2010 IIA Standards Update - The Institute of Internal Auditors

Report
2010 IIA Standards Update
Andrew J. Dahle, CIA, CPA, CISA, CFE
Chair – IIA Internal Audit Standards Board
Warren Hersh, CIA, CPA, CISA, CFE
Member – IIA Internal Audit Standards Board
October 26, 2010
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Session Overview
•
Why The Standards Matter
•
Understanding the International Professional
Practices Framework (IPPF)
•
What’s New – IIA 2010 Standards Revisions
•
Questions
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Why the Standards Matter
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Standards are Critical
•
Delineate basic principles that represent the practice of
internal auditing
•
Framework for performing and promoting a broad range of
value-added internal auditing
•
Establish the basis for the evaluation of internal audit
performance
•
Foster improved organizational processes and operations
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Two Questions
Are you just now receiving
your first exposure to the Standards?
Would you say that your organization has
implemented most or all of the Standards?
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Understanding the IPPF
International
Professional
Practices
Framework
Issued January 2009
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AUTHORITATIVE Guidance
Mandatory
Authoritative =
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Non mandatory
Strongly
recommended
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Overview of the IIA Standards
Attribute Standards:
Purpose, Authority and Responsibility….…………….(1000)
Independence and Objectivity…………………………(1100)
Proficiency and Due Professional Care………………(1200)
Quality Assurance and Compliance…………………..(1300)
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Performance Standards:
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Managing the Internal Auditing Activity………..…….(2000)
Nature of Work.……………………………………..….(2100)
Engagement Planning……………………………....…(2200)
Performing the Engagement………………………….(2300)
Communicating Results…………………………….....(2400)
Monitoring Progress…………………………………...(2500)
Resolution of Management’s Acceptance of Risks...(2600)
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What’s New?
IIA Standards Revisions
Effective January 1, 2011
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Why Change?
• The Standards must remain current, relevant, and timely
for the profession
• The IPPF process requires that all guidance be reviewed at
least once every three years
• Ongoing changes are a key component of the continued
development of the IPPF issued in January 2009
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Standards Exposure Process
•
The 90 days public exposure period:
• February 15 to May 14, 2010
• 1,350 responses globally from individuals and 29 from organizations
•
The Internal Audit Standards Board (IASB) analyzed the results of the
exposure and determined the disposition of comments.
•
The IASB approved the final release of new/revised Standards at the June
2010 meetings.
•
The Ethics Committee reviewed the final Standards to ensure their
consistency with Code of Ethics.
•
The new/revised Standards were released October 19, 2010.
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The new/revised Standards will be effective January 1, 2011.
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Summary of Changes
•
3 new Standards
• 15 changes to existing Standards
•
2 deletions of the existing Standards
•
6 changes to existing Glossary terms
26 changes in total
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Summary of Changes – Topics
•
Define Functional Reporting of Internal Audit to the Board, and Clarify in the
Charter (1000, 1110)
•
Clarify when Newer Internal Audit Activities Can State They Conform with
Standards (1321)
•
Provide Requirements if Entity Level and Individual Engagement Opinions
Are Issued (2010.A2, 2410.A1, 2450)
•
Clarify Risk Management Coverage by Internal Audit (2120)
•
Revise Definition of “Add Value” (2000 and Glossary)
•
Revise Definition of “Chief Audit Executive” (Glossary) and Clarify
Responsibilities with External Service Providers (2070)
•
Enhance and Clarify Other Standards and Glossary Terms (throughout)
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Standard 1000 – Change Interpretation
1000 – Purpose, Authority, and Responsibility
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, including the nature of the chief audit executive’s functional
reporting relationship with the board; 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.
Exposure Results: Yes: 93.1%, No: 4.8%, No Opinion: 2.1%
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Standards Board Decision: Adopt the exposed change
14
Standard 1100 – New Interpretation
1110 – Organizational Independence
Interpretation:
Organizational independence is effectively achieved when the chief audit executive
reports functionally to the board. Examples of functional reporting to the board involve
the board:
• Approving the internal audit charter;
• Approving the risk based internal audit plan;
• Receiving communications from the chief audit executive on the internal audit
activity’s performance relative to its plan and other matters;
• Approving decisions regarding the appointment and removal of the chief audit
executive; and,
• Making appropriate inquiries of management and the chief audit executive to
determine whether there are inappropriate scope or resource limitations.
Exposure Results: Yes: 88.7%, No: 8.3%, No Opinion: 3.0%
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Standards Board Decision: Adopt the exposed change
15
Standard 1312 – Change Interpretation
1312 – External Assessments
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.
