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NEW QUESTION # 172
How should an internal auditor approach preparing a detailed risk assessment during engagement planning?
- A. Work with external auditors to ensure that the risk assessment includes items reflected on the independent auditor's report.
- B. Complete the risk assessment independently to prevent conflicts of interest with the function being reviewed.
- C. Consult with the compliance department, which typically has a more comprehensive view of the organization.
- D. Work with management of the function being reviewed, as management would be most familiar with the business objectives and related risks.
Answer: D
Explanation:
When preparing a detailed risk assessment during engagement planning, the internal auditor should collaborate with the management of the function being reviewed. Management has the most in-depth knowledge of their business objectives, processes, and the associated risks. This cooperation ensures that the risk assessment is comprehensive, accurate, and relevant to the specific context of the function under review.
It also helps in identifying any potential areas of concern that might not be evident to external parties.
IIA Standard 2201: "Planning Considerations"
IIA Practice Guide: "Assessing the Adequacy of Risk Management Processes"
NEW QUESTION # 173
Which of the following are key characteristics of enterprise risk management?
1. It considers risk in the formulation of strategy.
2. It applies risk management in some units of an entity.
3. It takes a portfolio view of risks throughout the enterprise.
4. It restricts the organization's ability to seize opportunities inherent in future events.
- A. 1 and 4 only
- B. 2 and 3 only
- C. 1 and 3 only
- D. 2 and 4 only
Answer: C
NEW QUESTION # 174
Which of the following information is most appropriate for the chief audit executive to share when coordinating audit plans with other internal and external assurance providers?
- A. Objectives scope and timing at a high level to support coordination while adhering to confidentiality requirements
- B. The area and timing of the audit engagement to ensure confidentially and avoid conflict of interest.
- C. No information should be shared with internal and external provider as it could introduce bias into the engagement results.
- D. All plan information, including risk assessments, planned tests and past results to maximize the opportunity for coordination with internal and external providers.
Answer: A
Explanation:
Coordinating audit plans with other internal and external assurance providers is critical to ensure coverage and avoid duplication of efforts. According to IIA Practice Advisory 2050-1, sharing high-level information such as objectives, scope, and timing supports effective coordination and minimizes the risk of conflicts of interest, while still maintaining confidentiality. Detailed sharing of risk assessments, planned tests, and past results might breach confidentiality and independence standards.
:
The Institute of Internal Auditors (IIA) - Practice Advisory 2050-1: Coordination of Internal and External Audit Activities
NEW QUESTION # 175
According to IIA guidance, which of re following actions should the internal auditor take immediately after having considered fraud scenarios and identified and prioritized fraud risks?
- A. Follow protocol for internal reporting and investigating fraud allegations
- B. Research frauds that nave occurred t\ similar organizations
- C. Determine which controls if any are in place to mitigate the fraud risks
- D. Incorporate the fraud risk assessment into the engagement plan
Answer: C
Explanation:
After considering fraud scenarios and identifying and prioritizing fraud risks, the next immediate action for the internal auditor is to determine which controls are in place to mitigate those risks. This step involves assessing the effectiveness of existing controls and identifying any gaps where controls may be insufficient or absent. Understanding the control environment is crucial for developing a comprehensive fraud risk assessment and ensuring that appropriate measures are in place to prevent and detect fraud.References:
* Institute of Internal Auditors (IIA), Practice Guide - Internal Auditing and Fraud.
NEW QUESTION # 176
Which of the following conditions should a chief audit executive take into account when deciding if a follow-up audit engagement is necessary?
* The reported observations were significant and high risk.
* Internal audit resources and the time it will require for follow-up.
* Management may not have the resources to take action.
* Management has previously decided not to take any action.
- A. 1, 2, and 3 only
- B. 1, 2, and 4 only
- C. 1, 3, and 4 only
- D. 2, 3, and 4 only
Answer: B
Explanation:
Section: Volume D
NEW QUESTION # 177
A recent survey indicated that residents of a small town take the train to a nearby city eight times per month, on average. The same survey showed that the number of train trips that a resident takes per month (y) is determined by the number of days per month that the resident works in the nearby city (x), according to the equation: y = 2 + 2x. A person who never works in the nearby city is expected to take the train:
- A. Eight times per month.
