Practice Free IIA-CIA-Part1 Exam Online Questions
Question #181
A regional entertainment organization is in the process of developing a corporate social responsibility (CSR) policy. Management invites ideas from employees when developing the CSR policy.
Which of the following is the most appropriate idea to include?
- A . Management has overall responsibility for the effectiveness of governance, risk management, and internal control processes associated with CSR.
- B . The board is responsible for ensuring that CSR objectives are established, risks are managed, performance is measured, and activities are appropriately monitored and reported.
- C . Management is responsible for ensuring that the organization’s CSR principles are communicated, understood, and integrated into decision-making processes.
- D . Generally, CSR activities are limited to the management of the organization; thus, employees do not have a responsibility for ensuring the success of CSR objectives.
Correct Answer: C
C
Explanation:
The most appropriate idea to include in the CSR policy is that management is responsible for ensuring that the organization’s CSR principles are communicated, understood, and integrated into decision-making processes. This aligns with good corporate governance practices which hold management accountable for embedding CSR into the corporate culture and daily operations of the organization, thus ensuring its effective implementation across all levels.
Reference: Corporate governance and CSR integration best practices as documented in business management literature.
C
Explanation:
The most appropriate idea to include in the CSR policy is that management is responsible for ensuring that the organization’s CSR principles are communicated, understood, and integrated into decision-making processes. This aligns with good corporate governance practices which hold management accountable for embedding CSR into the corporate culture and daily operations of the organization, thus ensuring its effective implementation across all levels.
Reference: Corporate governance and CSR integration best practices as documented in business management literature.
Question #182
The internal audit activity conducted an organization wide risk assessment. One of the most significant risks identified is associated with the oil price market. The chief audit executive (CAE) is considering including in the annual audit plan an assessment of the effectiveness of oil price risk management. The manager responsible commented that the assessment was not needed, as market risks were regularly addressed by the financial risk committee.
If the CAE decides to include this activity in the annual audit plan anyway, how should it be recorded?
- A . A consulting engagement independent of the financial risk committee’s review.
- B . A risk assessment.
- C . An assurance engagement.
- D . A joint consulting engagement with input from the financial risk committee.
Correct Answer: C
C
Explanation:
An assurance engagement provides an independent assessment of governance, risk management, and control processes. In this case, including the effectiveness of oil price risk management in the annual audit plan as an assurance engagement would allow the internal audit activity to evaluate the controls and processes in place for managing this significant risk. Even though the financial risk committee regularly addresses market risks, an independent review by internal audit can provide additional assurance to stakeholders about the effectiveness of these risk management practices.
Reference: The IIA’s International Standards for the Professional Practice of Internal Auditing (Standards), specifically Standard 2010 – Planning, and Standard 2130 – Control.
C
Explanation:
An assurance engagement provides an independent assessment of governance, risk management, and control processes. In this case, including the effectiveness of oil price risk management in the annual audit plan as an assurance engagement would allow the internal audit activity to evaluate the controls and processes in place for managing this significant risk. Even though the financial risk committee regularly addresses market risks, an independent review by internal audit can provide additional assurance to stakeholders about the effectiveness of these risk management practices.
Reference: The IIA’s International Standards for the Professional Practice of Internal Auditing (Standards), specifically Standard 2010 – Planning, and Standard 2130 – Control.
Question #183
To comply with the proficiency standard which of the following would the chief audit executive likely consider as the primary hiring criterion when choosing a new internal auditor?
- A . The length and consistency of the auditor’s work experience
- B . The auditor’s demonstrated problem-solving skills
- C . The auditor’s skills compared to those already possessed by other audit staff
- D . The auditor’s ability to be self motivated and a good team player
Correct Answer: C
C
Explanation:
According to the IIA’s standards on proficiency, the Chief Audit Executive (CAE) should consider primarily how well the skills and experience of a new auditor complement those of the existing audit team. This ensures a diverse and comprehensive skill set within the audit team, aligning with the Standard 1210.A2, which stipulates that the internal audit activity collectively should possess or obtain the knowledge, skills, and other competencies needed to perform its responsibilities.
Reference: Institute of Internal Auditors (IIA) Standards, specifically Standard 1210 on Proficiency.
C
Explanation:
According to the IIA’s standards on proficiency, the Chief Audit Executive (CAE) should consider primarily how well the skills and experience of a new auditor complement those of the existing audit team. This ensures a diverse and comprehensive skill set within the audit team, aligning with the Standard 1210.A2, which stipulates that the internal audit activity collectively should possess or obtain the knowledge, skills, and other competencies needed to perform its responsibilities.
Reference: Institute of Internal Auditors (IIA) Standards, specifically Standard 1210 on Proficiency.
Question #184
Instead of leaving its capital in a bank account with a low guaranteed interest rate, an organization’s board approved a proposal to invest in a stock that could have a high expected return rate without taking any risk mitigation activities.
Which risk concept does this decision illustrate?
- A . Risk appetite.
- B . Risk capacity.
- C . Risk tolerance.
- D . Risk retention.
