S. RAO VALLABHANENI is an educator, author, publisher, consultant, and practitioner in business with more than thirty years of management and teaching experience in auditing, accounting, manufacturing, and IT consulting in both public and private sectors. He is the author of more than sixty trade books, study guides, review guides, monographs, audit guides, and articles in auditing and IT. He holds twenty-four professional certifications in business management in Accounting, Auditing, Finance, Information Technology, Manufacturing, Quality, and Human Resource fields.

Preface xi

CIA Exam Content Syllabus and Specifications xiii

CIA Exam-Taking Tips xviii

Professional Standards (100%) 1

Attribute Standards 2

Performance Standards 22

Domain 1: Foundations of Internal Auditing (15%) 28

Mission of Internal Audit 28

Definition of Internal Auditing 29

Core Principles 32

Internal Audit Charter 34

Types of Audit Services 40

IIA’s Code of Ethics 42

Roles and Responsibilities of Management 45

Domain 2: Independence and Objectivity (15%) 46

Independence Defined 47

Factors Threatening and Supporting Independence 51

Objectivity Defined 56

Factors Threatening and Supporting Objectivity 57

Policies to Promote Objectivity 66

Domain 3: Proficiency and Due Professional Care (18%) 68

Proficiency Defined 69

Competency Defined 70

Due Professional Care Defined 74

Continuing Professional Development 75

Professional Judgment and Competence 77

Competency Levels for Internal Auditors 80

Domain 4: Quality Assurance and Improvement Program (7%) 99

Required Elements 100

Reporting Requirements 108

Conformance versus Nonconformance 110

TQM in Internal Audit Operations 112

Domain 5: Governance, Risk Management, and Control (35%) 115

Governance Principles, Components, and Problems 117

Governance Models and Frameworks 126

Roles of the Board of Directors 140

Characteristics of Effective and Ineffective Boards 142

Roles of Executives and Officers 146

Roles of the Audit Committee 148

Roles of Internal Auditors in Corporate Governance, Risk Management, and Control Processes 150

Roles of Board-Level Committees 151

Roles and Rights of Shareholders and Stakeholders 153

Scope of Board-Level Audits 163

Organizational Culture 169

Organizational Ethics 180

Risk Concepts, Risk Types, and Risk Management Processes 199

Globally Accepted Risk Management Frameworks 235

Effectiveness of Risk Management 269

Internal Audit’s Role in the Risk Management Processes 274

Internal Control Concepts and Types of Controls 281

Globally Accepted Internal Control Frameworks 305

Effectiveness and Efficiency of Internal Controls 326

Compliance Management 333

Domain 6: Fraud Risks (10%) 336

Interpretation of Fraud Risks 337

Acts, Traits, and Profiles of Fraud Perpetrators 342

Types of Fraud 347

Indicators of Fraud 360

Awareness of Fraud 366

Awareness of Fraud (continued) 367

Controls to Prevent or Detect Fraud Risks 368

Audit Tests to Detect Fraud, Including Discovery Sampling 373

Integrating Analytical Relationships to Detect Fraud 378

Interrogation or Investigative Techniques 380

Forensic Auditing and Computer Forensics 384

Use of Computers in Analyzing Data for Fraud and Crime 390

GAO’s Framework for Managing Fraud Risks 393

COSO’s Framework for Fraud Risk Management 400

Fraud Analytics 405

Fraud and the Internal Auditor 413

Appendix Risks to Internal Audit Activity 415

The IIA’s Three-Lines-of-Defense Model 423

Audit Metrics and Key Performance Indicators 428

Characteristics of Effective Auditors and Audit Function 435

Sarbanes-Oxley Act of 2002 449

About the Author 461

Index 463

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