1. Copyright: Internal Auditing: Assurance and Consulting Services, by The Institute of Internal Auditors Research Foundation, 247 Maitland Avenue, Altamonte Springs, Florida 32701-4201 U.S.A. PowerPoint slides for this text were created by David Ripka, CIA, internal audit educator at St Cloud State University, St. Cloud, MN, USA. 1 CHAPTER 1 FUNDAMENTAL INTERNAL AUDIT CONCEPTS

2. Copyright: Internal Auditing: Assurance and Consulting Services, by The Institute of Internal Auditors Research Foundation, 247 Maitland Avenue, Altamonte Springs, Florida 32701-4201 U.S.A. PowerPoint slides for this text were created by David Ripka, CIA, internal audit educator at St Cloud State University, St. Cloud, MN, USA. 2 Chapter 1 Learning Objectives Obtain a basic understanding of internal auditing and the internal audit process. Understand the relationship between auditing and accounting. Distinguish between financial reporting assurance services provided by internal auditors and those provided by independent outside auditors. Become familiar with the internal audit profession and The Institute of Internal Auditors. Understand the competencies needed to excel as an internal auditor. Be aware of the various internal audit career opportunities it is possible to pursue.

3. Copyright: Internal Auditing: Assurance and Consulting Services, by The Institute of Internal Auditors Research Foundation, 247 Maitland Avenue, Altamonte Springs, Florida 32701-4201 U.S.A. PowerPoint slides for this text were created by David Ripka, CIA, internal audit educator at St Cloud State University, St. Cloud, MN, USA. Copyright: Internal Auditing: Assurance and Consulting Services, by The Institute of Internal Auditors Research Foundation, 247 Maitland Avenue, Altamonte Springs, Florida 32701-4201 U.S.A. PowerPoint slides for this text were created by David Ripka, CIA, internal audit educator at St Cloud State University, St. Cloud, MN, USA. Internal Audit Definition Help organization accomplish objectives (think COSO) Evaluate, improve effectiveness of risk management, control, governance Assurance and consulting activity Independence and objectivity Systematic and disciplined approach 3

4. Copyright: Internal Auditing: Assurance and Consulting Services, by The Institute of Internal Auditors Research Foundation, 247 Maitland Avenue, Altamonte Springs, Florida 32701-4201 U.S.A. PowerPoint slides for this text were created by David Ripka, CIA, internal audit educator at St Cloud State University, St. Cloud, MN, USA. Copyright: Internal Auditing: Assurance and Consulting Services, by The Institute of Internal Auditors Research Foundation, 247 Maitland Avenue, Altamonte Springs, Florida 32701-4201 U.S.A. PowerPoint slides for this text were created by David Ripka, CIA, internal audit educator at St Cloud State University, St. Cloud, MN, USA. Accomplishing Objectives Categories promulgated by COSO Lets look at Exhibit 1 ◦ Strategic objectives ◦ Operations objectives ◦ Reporting objectives ◦ Compliance objectives 4

5. Copyright: Internal Auditing: Assurance and Consulting Services, by The Institute of Internal Auditors Research Foundation, 247 Maitland Avenue, Altamonte Springs, Florida 32701-4201 U.S.A. PowerPoint slides for this text were created by David Ripka, CIA, internal audit educator at St Cloud State University, St. Cloud, MN, USA. 5 Exhibit 1-1

6. Copyright: Internal Auditing: Assurance and Consulting Services, by The Institute of Internal Auditors Research Foundation, 247 Maitland Avenue, Altamonte Springs, Florida 32701-4201 U.S.A. PowerPoint slides for this text were created by David Ripka, CIA, internal audit educator at St Cloud State University, St. Cloud, MN, USA. Copyright: Internal Auditing: Assurance and Consulting Services, by The Institute of Internal Auditors Research Foundation, 247 Maitland Avenue, Altamonte Springs, Florida 32701-4201 U.S.A. PowerPoint slides for this text were created by David Ripka, CIA, internal audit educator at St Cloud State University, St. Cloud, MN, USA. Effectiveness of Risk Management, Control and Governance Processes Internal Audit plays a key role with the board of directors, audit committee and management regarding governance Risk management helps management understand uncertainties Controls reduces risks to acceptable levels Internal Audit evaluates and improves processes but does not guide or lead 6

7. Copyright: Internal Auditing: Assurance and Consulting Services, by The Institute of Internal Auditors Research Foundation, 247 Maitland Avenue, Altamonte Springs, Florida 32701-4201 U.S.A. PowerPoint slides for this text were created by David Ripka, CIA, internal audit educator at St Cloud State University, St. Cloud, MN, USA. Copyright: Internal Auditing: Assurance and Consulting Services, by The Institute of Internal Auditors Research Foundation, 247 Maitland Avenue, Altamonte Springs, Florida 32701-4201 U.S.A. PowerPoint slides for this text were created by David Ripka, CIA, internal audit educator at St Cloud State University, St. Cloud, MN, USA. Internal Audit Uses a Systematic and Disciplined Approach Three fundamental phases to an internal audit engagement ◦ Planning ◦ Performing ◦ Communicating ◦ We will use this format for all the case studies discussed 7

