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IPPF_Standards_01[1].09

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IPPF_Standards_01[1].09

INTERNATIONAL STANDARDS FOR THE PROFESSIONAL PRACTICE

    OF INTERNAL AUDITING (STANDARDS)

Attribute Standards

1000 Purpose, Authority, and Responsibility

    The purpose, authority, and responsibility of the internal audit activity must be formally defined in an internal audit charter, consistent with the Definition of Internal Auditing, the Code of Ethics, and the Standards. The chief audit executive must periodically review the internal audit charter and present it to senior management and the board for approval.

Interpretation:

    The internal audit charter is a formal document that defines the internal audit activity's purpose, authority, and responsibility. The internal audit charter establishes the internal audit activity's position within the organization; authorizes access to records, personnel, and physical properties relevant to the performance of engagements; and defines the scope of internal audit activities. Final approval of the internal audit charter resides with the board.

    1000.A1 The nature of assurance services provided to the organization must be

    defined in the internal audit charter. If assurances are to be provided to parties outside

    the organization, the nature of these assurances must also be defined in the internal

    audit charter.

    1000.C1 The nature of consulting services must be defined in the internal audit charter.

    1010 Recognition of the Definition of Internal Auditing, the Code of Ethics, and the Standards in the Internal Audit Charter

    The mandatory nature of the Definition of Internal Auditing, the Code of Ethics, and the Standards must be recognized in the internal audit charter. The chief audit executive should discuss the Definition of Internal Auditing, the Code of Ethics, and the Standards with senior

    management and the board.

1100 Independence and Objectivity

    The internal audit activity must be independent, and internal auditors must be objective in performing their work.

Interpretation:

    Independence is the freedom from conditions that threaten the ability of the internal audit activity or the chief audit executive to carry out internal audit responsibilities in an unbiased manner. To achieve the degree of independence necessary to effectively carry out the responsibilities of the internal audit activity, the chief audit executive has direct and unrestricted access to senior management and the board. This can be achieved through a dual-reporting relationship. Threats to independence must be managed at the individual auditor, engagement, functional, and organizational levels.

    Objectivity is an unbiased mental attitude that allows internal auditors to perform engagements in such a manner that they believe in their work product and that no quality compromises are made. Objectivity requires that internal auditors do not subordinate their judgment on audit Issued: October 2008 International Standards

    Revised: Page 1 of 19

    ? 2009 The Institute of Internal Auditors

    matters to others. Threats to objectivity must be managed at the individual auditor, engagement, functional, and organizational levels.

1110 Organizational Independence

    The chief audit executive must report to a level within the organization that allows the internal audit activity to fulfill its responsibilities. The chief audit executive must confirm to the board, at least annually, the organizational independence of the internal audit activity.

    1110.A1 The internal audit activity must be free from interference in determining the

    scope of internal auditing, performing work, and communicating results.

1111 Direct Interaction with the Board

    The chief audit executive must communicate and interact directly with the board.

1120 Individual Objectivity

    Internal auditors must have an impartial, unbiased attitude and avoid any conflict of interest.

Interpretation:

    Conflict of interest is a situation in which an internal auditor, who is in a position of trust, has a competing professional or personal interest. Such competing interests can make it difficult to fulfill his or her duties impartially. A conflict of interest exists even if no unethical or improper act results. A conflict of interest can create an appearance of impropriety that can undermine confidence in the internal auditor, the internal audit activity, and the profession. A conflict of interest could impair an individual's ability to perform his or her duties and responsibilities objectively.

1130 Impairment to Independence or Objectivity

    If independence or objectivity is impaired in fact or appearance, the details of the impairment must be disclosed to appropriate parties. The nature of the disclosure will depend upon the impairment.

Interpretation:

    Impairment to organizational independence and individual objectivity may include, but is not limited to, personal conflict of interest, scope limitations, restrictions on access to records, personnel, and properties, and resource limitations, such as funding.

