Solution_ARENS_Auditing13eAEB_SM_CH26_1.doc

Chapter 26 Internal and Governmental Financial Auditing and Operational Auditing Review Questions 26-1 Internal auditors who perform financial auditing are responsible for evaluating whether their companys internal controls are designed and operating effectively and whether the financial statements are fairly presented. This responsibility is essentially the same as the responsibility of external auditors who perform financial audits. The two types of auditors are also similar in that they both must be competent and must remain objective in performing their work and reporting their results. Despite these similarities, the role of the internal auditor in financial auditing differs from that of an external auditor in the following ways: Because internal auditors spend all of their time with one company, their knowledge about the companys operations and internal controls is much greater than the external auditors knowledge. Guidelines for performing internal audits are not as well defined as the guidelines for external auditors. Internal auditors are responsible to the management of the companies that they work for, while external auditors are responsible to financial statement users. Because internal auditors are responsible to management, their decisions about materiality and risks may differ from the decisions of external auditors. 26-2 The two categories of standards in the IIA International Standards for the Professional Practice of Auditing are (1) Attribute Standards and (2) Performance Standards. The Attribute Standards are: Purpose, authority, and responsibility Independence and objectivity Proficiency and due professional care Quality assurance and improvement program The Performance Standards are: Managing the internal audit activity Nature of work Engagement planning Performing the engagement Communicating results Monitoring progress Management’s acceptance of risks 26-3 External auditors are considered more independent than internal a