8. Copyright: Internal Auditing: Assurance and Consulting Services, by The Institute of Internal Auditors Research Foundation, 247 Maitland Avenue, Altamonte Springs, Florida 32701-4201 U.S.A. PowerPoint slides for this text were created by David Ripka, CIA, internal audit educator at St Cloud State University, St. Cloud, MN, USA. Copyright: Internal Auditing: Assurance and Consulting Services, by The Institute of Internal Auditors Research Foundation, 247 Maitland Avenue, Altamonte Springs, Florida 32701-4201 U.S.A. PowerPoint slides for this text were created by David Ripka, CIA, internal audit educator at St Cloud State University, St. Cloud, MN, USA. The Relationship between Internal Audit and External Audit Key difference is the audience or “ client ” requesting the services External auditors perform a service for entities outside the firm Internal auditors provide assurance services for the board of directors, audit committee and management Senior management relies on internal audit for compliance with Sarbanes Oxley 8

9. Copyright: Internal Auditing: Assurance and Consulting Services, by The Institute of Internal Auditors Research Foundation, 247 Maitland Avenue, Altamonte Springs, Florida 32701-4201 U.S.A. PowerPoint slides for this text were created by David Ripka, CIA, internal audit educator at St Cloud State University, St. Cloud, MN, USA. 9 Exhibit 1-2

10. Copyright: Internal Auditing: Assurance and Consulting Services, by The Institute of Internal Auditors Research Foundation, 247 Maitland Avenue, Altamonte Springs, Florida 32701-4201 U.S.A. PowerPoint slides for this text were created by David Ripka, CIA, internal audit educator at St Cloud State University, St. Cloud, MN, USA. Copyright: Internal Auditing: Assurance and Consulting Services, by The Institute of Internal Auditors Research Foundation, 247 Maitland Avenue, Altamonte Springs, Florida 32701-4201 U.S.A. PowerPoint slides for this text were created by David Ripka, CIA, internal audit educator at St Cloud State University, St. Cloud, MN, USA. Internal Audit Profession Institute of Internal Auditors History of organization (Exhibit 1-3) Professional guidance Professional certification Research and education Skills required to be an internal auditor Career paths 10

11. Copyright: Internal Auditing: Assurance and Consulting Services, by The Institute of Internal Auditors Research Foundation, 247 Maitland Avenue, Altamonte Springs, Florida 32701-4201 U.S.A. PowerPoint slides for this text were created by David Ripka, CIA, internal audit educator at St Cloud State University, St. Cloud, MN, USA. 11 Exhibit 1-3

12. Copyright: Internal Auditing: Assurance and Consulting Services, by The Institute of Internal Auditors Research Foundation, 247 Maitland Avenue, Altamonte Springs, Florida 32701-4201 U.S.A. PowerPoint slides for this text were created by David Ripka, CIA, internal audit educator at St Cloud State University, St. Cloud, MN, USA. 12 Exhibit 1-4

13. Copyright: Internal Auditing: Assurance and Consulting Services, by The Institute of Internal Auditors Research Foundation, 247 Maitland Avenue, Altamonte Springs, Florida 32701-4201 U.S.A. PowerPoint slides for this text were created by David Ripka, CIA, internal audit educator at St Cloud State University, St. Cloud, MN, USA. 13 Exhibit 1-5

14. Copyright: Internal Auditing: Assurance and Consulting Services, by The Institute of Internal Auditors Research Foundation, 247 Maitland Avenue, Altamonte Springs, Florida 32701-4201 U.S.A. PowerPoint slides for this text were created by David Ripka, CIA, internal audit educator at St Cloud State University, St. Cloud, MN, USA. 14 Exhibit 1-6

15. Copyright: Internal Auditing: Assurance and Consulting Services, by The Institute of Internal Auditors Research Foundation, 247 Maitland Avenue, Altamonte Springs, Florida 32701-4201 U.S.A. PowerPoint slides for this text were created by David Ripka, CIA, internal audit educator at St Cloud State University, St. Cloud, MN, USA. Copyright: Internal Auditing: Assurance and Consulting Services, by The Institute of Internal Auditors Research Foundation, 247 Maitland Avenue, Altamonte Springs, Florida 32701-4201 U.S.A. PowerPoint slides for this text were created by David Ripka, CIA, internal audit educator at St Cloud State University, St. Cloud, MN, USA. Internal Audit ◦ Targets of internal audit attention  Operational effectiveness and effectiveness of business processes  Reliability of information systems and quality of decision making information produced  Safeguarding of assets including losses from management and employee fraud  Compliance with organization policies, contracts, laws and regulations 15

16. Copyright: Internal Auditing: Assurance and Consulting Services, by The Institute of Internal Auditors Research Foundation, 247 Maitland Avenue, Altamonte Springs, Florida 32701-4201 U.S.A. PowerPoint slides for this text were created by David Ripka, CIA, internal audit educator at St Cloud State University, St. Cloud, MN, USA. Copyright: Internal Auditing: Assurance and Consulting Services, by The Institute of Internal Auditors Research Foundation, 247 Maitland Avenue, Altamonte Springs, Florida 32701-4201 U.S.A. PowerPoint slides for this text were created by David Ripka, CIA, internal audit educator at St Cloud State University, St. Cloud, MN, USA. Take-Away What did we get out of this chapter? What do internal auditors do? Is the scope broader than you thought? List the responsibilities of internal auditors From a skill standpoint what is the most important for the internal auditor? From an audit viewpoint what would be the most interesting audit type? (financial, operational, IT, fraud or special studies) 16