    The determination of appropriate parties to which the details of an impairment to independence or objectivity must be disclosed is dependent upon the expectations of the internal audit activity’s and the chief audit executive’s responsibilities to senior management and the board as

    described in the internal audit charter, as well as the nature of the impairment.

    1130.A1 Internal auditors must refrain from assessing specific operations for which

    they were previously responsible. Objectivity is presumed to be impaired if an internal

    auditor provides assurance services for an activity for which the internal auditor had

    responsibility within the previous year.

    1130.A2 Assurance engagements for functions over which the chief audit executive

    has responsibility must be overseen by a party outside the internal audit activity.

Issued: October 2008 International Standards

    Revised: Page 2 of 19

    ? 2009 The Institute of Internal Auditors

    1130.C1 Internal auditors may provide consulting services relating to operations for

    which they had previous responsibilities.

    1130.C2 If internal auditors have potential impairments to independence or objectivity

    relating to proposed consulting services, disclosure must be made to the engagement

    client prior to accepting the engagement.

1200 Proficiency and Due Professional Care

    Engagements must be performed with proficiency and due professional care.

1210 Proficiency

    Internal auditors must possess the knowledge, skills, and other competencies needed to perform their individual responsibilities. The internal audit activity collectively must possess or obtain the knowledge, skills, and other competencies needed to perform its responsibilities.

Interpretation:

    Knowledge, skills, and other competencies is a collective term that refers to the professional proficiency required of internal auditors to effectively carry out their professional responsibilities. Internal auditors are encouraged to demonstrate their proficiency by obtaining appropriate professional certifications and qualifications, such as the Certified Internal Auditor designation and other designations offered by The Institute of Internal Auditors and other appropriate professional organizations.

    1210.A1 The chief audit executive must obtain competent advice and assistance if the

    internal auditors lack the knowledge, skills, or other competencies needed to perform all

    or part of the engagement.

    1210.A2 Internal auditors must have sufficient knowledge to evaluate the risk of fraud

    and the manner in which it is managed by the organization, but are not expected to have

    the expertise of a person whose primary responsibility is detecting and investigating fraud.

    1210.A3 Internal auditors must have sufficient knowledge of key information technology

    risks and controls and available technology-based audit techniques to perform their

    assigned work. However, not all internal auditors are expected to have the expertise of an

    internal auditor whose primary responsibility is information technology auditing.

    1210.C1 The chief audit executive must decline the consulting engagement or obtain

    competent advice and assistance if the internal auditors lack the knowledge, skills, or

    other competencies needed to perform all or part of the engagement.

1220 Due Professional Care

    Internal auditors must apply the care and skill expected of a reasonably prudent and competent internal auditor. Due professional care does not imply infallibility.

Issued: October 2008 International Standards

    Revised: Page 3 of 19

    ? 2009 The Institute of Internal Auditors

    1220.A1 Internal auditors must exercise due professional care by considering the:

    ; Extent of work needed to achieve the engagement’s objectives;

    ; Relative complexity, materiality, or significance of matters to which assurance

    procedures are applied;

    ; Adequacy and effectiveness of governance, risk management, and control

    processes;

    ; Probability of significant errors, fraud, or noncompliance; and

    ; Cost of assurance in relation to potential benefits.

    1220.A2 In exercising due professional care internal auditors must consider the use of

    technology-based audit and other data analysis techniques.

    1220.A3 Internal auditors must be alert to the significant risks that might affect

    objectives, operations, or resources. However, assurance procedures alone, even when

    performed with due professional care, do not guarantee that all significant risks will be

    identified.

    1220.C1 Internal auditors must exercise due professional care during a consulting

    engagement by considering the:

    ; Needs and expectations of clients, including the nature, timing, and

    communication of engagement results;

    ; Relative complexity and extent of work needed to achieve the engagement’s

    objectives; and

    ; Cost of the consulting engagement in relation to potential benefits.

