Internal Audit: Exam 1

Internal & Governmental Auditing

Fall 2013

Name: Michael A. Kroon (please also put in header section so it appears on all pages)

You have until Friday evening to complete and submit this examination. Carefully read each question and organize your response BEFORE you start writing. Each question is worth 20 points each. Responses will be graded for content, organization, and punctuation. Your responses must be from the effort of you alone.

1. Explain/define independence and objectivity in an Internal Auditing. Why are these qualities so essential and yet difficult to achieve?

Independence: The freedom from conditions that threaten objectivity or the appearance of objectivity. It also can refer to the organizational status of the internal audit function. My father told me when I was promoted while in the Army, that “you can be friendly, but never friends”. Granted it was in reference to subordinates, however, I can see where this can apply. Given the closeness that IA’s must work with management and others, it is a human condition to become friends and socialize. It is also a human condition to “take it easy” on your friends, when management are told of mistakes or weak controls, and no documentation is made. Friends may ask for help in setting up controls, in reality you cannot audit the activity. When something is allowed to slide, an example would be case 2-2, management was trying to talk Mark into compromising his audit standards, and if it is done once…then there is no turning back as it will always be held against you.

Objectivity: An unbiased mental attitude that allows 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. It requires internal auditors not to subordinate their judgment on audit matters to that of others.

An IA must have the fortitude to their job, despite any relationships that might exist within the organization....