320 Chap 5

Detection risk does not exist when no audit is performed. State whether each of the following statements is correct or incorrect concerning audit risk and its components—inherent risk, control risk, and detection risk.

correct

Inherent risk is the possibility of material misstatement before considering the client's internal control. State whether each of the following statements is correct or incorrect concerning audit risk and its components—inherent risk, control risk, and detection risk.

correct

transactions are recorded in the correct accounting period

cutoff

when auditing merchandise inventory at year-end the auditor performs audit procedures to ensure that all goods purchased before year-end are received before the physical inventory count. This audit procedure provides assurance about which management assertions

cutoff

Often, analytical procedures are considered the most ____ procedures for a strong understanding of the client and its business.

efficient

when an auditor reviews additions to the equipment accounts to make sure that fixed assets are not overstated she wants to obtain evidence as to management's assertion regarding

existance

when auditing the accounts receivable account on the balance sheet an auditor's procedures most likely would focus primarily on management's assertion of

existence

in auditing the accrued liabilities on the Balance Sheet, an auditor's procedures most likely would focus primarily on management's assertion of

existence or occurrence

Obtaining a written response about a particular item from a third party.

external confirmation

The amount of evidence that is considered sufficient varies __________ with the reliability of the evidence.

inversely

Separate __________ are used to combine similar general ledger accounts into the total that appears on the working trial balance.

lead schedules

overconfidence bias

overestimate one's abilities

availability bias

overvaluing initial information

Working papers of audit interest over an extended period of time should be filed in the __________.

permanent file

assets are properly classified

presentation

what are PCAOB assertions

presentation existence rights and obligations completeness valuation

an auditor's purpose in auditing the information contained in the pension footnote most likely is to obtain evidence concerning Managment's assertion about

presentation and disclosure

during an audit of an entity's stochholders' equity accounts the audtior determines whether there are restrictions on retained earnings resulting from loans, agreements or state law. this audit procedure most likely is intended to verify management's assertion of

presentation and disclosure

In relying upon the work of a specialist, the auditors must ascertain the __________ and reputation of the specialist.

professional qualifications

An attitude that includes a questioning mind, and a critical assessment of audit evidence.

professional skepticism

Part of performing analytical procedures involves considering ________.

ratios

Testing the mathematical accuracy of documents or records.

recalculation

to be appropriate audit evidence must be

relevant reliable

A financial statement assertion that has a reasonable possibility of containing a misstatement or misstatements that would cause the financial statements to be materially misstated.

relevant assertion

Without regard to the effect of controls, __________ have a reasonable possibility of containing a misstatement that could cause the financial statements to be materially misstated.

relevant assertions

An independent execution of procedures or controls that were originally performed by the client.

reperformance

A letter signed by officers of the client company at the auditors' request which sets forth certain assertions about the company's financial position and operations is known as a __________.

representation letter

Auditing standards ______ analytical procedures at the planning and concluding stages of the audit.

require

the company legally owns the asset

rights and obligations

when auditing merchandise inventory at year-end the auditor performs audit procedures to ensue that no goods held on consignment are included in the client's ending invertory balance. This audit procedure provides assurance about which management assert

rights and obligations

the objective in an auditor's review of credit ratings of a client's customers is to obtain evidence related to management's assertions about

valuation and allocation

Establishing the validity of a transaction by examining supporting documents.

vouching

assets are recorded at proper amounts

valuation

types of working papers

1. Audit administrative working papers 2. Working trial balance and Lead schedules 3. Adjusting journal entries and reclassification entries 4. Supporting schedules, Analysis of a ledger account, Reconciliations, Computational working papers 5. Corroborating documents

The cost of analytical procedures in terms of time needed to perform, when compared to other tests, is ordinarily considered:

Low.

Information used by the auditor that corroborates or contradicts the assertions in the financial statements.

audit evidence

2. List and describe types of audit procedures to perform to test management's assertions and apply your understanding to situations/examples. .

1. existence 2. rights and obligations 3. completeness 4. accuracy, valuation, allocation 5. classification

6. List and describe types of audit procedures and identify appropriate and applicable audit procedures to test management's assertions.