1230 Continuing Professional Development

    Internal auditors must enhance their knowledge, skills, and other competencies through continuing professional development.

1300 Quality Assurance and Improvement Program

    The chief audit executive must develop and maintain a quality assurance and improvement program that covers all aspects of the internal audit activity.

Interpretation:

    A quality assurance and improvement program is designed to enable an evaluation of the internal audit activity’s conformance with the Definition of Internal Auditing and the Standards and an evaluation of whether internal auditors apply the Code of Ethics. The program also

    assesses the efficiency and effectiveness of the internal audit activity and identifies opportunities for improvement.

1310 Requirements of the Quality Assurance and Improvement Program

    The quality assurance and improvement program must include both internal and external assessments.

Issued: October 2008 International Standards

    Revised: Page 4 of 19

    ? 2009 The Institute of Internal Auditors

1311 Internal Assessments

    Internal assessments must include:

    ; Ongoing monitoring of the performance of the internal audit activity; and

    ; Periodic reviews performed through self-assessment or by other persons within the

    organization with sufficient knowledge of internal audit practices.

Interpretation:

    Ongoing monitoring is an integral part of the day-to-day supervision, review, and measurement of the internal audit activity. Ongoing monitoring is incorporated into the routine policies and practices used to manage the internal audit activity and uses processes, tools, and information considered necessary to evaluate conformance with the Definition of Internal Auditing, the Code of Ethics, and the Standards.

    Periodic reviews are assessments conducted to evaluate conformance with the Definition of Internal Auditing, the Code of Ethics, and the Standards.

    Sufficient knowledge of internal audit practices requires at least an understanding of all elements of the International Professional Practices Framework.

1312 External Assessments

    External assessments must be conducted at least once every five years by a qualified, independent reviewer or review team from outside the organization. The chief audit executive must discuss with the board:

    ; The need for more frequent external assessments; and

    ; The qualifications and independence of the external reviewer or review team, including

    any potential conflict of interest.

Interpretation:

    A qualified reviewer or review team consists of individuals who are competent in the professional practice of internal auditing and the external assessment process. The evaluation of the competency of the reviewer and review team is a judgment that considers the professional internal audit experience and professional credentials of the individuals selected to perform the review. The evaluation of qualifications also considers the size and complexity of the organizations that the reviewers have been associated with in relation to the organization for which the internal audit activity is being assessed, as well as the need for particular sector, industry, or technical knowledge.

    An independent reviewer or review team means not having either a real or an apparent conflict of interest and not being a part of, or under the control of, the organization to which the internal audit activity belongs.

1320 Reporting on the Quality Assurance and Improvement Program

    The chief audit executive must communicate the results of the quality assurance and improvement program to senior management and the board.

Issued: October 2008 International Standards

    Revised: Page 5 of 19

    ? 2009 The Institute of Internal Auditors

Interpretation:

    The form, content, and frequency of communicating the results of the quality assurance and improvement program is established through discussions with senior management and the board and considers the responsibilities of the internal audit activity and chief audit executive as contained in the internal audit charter. To demonstrate conformance with the Definition of Internal Auditing, the Code of Ethics, and the Standards, the results of external and periodic

    internal assessments are communicated upon completion of such assessments and the results of ongoing monitoring are communicated at least annually. The results include the reviewer’s or review team’s assessment with respect to the degree of conformance.

    1321 Use of “Conforms with the International Standards for the Professional Practice of Internal Auditing

    The chief audit executive may state that the internal audit activity conforms with the International

    Standards for the Professional Practice of Internal Auditing only if the results of the quality

    assurance and improvement program support this statement.

1322 Disclosure of Nonconformance

    When nonconformance with the Definition of Internal Auditing, the Code of Ethics, or the Standards impacts the overall scope or operation of the internal audit activity, the chief audit executive must disclose the nonconformance and the impact to senior management and the board.

