances are understated
Rights and obligations assertion Assets accurately
represent the organization's rights
Liabilities accurately represent the organization's
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 All transactions are
Appropriate disclosure in the notes to the financial statements are present
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:
Nature and extent of auditing procedures performed
Time period audited
Related activities not audited in order to delineate the boundaries of the audit
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
Management’s philosophy and operating style.
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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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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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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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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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 within an organization designed to provide reasonable assurance regarding the achievement of the following primary objectives:
The reliability and integrity of information
Compliance with policies, plans, procedures, laws, and regulations
The safeguarding of assets
The economical and efficient use of resources
The accomplishment of established objectives and goals for operations or programs
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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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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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.
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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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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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