1. inspection of records and documents 2. inquire of knowledgeable persons within and outside the entity 3. external confirmation 4. inspection of tangible assets 5. observation of processes or procedures being performed by others 6. recalculation of mathematical accuracy 7. reperformance of procedures 8. analytical procedures Figure 5.3

audit procedures

1.Inspection of records and documents 2.Inquiry of knowledgeable persons within or outside the entity 3.External confirmation 4.Inspection of tangible assets 5.Observation of processes or procedures being performed by others 6.Recalculation of mathematical accuracy 7.Reperformance of procedures 8.Analytical procedures

. Which of the following business characteristics is not indicative of high inherent risk? Operating results that are highly sensitive to economic factors. Large likely misstatements detected in prior audits. Substantial turnover of management. A large amount of assets.

A large amount of assets.

4. List and describe the components of audit risk (AR = IR*CR*DR) and the relationship among the components (including RMM = IR*CR). Express the audit risk model in quantitative and qualitive terms.

AR= audit risk IR= inherent risk CR= control risk DR= detection risk RMM= risk of material misstatement

Performing analytical procedures may help an auditor to:

Achieve audit objectives related to a particular assertion.

In developing an expectation for analytical procedures, the auditors are least likely to consider:

Anticipated costs of audit completion.

In using the work of a specialist, the auditors referred to the specialist's findings in their report. This would be an appropriate reporting practice if the:

Auditors, as a result of the specialist's findings, give a qualified opinion on the financial statements.

Seeking and treating as more persuasive information that is consistent with one's initial beliefs describes which cognitive bias?

Confirmation bias.

Analytical procedures performed near the end of the audit to assist the auditor in forming an overall conclusion on the financial statements are aimed primarily at:

Considering unusual or unexpected account balances that were not previously identified.

Of the following, which is the least reliable type of audit evidence? Confirmations mailed by outsiders to the auditors. Correspondence between the auditors and suppliers. Copies of sales invoices inspected by the auditors. Correct Canceled checks returned in the year-end bank statement directly to the client.

Copies of sales invoices inspected by the auditors.

A difference of opinion concerning accounting and auditing matters relative to a particular phase of the audit arises between an assistant auditor and the auditor responsible for the engagement. After appropriate consultation, the assistant auditor asks to be disassociated from the resolution of the matter. The working papers would probably:

Document the assistant auditor's position and how the difference of opinion was resolved.

Which of the following is not a financial statement assertion made by management? Existence of recorded assets and liabilities. Completeness of recorded assets and liabilities. Valuation of assets and liabilities. Effectiveness of internal control.

Effectiveness of internal control.

there is such an asset

Existence/Occurrence

extent of procedures

Holding other factors such as the nature and timing of procedures constant: ¡The greater the risk of material misstatement, the greater the needed extent of substantive procedures ¡The main way to increase the extent of audit procedures is to examine more items ¡Sample sizes should reduce detection risk so as to restrict audit risk to a low level

nature and timing of procedures

Holding the extent of procedures constant, one may increase the scope of procedures (make them more effective) by either changing the ¡Nature—obtain more reliable evidence úoften externally generated evidence. ¡Timing—wait until year-end to obtain evidence from entire set of transactions as contrasted to performing interim testing, say two months prior to year-end and simply updating those procedures.

what is risk of material misstatement (RMM)

IR x CR

IIA code of ethics- principles

Internal auditors are expected to apply & uphold the following principles: •Integrity. The integrity of internal auditors establishes trust and thus provides the basis for reliance on their judgment. •Objectivity. Internal auditors exhibit the highest level of professional objectivity in gathering, evaluating, and communicating information about the activity or process being examined. Internal auditors make a balanced assessment of all the relevant circumstances and are not unduly influenced by their own interests or by others in forming judgments. •Confidentiality. Internal auditors respect the value and ownership of information they receive and do not disclose information without appropriate authority unless there is a legal or professional obligation to do so. •Competency. Internal auditors apply the knowledge, skills, and experience needed in the performance of internal auditing services.

documents created and used only within the organization reliability

Limited reliance can be placed on documentary evidence created within the organization and not reviewed by outsiders. Weak internal control often results in documents being prepared by individuals whose duties give them an incentive to create false documentation. For example, an employee with access to cash receipts may also issue credit memoranda which are not subject to supervisory review. If a cash shortage arises for any reason, the employee may be tempted to "solve the problem" by issuing fraudulent credit memoranda. Failure to account for all documents by serial number is also a threat because this practice leaves the auditors with no assurance that a population of documents is complete. Finally, weak internal control provides a setting in which management could, if it chose to do so, use false supporting documents for the dual purpose of supporting misleading financial statements and deceiving the auditors.