Issued: October 2008 International Standards

    Revised: Page 6 of 19

    ? 2009 The Institute of Internal Auditors

Performance Standards

2000 Managing the Internal Audit Activity

    The chief audit executive must effectively manage the internal audit activity to ensure it adds value to the organization.

Interpretation:

    The internal audit activity is effectively managed when:

    ; The results of the internal audit activity’s work achieve the purpose and responsibility

    included in the internal audit charter;

    ; The internal audit activity conforms with the Definition of Internal Auditing and the

    Standards; and

    ; The individuals who are part of the internal audit activity demonstrate conformance with

    the Code of Ethics and the Standards.

2010 Planning

    The chief audit executive must establish risk-based plans to determine the priorities of the internal audit activity, consistent with the organization’s goals.

Interpretation:

    The chief audit executive is responsible for developing a risk-based plan. The chief audit executive takes into account the organization’s risk management framework, including using risk appetite levels set by management for the different activities or parts of the organization. If a framework does not exist, the chief audit executive uses his/her own judgment of risks after consultation with senior management and the board.

    2010.A1 The internal audit activity’s plan of engagements must be based on a

    documented risk assessment, undertaken at least annually. The input of senior

    management and the board must be considered in this process.

    2010.C1 The chief audit executive should consider accepting proposed consulting

    engagements based on the engagement’s potential to improve management of risks,

    add value, and improve the organization’s operations. Accepted engagements must be

    included in the plan.

2020 Communication and Approval

    The chief audit executive must communicate the internal audit activity’s plans and resource requirements, including significant interim changes, to senior management and the board for review and approval. The chief audit executive must also communicate the impact of resource limitations.

2030 Resource Management

    The chief audit executive must ensure that internal audit resources are appropriate, sufficient, and effectively deployed to achieve the approved plan.

Issued: October 2008 International Standards

    Revised: Page 7 of 19

    ? 2009 The Institute of Internal Auditors

Interpretation:

    Appropriate refers to the mix of knowledge, skills, and other competencies needed to perform the plan. Sufficient refers to the quantity of resources needed to accomplish the plan. Resources are effectively deployed when they are used in a way that optimizes the achievement of the approved plan.

2040 Policies and Procedures

    The chief audit executive must establish policies and procedures to guide the internal audit activity.

Interpretation:

    The form and content of policies and procedures are dependent upon the size and structure of the internal audit activity and the complexity of its work.

     2050 Coordination

    The chief audit executive should share information and coordinate activities with other internal and external providers of assurance and consulting services to ensure proper coverage and minimize duplication of efforts.

2060 Reporting to Senior Management and the Board

    The chief audit executive must report periodically to senior management and the board on the internal audit activity’s purpose, authority, responsibility, and performance relative to its plan. Reporting must also include significant risk exposures and control issues, including fraud risks, governance issues, and other matters needed or requested by senior management and the board.

Interpretation:

    The frequency and content of reporting are determined in discussion with senior management and the board and depend on the importance of the information to be communicated and the urgency of the related actions to be taken by senior management or the board.

2100 Nature of Work

    The internal audit activity must evaluate and contribute to the improvement of governance, risk management, and control processes using a systematic and disciplined approach.

2110 Governance

    The internal audit activity must assess and make appropriate recommendations for improving the governance process in its accomplishment of the following objectives:

    ; Promoting appropriate ethics and values within the organization;

    ; Ensuring effective organizational performance management and accountability;

    ; Communicating risk and control information to appropriate areas of the organization; and

    ; Coordinating the activities of and communicating information among the board, external

    and internal auditors, and management.

    2110.A1 The internal audit activity must evaluate the design, implementation, and

    effectiveness of the organization’s ethics-related objectives, programs, and activities.

Issued: October 2008 International Standards

    Revised: Page 8 of 19

    ? 2009 The Institute of Internal Auditors

    2110.A2 The internal audit activity must assess whether the information technology

    governance of the organization sustains and supports the organization’s strategies and

    objectives.