- B. Two times per month.
- C. Four times per month.
- D. Zero times per month.
Answer: B
NEW QUESTION # 178
Which of the following tests must an internal auditor perform in order to ensure that inbound electronic data interchange (EDI) transactions are received and translated accurately?
I.Computerized tests to assess transaction reasonableness and validity.
II.
Review of log books to ensure that transactions are logged upon receipt.
III.
Edit checks to identify unusual transactions.
IV.
Verification of limitations on the authority of users to initiate specific EDI transactions.
- A. I, II, and III only.
- B. I, II, III, and IV.
- C. I and IV only.
- D. II and III only.
Answer: A
NEW QUESTION # 179
An audit identified a number of weaknesses in the configuration of a critical client/server system. Although some of the weaknesses were corrected prior to the issuance of the audit report, correction of the rest will require between six and 18 months for completion. Consequently, management has developed a detailed action plan, with anticipated completion dates, for addressing the weaknesses. Which of the following is the most appropriate course of action for the chief audit executive to take?
- A. Schedule a follow-up audit engagement to assess the status of corrective action.
- B. Evaluate statistics related to unplanned system outages, unauthorized access attempts, and denials of service to assess the effectiveness of corrections.
- C. Reassign information systems auditors to assist the information technology department in correcting the weaknesses.
- D. Assess the adequacy of the action plan and monitor key dates and deliverables.
Answer: D
NEW QUESTION # 180
An organization has recently incurred significant cost overruns on one of its construction projects. Management suspects that these overruns were caused by the contractor improperly charging for costs related to contract change orders. Which of the following procedures are appropriate for testing this suspicion?
1.Determine if the contractor has received proper approval of change orders from management.
2.Determine if the contractor has billed for original contract work cancelled by the change orders.
3.Determine if the contractor has charged change orders with costs already billed to the original contract.
4.Determine if the contractor has been paid for change orders that have not yet been completed.
- A. 2 and 3 only
- B. 1 and 3 only
- C. 1 and 2 only
- D. 3 and 4 only
Answer: A
NEW QUESTION # 181
According to IIA guidance, which of the following statements is true regarding the authority of the chief audit executive (CAE) to release previous audit reports to outside parties?
- A. The CAE can only release prior information outside the organization when mandated by legal or statutory requirements.
- B. The CAE can employ judgment and release prior audit results as they deem appropriate and necessary.
- C. The CAE can release prior information provided it is as originally published and distributed within the organization.
- D. The CAE can release prior internal audit reports with the approval of the board and senior management.
Answer: B
Explanation:
Section: Volume E
NEW QUESTION # 182
A code of business conduct should include which of the following to increase its deterrent effect?
1. Appropriate descriptions of penalties for misconduct.
2. A notification that code of conduct violations may lead to criminal prosecution.
3. A description of violations that injure the interests of the employer.
4. A list of employees covered by the code of conduct.
- A. 2 and 4
- B. 1 and 3
- C. 3 and 4
- D. 1 and 2
Answer: D
NEW QUESTION # 183
An auditor prepared a workpaper that consisted of a list of employee names and identification numbers as well as the following statement:
"A statistical sample of 40 employee personnel files was selected to verify that they contain all documents required by company policy 501 (copy attached). No exceptions were noted."
The auditor did not place any audit verification symbols on this workpaper. Which of the following changes would most improve the auditor's workpaper?
- A. Use of audit verification symbols to show that each file was examined.
- B. Listing of the actual documents examined for each employee.
- C. Removal of the employee names to protect their confidentiality.
- D. Justification for the sample size.
Answer: D
NEW QUESTION # 184
Which of The following best justifies an internal auditor's decision to issue a preliminary audit report?
- A. The internal audit team and audit client have a serious dispute over the scope and objective of the engagement
- B. The internal audit team would like to issue a clean final audit report without any material observations or risks
- C. The internal audit team anticipates that the formal final audit report would be undesirable for management due to the significance of outlined risks
- D. The internal audit team expects management to address certain issues immediately due to their severe impact
Answer: D
NEW QUESTION # 185
Which of the following audit steps would be most effective to review proper recording of and accountability over physical assets?