In what section of the audit working papers would a long-term lease agreement be filed?

Permanent working paper file.

What type of analytical procedure would an auditor most likely use in developing relationships among balance sheet accounts?

Ratio analysis.

accounting records reliability

Reliance upon accounting records as evidence tends to be reduced when internal controls are weak. The reliability of journals and ledgers is determined by the strength of internal controls in their preparation. For example, if the same person who maintains the general ledger maintains subsidiary ledgers, little assurance of accuracy is provided by agreement between these records. Similarly if there are no control measures to insure that all retirements of plant and equipment are recorded, the equipment shown in the records may in fact no longer be used in operations.

analytical procedures reliability

Reliance upon analytical procedures may be increased. The weakness in internal control could cause large errors in account balances. Consequently, the analytical procedures that call attention to any unusual relationship between amounts in the financial statements take on added importance

Evidence provided by specialists.

Reliance upon evidence provided by specialists may be increased if internal controls over inventory are weak. In addition to emphasizing a complete physical count at the balance sheet date, the auditors may want the assurance of independent experts (specialists) as to the quality and condition of the wine inventory.

physical evidence reliability

Reliance upon physical evidence may increase when internal control is weak. For example, if internal control over inventory is weak, the auditors may place more weight upon a complete physical inventory taken at the balance sheet date.

A primary purpose of the audit working papers is to:

Support the auditors' opinion.

Which of the following statements best describes why auditors investigate related party transactions?

The substance of related party transactions may differ from their form. Explanation According to the definition of "related parties," one party may be able to influence the other to the extent that the two parties do not pursue their own separate interests in conducting transactions. Thus, a risk exists that the substance of related party transactions may differ from their form.

As part of their audit, auditors obtain a representation letter from their client. Which of the following is not a valid purpose of such a letter? To increase the efficiency of the audit by eliminating the need for other audit procedures. Correct To remind the client's management of its primary responsibility for the financial statements. To document in the audit working papers the client's responses to certain verbal inquiries made by the auditors during the engagement. To provide evidence in those areas dependent upon management's future intentions.

To increase the efficiency of the audit by eliminating the need for other audit procedures.

Analytical procedures are most likely to detect:

Unusual transactions.

8. Describe the considerations involved in auditing subjective areas, such as certain financial statement items valued at fair value.

accounting estimates: Approximations used in a company's financial statements when there is an inherent lack of precision of measurement (estimation uncertainty). These approximations rely upon management's judgments or assumptions, such as determining the allowance for doubtful accounts, establishing warranty reserves, and assessing assets for impairment. We will consider the term estimation uncertainty synonymous with the term measurement uncertainty. - require auditors to identify accouting estimates in significant accounts and disclosures understand the manner in which estimates were developed and the risk of material misstatement - do accounting estimates follow GAAP? 1. review and test management's process of developing the estimates 2. independently develop an estimate of the amount to compare to management's estimate 3. obtain evidence on relevant events or transactions occurring up to the date of the audit report - often auditors obtain assistance in evaluating estimates from specialists hire by management or the auditors - auditors should be alert to circumstances in which management may have an incentive is inappropriately to characterize fair value measurements within the hierarchy

The auditors develop __________ to recommend to management to correct the effects of errors or fraud in the client's accounting records.

adjusting entires

The audit approach of evaluating financial statement information by a study of relationships among financial and nonfinancial data is __________.

analytical procedures

Starting with an initial belief and then insufficiently adjusting that belief when contrary information is encountered.

anchoring bias

1. Explain the relationship among audit risk, audit evidence, and F/S assertions.

audit evidence: the information used by auditors in arriving at conclusions on which the audit opinion is based. Used to obtain reasonable assurance that financial statements follow appropriate criteria. reasonable assurance is obtained when auditors have obtained sufficient appropriate audit evidence to reduce audit risk (risk auditor expresses an inappropriate opinion)

3. Identify and explain the components of audit risk.

audit risk consists of 1. risk of material misstatement or a relevant assertion related to an account balance, class of transaction or disclosure 2. risk that auditors will not detect such misstatement inherent risk: possibility of material misstatement of financial statement assertion before considering any related controls control risk: The risk that a material misstatement could occur in a financial statement assertion and not be prevented, or detected and corrected, on a timely basis by internal control. detection risk: The risk that the auditors' procedures will lead them to conclude that a financial statement assertion is not materially misstated when in fact such misstatement does exist. Inherent and control risk are a function of the client and its operating environment. auditors use evidence to asses the level of inherent and control risk detection risk is a function of the effectiveness of the audit procedures performed

