Practice Free IIA-CIA-Part1 Exam Online Questions
Question #161
Which of the following concepts is emphasized in the Mission of Internal Audit?
- A . Support of good governance and controls.
- B . Enhancement of organizational value.
- C . Protection of tangible and intangible assets.
- D . Provision of professional advisory and assurance services.
Correct Answer: D
D
Explanation:
The Mission of Internal Audit emphasizes the provision of professional advisory and assurance services. This mission statement highlights that internal auditing is designed to add value and improve an organization’s operations through a systematic and disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.
Reference: The IIA’s Mission of Internal Audit, which clearly outlines the core purpose and focus of internal auditing activities.
D
Explanation:
The Mission of Internal Audit emphasizes the provision of professional advisory and assurance services. This mission statement highlights that internal auditing is designed to add value and improve an organization’s operations through a systematic and disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.
Reference: The IIA’s Mission of Internal Audit, which clearly outlines the core purpose and focus of internal auditing activities.
Question #162
Which of the following would be the most appropriate first step for the board to take when developing an effective system of governance?
- A . Determine the organization’s overall risk appetite.
- B . Establish a governance committee.
- C . Delegate authority to members of senior management.
- D . Identify key stakeholders and their expectations
Correct Answer: D
D
Explanation:
The most appropriate first step for the board to take when developing an effective system of governance is to identify key stakeholders and their expectations. Understanding stakeholders’ expectations is fundamental to defining the governance framework that aligns with these needs and establishing the organization’s strategic objectives and policies.
Reference: IIA guidance on effective governance frameworks.
D
Explanation:
The most appropriate first step for the board to take when developing an effective system of governance is to identify key stakeholders and their expectations. Understanding stakeholders’ expectations is fundamental to defining the governance framework that aligns with these needs and establishing the organization’s strategic objectives and policies.
Reference: IIA guidance on effective governance frameworks.
Question #163
Which of the following would be an important aspect of an internal auditor’s role in fraud management?
- A . Utilizing analytical techniques to actively discover instances of potential fraud
- B . Conducting fraud based audits to ensure that fraud will be detected during engagements
- C . Implementing fraud prevention controls to minimize and mitigate the risk of fraud
- D . Reporting instances of fraud discovered during engagements to regulatory bodies
Correct Answer: A
A
Explanation:
An important aspect of an internal auditor’s role in fraud management is utilizing analytical techniques to actively discover instances of potential fraud. Internal auditors play a critical role in fraud detection by employing data analysis and other analytical methods to identify unusual patterns, anomalies, or red flags that could indicate fraudulent activities. By proactively using these techniques, auditors can help uncover fraud early and provide valuable insights to management for timely intervention.
Reference: The IIA Standards: Standard 1220 C Due Professional Care: "Internal auditors must apply the care and skill expected of a reasonably prudent and competent internal auditor."
IIA Practice Guide: "Fraud Prevention and Detection in an Automated World": Emphasizes the use of analytical techniques for identifying potential fraud.
A
Explanation:
An important aspect of an internal auditor’s role in fraud management is utilizing analytical techniques to actively discover instances of potential fraud. Internal auditors play a critical role in fraud detection by employing data analysis and other analytical methods to identify unusual patterns, anomalies, or red flags that could indicate fraudulent activities. By proactively using these techniques, auditors can help uncover fraud early and provide valuable insights to management for timely intervention.
Reference: The IIA Standards: Standard 1220 C Due Professional Care: "Internal auditors must apply the care and skill expected of a reasonably prudent and competent internal auditor."
IIA Practice Guide: "Fraud Prevention and Detection in an Automated World": Emphasizes the use of analytical techniques for identifying potential fraud.
Question #164
As part of a fraud investigation by regulators, a court order was issued to a bank. The court order requested the chief audit executive (CAE) to provide access to a number of audit reports and workpapers, some of which included customers’ confidential information such as transaction activity and other personal details.
What is the appropriate response by the CAE?
- A . Reject the court order, citing a potential breach of customers’ confidentiality agreement
- B . Consult with legal counsel to determine what information to provide.
- C . Respond promptly and provide all that was requested by the court order.
- D . Seek permission from customers prior to sharing their information.
Correct Answer: B
B
Explanation:
When faced with a court order that may involve sharing confidential information, it is appropriate and prudent for the chief audit executive (CAE) to consult with legal counsel. This step ensures that the CAE understands the legal obligations and constraints before disclosing audit reports and workpapers that contain sensitive customer information, balancing legal compliance with the duty to protect confidentiality.