A qualified reviewer or review team demonstrates competence in two areas: the professional
practice of internal auditing and the external assessment process. Competence can be
demonstrated through a mixture of experience and theoretical learning. Experience gained in
organizations of similar size, complexity, sector or industry, and technical issues is more
valuable than less relevant experience. In the case of a review team, not all members of the
team need to have all the competencies; it is the team as a whole that is qualified. The chief
audit executive uses professional judgment when assessing whether a reviewer or review team
demonstrates sufficient competence to be qualified.
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.
Exposure Results: Yes: 84.1%, No: 9.3%, No Opinion: 6.6%
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Standards Board Decision: Modify the exposed change
16
Standard 1321 – New Interpretation
1321 – Use of “Conforms with the International Standards for the
Professional Practice of Internal Auditing”
Interpretation:
The internal audit activity conforms with the Standards when it achieves the
outcomes described in the Definition of Internal Auditing, Code of Ethics, and
Standards.
The results of the quality assurance and improvement program include the
results of both internal and external assessments. All internal audit activities
will have the results of internal assessments. Internal audit activities in
existence for at least five years will also have the results of external
assessments.
Exposure Results: Yes: 72.1%, No: 15.4%, No Opinion: 12.5%
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Standards Board Decision: Adopt the exposed change
17
Standard 2000 – Change Interpretation
2000 – Managing the Internal Audit Activity
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.
The internal audit activity adds value to the organization (and its stakeholders) when it
provides objective and relevant assurance, and contributes to the effectiveness and
efficiency of governance, risk management, and control processes.
Exposure Results: Yes: 87.6%, No: 9.5%, No Opinion: 2.9%
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Standards Board Decision: Adopt the exposed change
18
NEW Standard 2010.A2
2010.A2 – The chief audit executive must identify and
consider the expectations of senior management, the
board, and other stakeholders for internal audit opinions
and other conclusions.
Exposure Results: Yes: 72.0%, No: 21.0%, No Opinion: 6.9%
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Standards Board Decision: Modify the exposed change
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NEW Standard 2070
2070 – External Service Provider and Organizational
Responsibility for Internal Auditing
When an external service provider serves as the internal audit activity,
the provider must make the organization aware that the organization
has the responsibility for maintaining an effective internal audit activity.
Interpretation
This responsibility is demonstrated through the quality assurance and
improvement program which assesses conformance with the Definition
of Internal Auditing, the Code of Ethics, and the Standards.
Exposure Results: Yes: 73.0%, No: 15.7%, No Opinion: 11.2%
www.theiia.org
Standards Board Decision: Modify the exposed change
20
Change Standard 2110.C1
2110.C1 2210.C2 – Consulting engagement objectives must
be consistent with the overall organization's values,
strategies, and objectives goals of the organization.
2210.C2 – Consulting engagement objectives must be
consistent with the organization's values, strategies,
and objectives.
Exposure Results: Yes: 91.0%, No: 3.6%, No Opinion: 5.4%
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Standards Board Decision: Adopt the exposed change
21
Standard 2120 – Change Interpretation
2120 – Risk Management
Interpretation:
Determining whether risk management processes are effective is a judgment resulting
from the internal auditor’s 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.
The internal audit activity may gather the information to support this assessment during
multiple engagements. The results of these engagements, when viewed together, provide
an understanding of the organization’s risk management processes and their
effectiveness.
Exposure Results: Yes: 86.4%, No: 8.9%, No Opinion: 4.7%
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Standards Board Decision: Modify the exposed change
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Change Standard 2120.A1
2120.A1 – The internal audit activity must evaluate risk exposures
relating to the organization's governance, operations, and information
systems regarding the:
•
•
•
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Reliability and integrity of financial and operational information;
Effectiveness and efficiency of operations and programs;
Safeguarding of assets; and
Compliance with laws, regulations, policies, procedures, and
contracts.
Exposure Results: Yes: 91.4%, No: 5.9%, No Opinion: 2.6%
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Standards Board Decision: Adopt the exposed change
23
Change Standard 2130.A1
2130.A1 – The 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 and programs;
Safeguarding of assets; and
Compliance with laws, regulations, policies, procedures, and
contracts.
Exposure Results: Yes: 91.8%, No: 5.5%, No Opinion: 2.6%
www.theiia.org
Standards Board Decision: Adopt the exposed change
24
Delete Standard 2130.A2
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.
[Now in Standards 2120.A1 and 2130.A1.]
Exposure Results: Yes: 89.9%, No: 5.4%, No Opinion: 4.7%
www.theiia.org
Standards Board Decision: Adopt the exposed change
25
Delete Standard 2130.A3
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.
[Now in Standards 2120.A1 and 2130.A1.]