Overvaluing information that quickly comes to mind.

availability bias

all assets have been recorded

completeness

The purpose of an analysis of an account is to illustrate __________ in the account for the period under audit.

changes

The term __________ relates to the quantity of evidence that the auditors should obtain.

sufficient

an auditor selected items for tests count from the client's warehouse during the physical inventory observation. the auditor then traced these counts into the detailed inventory listing that agreed to the financial statements. this procedure most likely provided evidence concerning Managment's assertion of

completeness

cutoff tests designed to detect valid sales that occurred before the end of the year but have been recorded in the subsequent year would provide assurance about management's assertion of

completeness

Analytical procedures at the end of the audit help confirm the ______ reached.

conclusions

Seeking and treating as more persuasive information that is consistent with one's beliefs.

confirmation bias

A __________ is a type of documentary evidence transmitted directly to the auditors by a third party (e.g., a customer or a vender).

confirmation reply

The risk of material misstatement is composed of two risks that the auditor assesses, those risks are inherent risk and __________ risk.

control

The risk that a material misstatement that could occur will not be prevented or detected on a timely basis.

control risk

Absent any other changes, an increase in the risk of material misstatement results in an increase in audit risk. State whether each of the following statements is correct or incorrect concerning audit risk and its components—inherent risk, control risk, and detection risk.

correct

Both inherent risk and control risk exist independently of the audit of financial statements. State whether each of the following statements is correct or incorrect concerning audit risk and its components—inherent risk, control risk, and detection risk.

correct

The examination of large data sets to uncover hidden patterns, unknown correlations and other useful information is referred to as _________.

data analytics

7. Discuss the nature of data analytics and big data used in businesses and how they are used in auditing.

data analytics: Analyses applied to raw data with the purpose of drawing conclusions about relationships. Data analytics is being used by management to get insights into how to improve the effectiveness and efficiency of operations. It is also used as a part of the management review to monitor the performance of other internal controls. Auditors are increasingly using data analytics to improve the effectiveness of certain audit procedures. big data: As applied in business, large data sets containing a variety of data types (i.e., big data) that are analyzed to uncover hidden patterns, unknown correlations, market trends, customer preferences, and other useful business information. These data sets are so large and complex they require new and powerful computational resources to process them. While big data may include traditional accounting information, it also may include other data such as: GPS data, videos, social media data, e-mails, and website hits.

Audit risk refers to the possibility that the auditors may express an inappropriate opinion on financial statements that are materially or immaterially misstated. State whether each of the following statements is correct or incorrect concerning audit risk and its components—inherent risk, control risk, and detection risk.

incorrect

Less control risk means an increase in the risk of material misstatement. State whether each of the following statements is correct or incorrect concerning audit risk and its components—inherent risk, control risk, and detection risk.

incorrect

Rather than restrict detection risk through the performance of more substantive procedures, auditors assess it. State whether each of the following statements is correct or incorrect concerning audit risk and its components—inherent risk, control risk, and detection risk.

incorrect

The risk of material misstatement is composed of the three components of audit risk. State whether each of the following statements is correct or incorrect concerning audit risk and its components—inherent risk, control risk, and detection risk.

incorrect

effects of changes in numerators and denominators of ratio greater than zero

increasing the numerator of a ratio always increases the ratio increasing the denominator of a ratio always decreases the ratio

what are the components of audit risk

inherent risk, control risk, detection risk ¨IR—RMM of a financial statement assertion before considering controls. ¨ ¨CR—The risk that a material misstatement that could occur in an account will not be prevented or detected on a timely basis by internal control. ¨ ¨DR—Risk that the auditors' procedures will lead them to conclude that a financial statement assertion is not materially misstated when in fact such misstatement does exist.