Reference: Institute of Internal Auditors (IIA) – Guidelines on Handling Legal and Ethical Issues
B
Explanation:
When faced with a court order that may involve sharing confidential information, it is appropriate and prudent for the chief audit executive (CAE) to consult with legal counsel. This step ensures that the CAE understands the legal obligations and constraints before disclosing audit reports and workpapers that contain sensitive customer information, balancing legal compliance with the duty to protect confidentiality.
Reference: Institute of Internal Auditors (IIA) – Guidelines on Handling Legal and Ethical Issues
Question #165
Which of the following would best describe a control implemented to detect cash register disbursement fraud in a large retail store?
- A . Separate the duties of processing and authorizing refunds on merchandise
- B . Post signs in the register area prompting customers to ask for and examine their sales receipts
- C . Periodically count the cash in the register and compare it to the expected amount
- D . Use cash registers with internal tapes that are tamper proof and that require a manager to process voids or refunds
Correct Answer: D
D
Explanation:
The best control to detect cash register disbursement fraud in a large retail store is using cash registers with internal tapes that are tamper-proof and require a manager to process voids or refunds. This control directly addresses the risk of cash misappropriation at the point of sale by adding a layer of oversight and security to the transactions, particularly those that are prone to manipulation like voids and refunds.
Reference: Best practices in retail fraud prevention, which often include the use of technology and managerial oversight to control and monitor cash transactions.
D
Explanation:
The best control to detect cash register disbursement fraud in a large retail store is using cash registers with internal tapes that are tamper-proof and require a manager to process voids or refunds. This control directly addresses the risk of cash misappropriation at the point of sale by adding a layer of oversight and security to the transactions, particularly those that are prone to manipulation like voids and refunds.
Reference: Best practices in retail fraud prevention, which often include the use of technology and managerial oversight to control and monitor cash transactions.
Question #166
An internal auditor discovered that a former colleague from the internal audit activity now works in a junior position in a department scheduled for an upcoming audit.
How can the auditor best ensure his objectivity for this engagement?
- A . Recommend mat the chief audit executive outsource the upcoming audit engagement
- B . Proceed with the audit engagement in accordance with the internal audit manual
- C . Increase the amount of fieldwork in order to build greater credibility for audit conclusions
- D . Declare a conflict of interest and hand over the engagement to another auditor
Correct Answer: D
D
Explanation:
When an internal auditor encounters a situation where a former colleague works in the department being audited, declaring a conflict of interest and handing over the engagement to another auditor is the best way to ensure objectivity. This approach avoids any potential biases that might arise from personal connections and ensures the credibility and integrity of the audit process are maintained.
Reference: The IIA’s Standards for the Professional Practice of Internal Auditing and Code of Ethics.
D
Explanation:
When an internal auditor encounters a situation where a former colleague works in the department being audited, declaring a conflict of interest and handing over the engagement to another auditor is the best way to ensure objectivity. This approach avoids any potential biases that might arise from personal connections and ensures the credibility and integrity of the audit process are maintained.
Reference: The IIA’s Standards for the Professional Practice of Internal Auditing and Code of Ethics.
Question #167
Which of the following is (he most effective way any organization can ensure proper governance over its internal controls?
- A . By adopting the best practices of similar organizations in the industry.
- B . By adjusting their internal control framework as business practices evolve.
- C . By introducing the universally accepted COSO internal control framework.
- D . By encouraging the internal audit activity to provide training on internal controls.
Correct Answer: C
C
Explanation:
The most effective way for an organization to ensure proper governance over its internal controls is by adopting the COSO (Committee of Sponsoring Organizations of the Treadway Commission) internal control framework. The COSO framework is widely recognized and provides a comprehensive structure for designing, implementing, and conducting internal control and assessing its effectiveness. It helps organizations to achieve their objectives in operations, reporting, and compliance by addressing components such as control environment, risk assessment, control activities, information and communication, and monitoring activities.
Reference: The IIA’s International Standards for the Professional Practice of Internal Auditing (Standards), specifically Standard 2100 – Nature of Work, and COSO’s Internal Control – Integrated Framework.
C
Explanation:
The most effective way for an organization to ensure proper governance over its internal controls is by adopting the COSO (Committee of Sponsoring Organizations of the Treadway Commission) internal control framework. The COSO framework is widely recognized and provides a comprehensive structure for designing, implementing, and conducting internal control and assessing its effectiveness. It helps organizations to achieve their objectives in operations, reporting, and compliance by addressing components such as control environment, risk assessment, control activities, information and communication, and monitoring activities.