Exposure Results: Yes: 90.2%, No: 5.4%, No Opinion: 4.4%
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Standards Board Decision: Adopt the exposed change
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Change Standard 2410.A1
2410.A1 - Final communication of engagement results must, where appropriate,
contain the internal auditors’ overall opinion and/or conclusions. When issued, an
opinion or conclusion must take account of the expectations of senior
management, the board, and other stakeholders and must be supported by
sufficient, reliable, relevant, and useful information.
Interpretation:
Opinions at the engagement level may be ratings, conclusions, or other
descriptions of the results. Such an engagement may be in relation to controls
around a specific process, risk, or business unit. The formulation of such
opinions requires consideration of the engagement results and their significance.
Exposure Results: Yes: 81.4%, No: 13.6%, No Opinion: 5.0%
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Standards Board Decision: Modify the exposed change
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NEW Standard 2450
2450 – Overall Opinions
When an overall opinion is issued, it must take into account the expectations of senior
management, the board, and other stakeholders and must be supported by sufficient,
reliable, relevant, and useful information.
Interpretation:
The communication will identify:
• The scope, including the time period to which the opinion pertains;
• Scope limitations;
• Consideration of all related projects including the reliance on other assurance
providers;
• The risk or control framework or other criteria used as a basis for the overall
opinion; and
• The overall opinion, judgment, or conclusion reached.
The reasons for an unfavorable overall opinion must be stated.
Exposure Results: Yes: 74.9%, No: 19.9%, No Opinion: 5.1%
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Standards Board Decision: Modify the exposed change
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Change Definition
- Add Value
Add Value
Value is provided by improving opportunities to achieve organizational
objectives, identifying operational improvement, and/or reducing risk exposure
through both assurance and consulting services.
The internal audit activity adds value to the organization (and its stakeholders)
when it provides objective and relevant assurance, and contributes to the
effectiveness and efficiency of governance, risk management, and control
processes.
Exposure Results: Yes: 86.2%, No: 11.0%, No Opinion: 2.8%
www.theiia.org
Standards Board Decision: Modify the exposed change
29
Change Definition
- Chief Audit Executive
Chief Audit Executive
Chief audit executive is a senior position within the organization responsible for internal audit activities.
Normally, this would be the internal audit director. In the case where internal audit activities are
obtained from external service providers, the chief audit executive is the person responsible for
overseeing the service contract and the overall quality assurance of these activities, reporting to senior
management and the board regarding internal audit activities, and follow-up of engagement results.
The term also includes titles such as general auditor, head of internal audit, chief internal auditor, and
inspector general.
Chief audit executive describes a person in a senior position responsible for effectively
managing the internal audit activity in accordance with the internal audit charter and the
Definition of Internal Auditing, the Code of Ethics, and the Standards. The chief audit
executive or others reporting to the chief audit executive will have appropriate
professional certifications and qualifications. The specific job title of the chief audit
executive may vary across organizations.
Exposure Results: Yes: 67.5%, No: 29.0%, No Opinion: 3.5%
www.theiia.org
Standards Board Decision: Modify the exposed change
30
Change Definition
- Independence
Independence
The freedom from conditions that threaten objectivity or the
appearance of objectivity. Such threats to objectivity must be
managed at the individual auditor, engagement, functional, and
organizational levels.
The freedom from conditions that threaten the ability of the internal
audit activity to carry out internal audit responsibilities in an unbiased
manner.
Exposure Results: Yes: 84.0%, No: 12.6%, No Opinion: 3.5%
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Standards Board Decision: Modify the exposed change
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Other Changes
•
1100 – Independence and Objectivity
•
2110.A2
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2130.C1: Renumbered as 2220.C2
•
2130.C2: Renumbered as 2130.C1
•
2400 – Communicating Results
•
Control Environment
•
Information Technology Governance
•
Objectivity
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32
Summary of Changes – Topics
•
Define Functional Reporting of Internal Audit to the Board, and Clarify in the
Charter (1000, 1110)
•
Clarify when Newer Internal Audit Activities Can State They Conform with
Standards (1321)
•
Provide Requirements if Entity Level and Individual Engagement Opinions
Are Issued (2010.A2, 2410.A1, 2450)
•
Clarify Risk Management Coverage by Internal Audit (2120)
•
Revise Definition of “Add Value” (2000 and Glossary)
•
Revise Definition of “Chief Audit Executive” (Glossary) and Clarify
Responsibilities with External Service Providers (2070)
•
Enhance and Clarify Other Standards and Glossary Terms (throughout)
www.theiia.org
33
Get the Standards - www.theiia.org/standards
International Standards for the Professional Practice of Internal Auditing (Standards)
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Conformance with the Standards
is required and essential
for the professional practice
of internal auditing.
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35
QUESTIONS
[email protected]
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