Examining a document or record.

inspection of records

Physically examining an asset.

inspection of tangible assets

As related to an accounting estimate, an assumption for which a reasonable variation would materially affect the measurement of that accounting estimate.

significant assumption

Analytical procedures can also be used as ______ procedures in testing.

substantive

Tests of controls and __________ are referred to as "further audit procedures."

substantive procedures

5. Distinguish between the concepts of sufficient and appropriate as they apply to audit evidence.

sufficient: A measure of the quantity of the audit evidence required. The quantity is affected by the auditor's assessment of the risks of material misstatement and the quality of the audit evidence obtained. appropriate: A measure of the quality of the evidence, that is its relevance and reliability. Appropriate audit evidence is information that is both relevant and reliable in providing support for the conclusions on which the auditor's opinion is based.

automation bias

tendency to consider overly reliable

anchoring bias

too much reliance upon initial belief

Following a transaction from a source document to recorded entries.

tracing

9. Describe the nature and purposes of audit documentation.

working papers: Papers that document the evidence gathered by auditors to show the work they have done, the methods and procedures they have followed, and the conclusions they have developed in an audit of financial statements or other type of engagement. - require that documentation provide 1. evidence of the auditors' basis for concluding on the achievement of the audit's overall objectives 2. evidence that audit was planned and performed in accordance with GAAS documentation includes: - bank reconciliations - ledger accounts - minutes: A formal record of the issues discussed and actions taken in meetings of stockholders or the board of directors. - organization charts -flowcharts of internal control - working trial balances - audit plans - correspondence (including e-mail) concerning significant matters - internal control questionnaires to conduct a satisfactory audit the auditors must be given unrestricted access to all information about the client's business but these are often confidential so audit working papers are highly confidential and must be safeguarded at all times and are the property of the auditors

The __________ is a schedule listing the balances of accounts in the client's general ledger.

working trial balance

professional skepticism

¡A questioning mind, being alert to conditions that may indicate possible misstatements due to fraud or error, and a critical assessment of audit evidence. ¡Consider possibility of cognitive biases.

when evaluating sufficiency of audit evidence auditors

¡Apply professional skepticism. ¡Assess (and reassess) the risks of material misstatement at the relevant assertion level. ¡Evaluate the nature, timing, and extent of the audit procedures performed.

steps involved with timing of analytical procedures

¡Develop expectation of account (or ratio) balance ¡Determine amount of difference that can be accepted without investigation ¡Compare the company's account (ratio) with the expectation ¡Investigate and evaluate significant differences

Audit evidence is ordinarily more reliable when it is

¡Obtained from knowledgeable independent sources outside the client company is less susceptible to management bias, although the reliability of the source must be considered ¡Generated internally through a system of effective controls rather than ineffective controls. ¡Obtained directly by the auditor rather than indirectly or by inference ¡Documentary in form rather than oral ¡Provided by original documents rather than documents digitized or otherwise copied/converted

timing of analytical procedures

¡Risk assessment (sometimes referred to as planning analytical procedures) ¡Substantive procedures ¡Final review

further audit procedures

¡Tests of controls When appropriate, to test the operating effectiveness of controls in preventing material misstatements ¡Substantive procedures To detect material misstatements at relevant assertion level. Substantive procedures include (a) analytical procedures, (b) tests of details of account balances, transactions, and disclosures

risk assessment procedures

¡To obtain an understanding of the client and its environment, including its internal control, to assess the risks of material misstatement

substantive procedures

¨Analytical procedures ¨Tests of details úTests of account balances úTests of classes of transactions úTests of disclosures ¡One may change the scope of audit procedures by changing the (NTE, or re-ordered as NET): úNature (type and form) úTiming (when performed) úExtent (quantity of evidence obtained)

sufficiency of audit documentation

¨Audit documentation should be sufficient to: ¡Enable an experienced auditor to understand the work performed and the significant conclusions reached ¡Identify who performed and reviewed the work ¡Show that the accounting agree or reconcile to the financial statements ¨Audit documentation should include all significant audit findings and the actions taken to address them

types of working files

¨Current files ¡Current year working papers ¡Index and cross-referencing ¨Permanent files ¡Items of continuing audit interest

data analytics

¨Data analytics is the process of using related and unrelated data sets to provide insights into decisions. ¨CPA firms are increasing using data analytic approaches to improve risk assessment, tests of controls and substantive procedures. ¡In risk assessment, sophisticated data analytics can improve auditors' assessments of risk by significantly increasing the sources of data used. ¡In tests of controls, data analytics may allow the auditors to use technology to test 100 percent of the items in a population by relating data from multiple sources ¡Substantive procedures may be improved by using data from a number of data sources to improve the efficiency and effectiveness of the procedures.