Reference: The IIA’s International Standards for the Professional Practice of Internal Auditing (Standards), specifically Standard 2100 – Nature of Work, and COSO’s Internal Control – Integrated Framework.
Question #168
Senior management has decided to adopt the key principles approach of the ISO 31000 risk management framework.
According to IIA guidance, which of the following principles is most appropriate when implementing the risk management process in a dynamic agency?
- A . Everyone in the agency has a primary responsibility for identifying and managing risks as part of the risk management process.
- B . The risk management process, while evaluating risk, should develop a mechanism to rank the relative importance of each risk.
- C . The risk management process should be regularly reviewed and respond to changes in the environment, to remain relevant.
- D . The risk management process should use a formal technique to consider the consequence and likelihood of each risk.
Correct Answer: C
C
Explanation:
According to IIA guidance, when implementing the risk management process in a dynamic agency, it is most appropriate that the risk management process should be regularly reviewed and respond to changes in the environment to remain relevant. This principle ensures that the risk management practices are flexible and adaptive, reflecting the dynamic nature of risk within a changing organizational and external environment. This approach is consistent with both the IIA’s guidance on risk management and the principles outlined in ISO 31000.
Reference: The Institute of Internal Auditors (IIA) – Guidance on Risk Management, ISO 31000 Risk Management Guidelines.
C
Explanation:
According to IIA guidance, when implementing the risk management process in a dynamic agency, it is most appropriate that the risk management process should be regularly reviewed and respond to changes in the environment to remain relevant. This principle ensures that the risk management practices are flexible and adaptive, reflecting the dynamic nature of risk within a changing organizational and external environment. This approach is consistent with both the IIA’s guidance on risk management and the principles outlined in ISO 31000.
Reference: The Institute of Internal Auditors (IIA) – Guidance on Risk Management, ISO 31000 Risk Management Guidelines.
Question #169
Which of the following statements is true regarding electronic funds transfer (EFT)?
- A . EFT is a popular mechanism for improving efficiency, but results in less internal control.
- B . EFT significantly reduces the risk of fraud by eliminating the need for authorizations.
- C . EFT eliminates payment delays due mostly to the introduction of automated cash controls,
- D . EFT makes use of numerous automated controls, but is still vulnerable to fraudulent accounting entries.
Correct Answer: D
D
Explanation:
Electronic funds transfer (EFT) makes use of numerous automated controls, which improve efficiency and reduce the risk of some types of fraud. However, it is still vulnerable to fraudulent accounting entries, such as those arising from overriding existing controls or exploiting security weaknesses. Therefore, while EFT systems incorporate significant controls, they do not completely eliminate the risk of fraud.
Reference: Best practices and guidelines on electronic funds transfer from financial management and information systems security sources.
D
Explanation:
Electronic funds transfer (EFT) makes use of numerous automated controls, which improve efficiency and reduce the risk of some types of fraud. However, it is still vulnerable to fraudulent accounting entries, such as those arising from overriding existing controls or exploiting security weaknesses. Therefore, while EFT systems incorporate significant controls, they do not completely eliminate the risk of fraud.
Reference: Best practices and guidelines on electronic funds transfer from financial management and information systems security sources.
Question #170
Which of the following is most likely to be considered a control weakness?
- A . Vendor invoice payment requests are accompanied by a purchase order and receiving report.
- B . Purchase orders are typed by the purchasing department using prenumbered forms.
- C . Buyers promptly update the official vendor listing as new supplier sources become known.
- D . Department managers initiate purchase requests that must be approved by the plant superintendent.
Correct Answer: D
D
Explanation:
A control weakness in the context of internal control over purchasing might be seen in the process where department managers initiate purchase requests that must be approved by the plant superintendent. If the approval process is not robust, this could lead to conflicts of interest or lack of independent review, especially if the superintendent has significant influence or control, and there are no further checks or balances. This situation could potentially allow for inappropriate approvals without sufficient oversight, representing a control weakness.
Reference: Internal control frameworks, such as COSO (Committee of Sponsoring Organizations of the Treadway Commission).
D
Explanation:
A control weakness in the context of internal control over purchasing might be seen in the process where department managers initiate purchase requests that must be approved by the plant superintendent. If the approval process is not robust, this could lead to conflicts of interest or lack of independent review, especially if the superintendent has significant influence or control, and there are no further checks or balances. This situation could potentially allow for inappropriate approvals without sufficient oversight, representing a control weakness.
Reference: Internal control frameworks, such as COSO (Committee of Sponsoring Organizations of the Treadway Commission).