I. Physically inspect all assets on the organization's property.
II. Select a sample department and physically inspect assets in the department.
III. Select a sample from the organization's records of physical assets and physically locate each asset.
IV.
Identify assets at a sample of locations and trace to the organization's records.
- A. I and IV only
- B. II and III only
- C. I only
- D. III and IV only
Answer: D
NEW QUESTION # 186
Which of the following will be an appropriate course of action when an auditor disagrees with a client about a well-documented audit finding?
- A. Change the finding so that it is acceptable to the client.
- B. Defer reporting the item and plan to perform more detailed work during the next audit.
- C. Include both the audit finding and the client's position in the audit report.
- D. Address the issue with senior management and the board for resolution prior to issuing the final report.
Answer: C
NEW QUESTION # 187
Which of the following describes (he primary reason why a preliminary risk assessment is conducted during engagement planning?
- A. To ensure that significant risks are included in the engagement scope
- B. To identify the greatest risks organizationwide
- C. To ensure that the engagement work program covers all risk areas
- D. To ensure that risks identified during previous audits of the area have been adequately addressed
Answer: A
Explanation:
The primary reason for conducting a preliminary risk assessment during engagement planning is to ensure that significant risks are included in the engagement scope. This assessment helps the internal auditor focus on areas of highest risk, ensuring that the audit provides the most value by addressing the most critical issues that could impact the organization's objectives.
Reference:
IIA Standards: 2201 - Planning Considerations
IIA Practice Guide: Engagement Planning
NEW QUESTION # 188
According to IIA guidance, which of the following factors should the auditor in charge consider when determining the resource requirements for an audit engagement?
- A. The number, experience, and availability of audit staff as well as the nature, complexity, and time constraints of the engagement.
- B. The number, proficiency, experience, and availability of audit staff as well as the ability to coordinate with external auditors.
- C. The appropriateness and sufficiency of resources as well as the nature, complexity, and time constraints of the engagement.
- D. The appropriateness and sufficiency of resources and the ability to coordinate with external auditors.
Answer: A
Explanation:
According to IIA guidance, the auditor in charge should consider the number, experience, and availability of audit staff as well as the nature, complexity, and time constraints of the engagement when determining resource requirements. These factors ensure that the engagement is staffed appropriately and that the audit team has the necessary skills and time to perform the audit effectively.
References:
* IIA Standards: 2230 - Engagement Resource Allocation
* IIA Practice Guide: Coordination and Reliance: Developing an Assurance Map
NEW QUESTION # 189
During the development of a purchasing system, an auditor reviewed the payment authorization program.
Which of the following actions should the auditor recommend for a situation in which the quantity invoiced is greater than the quantity received?
- A. Authorize payment of the full invoice, but maintain an open purchase order record for the missing goods.
- B. Issue an exception report.
- C. Return the invoice to the vendor for correction.
- D. Pay the amount billed and adjust the inventory account for the difference.
Answer: B
NEW QUESTION # 190
An internal auditor is asked to perform an assurance engagement in the organization's newly acquired subsidiary When developing the objectives tor the engagement which ot the following statements describes the most important items that the auditor needs to consider?
- A. The results of previous internal audits of the subsidiary the recommendations provided and whether the recommended actions have been implemented
- B. Organizational strategy objectives, risks, control framework and the expectations of stakeholders regarding the audit
- C. The qualifications and competencies of the subsidiary's management team and their understanding of risk and control
- D. Previous performance of the subsidiary specifically its financial results over the last three years and the outcome of external audit reviews
Answer: C
NEW QUESTION # 191
According to IIA guidance, which of the following objectives was most likely formulated for a non-assurance engagement?
- A. The internal audit activity will ascertain whether the data center security arrangements are compliant with agreed terms
- B. The internal audit activity will ensure equipment downtime risks have been managed in accordance with the internal policy.
- C. The internal audit activity will assess the effects of changes in maintenance strategy on the availability of production equipment
- D. The internal audit activity will inform management on the possible risks of moving the data warehouse to a cloud server maintained by a third party.