related party transactions

¨Disclosure requirements must be met ¨Primary challenge is identifying undisclosed related party transactions ¡Determine related parties úInquiries of management úReview SEC filings, stockholder's listings and conflict-of-interest statements ¡Be alert for transactions with related parties and any transactions with unusual terms

AICPA assertions F/S

¨Existence (Occurrence)—Do assets, liabilities, and equity interests presented in the account balances/disclosures actually exist? ¡Did the transactions and events that are recorded actually occur? ¨Rights and Obligations—Does the company hold the rights to the assets presented in the account balances/disclosures? Are the liabilities presented in the account balances/disclosures actually the obligations of the company? ¨Completeness—Were the assets, liabilities, and equity interests that should have been recorded in a given period actually recorded in such period? Were all related disclosures that should have been included in the F/S actually included? ¡Were all transactions and events that should have been recorded actually recorded? Were all related disclosures that should have been included in the F/S actually included? ¨Classification - Have all assets, liabilities, and equity interests been recorded in the proper accounts? ¡Have all transactions and events been recoded in the proper accounts? ¨Valuation, Allocation, and Accuracy—Are all assets, liabilities, and equity interests included in the financial statements at proper amounts? ¡Are amounts and other data relating to recorded transactions and events recorded appropriately, and related disclosures appropriately measured and described? ¨Presentation—Are accounts described and classified in accordance with GAAP, and are F/S disclosures complete, appropriate, and clearly expressed? ¨Cutoff—Were the transactions and events that occurred in a given period recorded in the correct accounting period?

auditing fair values

¨Inputs to use in applying valuation techniques (FAS 157) ¡Level 1 - inputs of observable quoted prices in active markets for identical assets or liabilities úEx. A closing stock price in WSJ ¡Level 2 - inputs of observable quoted prices, generally for similar assets or liabilities in active markets úEx. Company discounts future cash flows on its not publicly traded debt securities at rate used by market for publicly traded debt securities ¡Level 3 - inputs that are unobservable for the assets or liability úEx. A private company uses judgment to determine a proper rate to discount the estimated future cash flows of its not publicly traded securities

functions of audit documentation

¨Primary functions: •Support the auditors' compliance with auditing standards •Support the auditors' opinion ¨Secondary functions: •Assists continuing and new audit team members in planning and performing the audit •Serves as a record of matters of continuing audit interest •Assists in supervision and review of the audit •Demonstrates the accountability of team members •Assists internal reviewers, external peer reviewers, PCAOB inspectors, and successor auditors in performing their roles

basic approaches to auditing accounting estimates

¨Review and test management's process for developing the estimate. ¨Independently develop an estimate to compare to management's estimate. ¨Review subsequent events or transactions bearing on the estimate.

confirmation bias

¨Seeking and treating as more persuasive information that is consistent with initial belief.

audit risk

¨The risk that the auditor expresses an inappropriate audit opinion on financial statements that are materially misstated. ¡That is: the risk that the auditors will issue an unqualified opinion on financial statements that contain a material departure from GAAP. ¨Auditors must obtain sufficient appropriate audit evidence to reduce audit risk to a low level in every audit. ¨Auditors obtain audit evidence to determine whether relevant assertions about F/S accounts, transactions, and disclosures are properly recorded/presented.

3. Confidentiality; Internal auditors:

•Shall be prudent in the use and protection of information acquired in the course of their duties. •Shall not use information for any personal gain or in any manner that would be contrary to the law or detrimental to the legitimate and ethical objectives of the organization.

4. Competency; Internal auditors

•Shall engage only in those services for which they have the necessary knowledge, skills, and experience. •Shall perform internal auditing services in accordance with the Standards for the Professional Practice of Internal Auditing. •Shall continually improve their proficiency and the effectiveness and quality of their services.

2. Objectivity; Internal Auditors:

•Shall not participate in any activity or relationship that may impair or be presumed to impair their unbiased assessment. This participation includes those activities or relationships that may be in conflict with the interests of the organization. •Shall not accept anything that may impair or be presumed to impair their professional judgment. •Shall disclose all material facts known to them that, if not disclosed, may distort the reporting of activities under review.

1. Integrity; Internal auditors:

•Shall perform their work with honesty, diligence, and responsibility. •Shall observe the law and make disclosures expected by the law and the profession. •Shall not knowingly be a party to any illegal activity, or engage in acts that are discreditable to the profession of internal auditing or to the organization. •Shall respect and contribute to the legitimate and ethical objectives of the organization.