Chapter 1 Solutions

Chapter 1 Solutions - CHAPTER 1 INTRODUCTION TO INTERNAL...

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CHAPTER 1 INTRODUCTION TO INTERNAL AUDITING Answer Key Review Questions 1. The IIA’s 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 effectiveness of risk management, control, and governance processes.” 2. An organization’s objectives define what the organization wants to achieve. The organization’s strategy defines how management plans to achieve the objectives. The four categories of business objectives introduced in this chapter are: ± Strategic objectives, which pertain to the value creation choices management makes on behalf of the organization’s stakeholders. ± Operations objectives, which pertain to the effectiveness and efficiency of the organization’s operations and include performance and profitability goals and safeguarding resources against loss. ± Reporting objectives, which pertain to the reliability of internal and external reporting of financial and non-financial information. ± Compliance objectives, which pertain to adherence to applicable laws and regulations. 3. Governance is the process conducted by the board of directors to authorize, direct, and oversee management toward the achievement of the organization’s objectives. Risk management is the process conducted by management to understand and deal with uncertainties (that is, risks and opportunities) that could affect the organization’s ability to achieve its objectives. Control , as defined in this chapter, is the process conducted by management to reduce risks to acceptably low levels. Please see the textbook glossary for separate definitions of control activities, internal control, and system of internal controls. 4. Internal assurance services involve an objective examination of evidence for the purpose of providing an independent assessment on governance , risk management, and control processes for the organization. Internal consulting services are advisory and related services, the nature and scope of which are agreed to with the customer and which are intended to improve an organization’s governance, risk management, and control processes without the internal auditor assuming management responsibility. 5. Independence is the freedom from conditions that threaten objectivity or the appearance of objectivity. Individual objectivity is an impartial, unbiased mental attitude and avoidance of conflicts of interest, allowing 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. 6.
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This note was uploaded on 10/02/2011 for the course ACCOUNTING 203 taught by Professor Choi during the Winter '09 term at NYU.

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Chapter 1 Solutions - CHAPTER 1 INTRODUCTION TO INTERNAL...

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