Answer: D
Explanation:
Non-Assurance Engagements: Non-assurance engagements focus on advisory and consulting services rather than providing an independent assessment. These engagements aim to add value by offering insights and recommendations to management.
Objective Characteristics:
* Informing Management: Providing information on potential risks and advising on risk management strategies is typical for non-assurance engagements. This helps management make informed decisions and manage risks effectively.
* Assessment and Compliance: Options A, C, and D are more aligned with assurance engagements, where the internal audit activity provides an independent assessment or ensures compliance with policies and procedures.
IIA Guidance:
* Standard 2120 - Risk Management: Internal auditors must evaluate and contribute to the improvement of risk management processes, often through advisory services in non-assurance roles.
References:
* Non-assurance engagements focus on informing and advising management about risks, improvements, and strategic decisions, as exemplified by informing management about risks related to moving the data warehouse to a third-party cloud server.
NEW QUESTION # 192
Upon completing a follow-up audit engagement, the chief audit executive (CAE) noted that management has not implemented any mitigation measures to address the high risks that were reported in the initial audit report. What initial step must the CAE take to address this situation?
- A. Escalate the issue to the board.
- B. Report the situation to the external auditors.
- C. Communicate the issue to senior management.
- D. Discuss the issue with members of management responsible for the risk area.
Answer: D
Explanation:
The initial step the CAE should take is to discuss the issue with the members of management responsible for the risk area. This discussion allows the CAE to understand the reasons for the lack of action, provide an opportunity for management to explain their position, and encourage them to implement the necessary mitigation measures. If this discussion does not lead to satisfactory action, the CAE would then escalate the issue to senior management or the board as appropriate.
Reference:
The Institute of Internal Auditors (IIA), International Standards for the Professional Practice of Internal Auditing (Standards)
"Internal Auditing: Assurance and Advisory Services" by Urton L. Anderson et al.
NEW QUESTION # 193
According to IIA guidance, which of the following individuals should receive the final audit report on a compliance engagement for the organization's cash disbursements process?
- A. The accounts payable manager, chief financial officer, and audit committee.
- B. The accounts payable manager, purchasing manager, and receiving manager.
- C. The accounts payable supervisor, controller, and treasurer.
- D. The accounts payable supervisor, accounts payable manager, and controller.
Answer: D
NEW QUESTION # 194
During an audit of a major metropolitan museum, an auditor was unable to locate selected items from the museum's collection. The director of the museum informed the auditor that the upcoming replacement of the museum's inventory tracking system would address the auditor's concerns. What follow-up activity should the auditor propose?
- A. Monitor the system implementation and schedule a follow-up review once the new system is in place.
- B. Determine whether the items are indeed missing and assess the ability of the new system to remedy the problem.
- C. Receive periodic feedback from museum staff regarding the status of the system implementation.
- D. Schedule an audit of the museum's security systems to determine if theft is a problem.
Answer: B
NEW QUESTION # 195
Which of the following would be considered a violation of The IIA's mandatory guidance on independence?
- A. The CAE updates the internal audit charter and presents it to the board for approval periodically, not on a specific timeline
- B. The chief audit executive (CAE) reports functionally to the board and administratively to the chief financial officer
- C. The CAE confirms to the board, at least once every five years, the organizational independence of the internal audit act/vity.
- D. The board seeks senior managements recommendation before approving the annual salary adjustment of the CAE.
Answer: D
Explanation:
* Independence Requirement: The IIA's mandatory guidance emphasizes the importance of the CAE's independence to ensure unbiased internal audit activities.
* Conflict of Interest: Seeking senior management's recommendation for the CAE's salary adjustment can create a conflict of interest and potentially compromise the CAE's independence.
* Best Practices: To maintain independence, the CAE's compensation should be determined by the board without influence from senior management.
* Standard Compliance: According to the IIA's Attribute Standard 1110 - Organizational Independence, the CAE must report to a level within the organization that allows the internal audit activity to fulfill its responsibilities.
References:
IIA Standard 1110 - Organizational Independence .
NEW QUESTION # 196
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