    2110.C1 Consulting engagement objectives must be consistent with the overall values

    and goals of the organization.

2120 Risk Management

    The internal audit activity must evaluate the effectiveness and contribute to the improvement of risk management processes.

Interpretation:

    Determining whether risk management processes are effective is a judgment resulting from the internal auditors assessment that:

    ; Organizational objectives support and align with the organization’s mission;

    ; Significant risks are identified and assessed;

    ; Appropriate risk responses are selected that align risks with the organization’s risk

    appetite; and

    ; Relevant risk information is captured and communicated in a timely manner across the

    organization, enabling staff, management, and the board to carry out their

    responsibilities.

    Risk management processes are monitored through ongoing management activities, separate evaluations, or both.

    2120.A1 The internal audit activity must evaluate risk exposures relating to the

    organization’s governance, operations, and information systems regarding the:

    ; Reliability and integrity of financial and operational information.

    ; Effectiveness and efficiency of operations.

    ; Safeguarding of assets; and

    ; Compliance with laws, regulations, and contracts.

    2120.A2 The internal audit activity must evaluate the potential for the occurrence of

    fraud and how the organization manages fraud risk.

    2120.C1 During consulting engagements, internal auditors must address risk

    consistent with the engagement’s objectives and be alert to the existence of other

    significant risks.

    2120.C2 Internal auditors must incorporate knowledge of risks gained from consulting

    engagements into their evaluation of the organization’s risk management processes.

    2120.C3 When assisting management in establishing or improving risk management

    processes, internal auditors must refrain from assuming any management responsibility

    by actually managing risks.

2130 Control

    Issued: October 2008 International Standards

    Revised: Page 9 of 19

    ? 2009 The Institute of Internal Auditors

    The internal audit activity must assist the organization in maintaining effective controls by evaluating their effectiveness and efficiency and by promoting continuous improvement.

    2130.A1 he internal audit activity must evaluate the adequacy and effectiveness of

    controls in responding to risks within the organization’s governance, operations, and

    information systems regarding the:

    ; Reliability and integrity of financial and operational information;

    ; Effectiveness and efficiency of operations;

    ; Safeguarding of assets; and

    ; Compliance with laws, regulations, and contracts.

    2130.A2 Internal auditors should ascertain the extent to which operating and program

    goals and objectives have been established and conform to those of the organization.

    2130.A3 Internal auditors should review operations and programs to ascertain the

    extent to which results are consistent with established goals and objectives to determine

    whether operations and programs are being implemented or performed as intended.

    2130.C1 During consulting engagements, internal auditors must address controls

    consistent with the engagement’s objectives and be alert to significant control issues.

    2130.C2 Internal auditors must incorporate knowledge of controls gained from

    consulting engagements into evaluation of the organization’s control processes.

2200 Engagement Planning

    Internal auditors must develop and document a plan for each engagement, including the engagement’s objectives, scope, timing, and resource allocations.

2201 Planning Considerations

    In planning the engagement, internal auditors must consider:

    ; The objectives of the activity being reviewed and the means by which the activity

    controls its performance;

    ; The significant risks to the activity, its objectives, resources, and operations and the

    means by which the potential impact of risk is kept to an acceptable level;

    ; The adequacy and effectiveness of the activity’s risk management and control

    processes compared to a relevant control framework or model; and

    ; The opportunities for making significant improvements to the activity’s risk

    management and control processes.

    2201.A1 When planning an engagement for parties outside the organization, internal

    auditors must establish a written understanding with them about objectives, scope,

    respective responsibilities, and other expectations, including restrictions on distribution

    of the results of the engagement and access to engagement records.

    2201.C1 Internal auditors must establish an understanding with consulting

    engagement clients about objectives, scope, respective responsibilities, and other client

    expectations. For significant engagements, this understanding must be documented.

Issued: October 2008 International Standards

    Revised: Page 10 of 19

    ? 2009 The Institute of Internal Auditors

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