Correct Answer: A
A
Explanation:
Risk appetite is the amount and type of risk that an organization is willing to accept in pursuit of its objectives2. It reflects the organization’s risk culture and strategy, and guides the risk assessment, response, and reporting processes3. In this case, the decision to invest in a stock that could have a high expected return rate without taking any risk mitigation activities illustrates a high risk appetite, as the organization is willing to accept a high level of uncertainty and volatility for a potential reward4.
Reference: 1: Risk Resources in Internal Audit | The IIA 2: Risk-based internal audit – Wikipedia 3: What is Risk Management in Internal Audit – ESG | The Report 4: Internal Audit 1 January 13, 2012 – vsu.edu
A
Explanation:
Risk appetite is the amount and type of risk that an organization is willing to accept in pursuit of its objectives2. It reflects the organization’s risk culture and strategy, and guides the risk assessment, response, and reporting processes3. In this case, the decision to invest in a stock that could have a high expected return rate without taking any risk mitigation activities illustrates a high risk appetite, as the organization is willing to accept a high level of uncertainty and volatility for a potential reward4.
Reference: 1: Risk Resources in Internal Audit | The IIA 2: Risk-based internal audit – Wikipedia 3: What is Risk Management in Internal Audit – ESG | The Report 4: Internal Audit 1 January 13, 2012 – vsu.edu
Question #185
Which of the following fraud schemes is often an off-book fraud*?
- A . Payroll fraud
- B . Disbursement fraud
- C . Corruption
- D . Information misrepresentation
Correct Answer: D
D
Explanation:
Information misrepresentation is often considered an off-book fraud. Off-book fraud refers to deceptive activities that do not directly involve the organization’s accounting systems but relate to the misrepresentation or manipulation of information outside of recorded transactions. This type of fraud might involve falsifying business records, misstating facts to stakeholders, or other forms of deceit not directly reflected in financial records.
Reference: Fraud examination and financial forensics literature, which often categorize information misrepresentation under off-book schemes.
D
Explanation:
Information misrepresentation is often considered an off-book fraud. Off-book fraud refers to deceptive activities that do not directly involve the organization’s accounting systems but relate to the misrepresentation or manipulation of information outside of recorded transactions. This type of fraud might involve falsifying business records, misstating facts to stakeholders, or other forms of deceit not directly reflected in financial records.
Reference: Fraud examination and financial forensics literature, which often categorize information misrepresentation under off-book schemes.
Question #186
Following a quality assurance review of a small internal audit activity, the external reviewer and the chief audit executive (CAE) cannot agree on the importance of several deficiencies noted during the review.
Which of the following would be the most appropriate next step for the reviewer to take?
- A . Remove the areas of disagreement from the scope of the engagement and seek informal compromises with the CAE.
- B . Issue the report to senior management, noting the deficiencies for immediate resolution.
- C . Issue the report, noting the deficiencies with comments that address the areas of disagreement.
- D . Request arbitration from the audit committee to resolve discrepancies prior to issuing the final report
Correct Answer: C
C
Explanation:
The most appropriate next step when the external reviewer and the chief audit executive cannot agree on the importance of several deficiencies is for the reviewer to issue the report, noting the deficiencies with comments that address the areas of disagreement. This approach allows for a balanced presentation of the findings, ensuring that senior management and other stakeholders are aware of both the deficiencies and the differing perspectives regarding their significance.
Reference: Best practices in handling disagreements during external quality assurance reviews, as recommended by IIA guidance on quality assurance.
C
Explanation:
The most appropriate next step when the external reviewer and the chief audit executive cannot agree on the importance of several deficiencies is for the reviewer to issue the report, noting the deficiencies with comments that address the areas of disagreement. This approach allows for a balanced presentation of the findings, ensuring that senior management and other stakeholders are aware of both the deficiencies and the differing perspectives regarding their significance.
Reference: Best practices in handling disagreements during external quality assurance reviews, as recommended by IIA guidance on quality assurance.
Question #187
Which of the following is the primary engagement responsibility of an entry-level internal auditor?
- A . Leadership.
- B . Documentation.
- C . Analysis.
- D . Reporting.
Correct Answer: B
B
Explanation:
For entry-level internal auditors, the primary engagement responsibility typically involves documentation. This includes accurately and thoroughly documenting audit evidence and findings, which is essential for supporting the audit’s conclusions and for review by more senior auditors. This task is fundamental for ensuring that audit work is recorded and traceable, aligning with the IIA’s standards on performance (specifically, documenting information to support conclusions and engagement results).
Reference: The Institute of Internal Auditors (IIA) – International Standards for the Professional Practice of Internal Auditing.
B
Explanation:
For entry-level internal auditors, the primary engagement responsibility typically involves documentation. This includes accurately and thoroughly documenting audit evidence and findings, which is essential for supporting the audit’s conclusions and for review by more senior auditors. This task is fundamental for ensuring that audit work is recorded and traceable, aligning with the IIA’s standards on performance (specifically, documenting information to support conclusions and engagement results).
Reference: The Institute of Internal Auditors (IIA) – International Standards for the Professional Practice of Internal Auditing.
Question #188
An internal auditor is updating the risk register for risks identified during a recent organizational risk assessment.
According to the Standards, which of the following would the auditor include in the risk register?
- A . Management’s acceptance of inadequate controls for cybersecurity risk.
- B . Discussions with senior management relating to a new revenue stream.
- C . Mitigating controls implemented by the engagement supervisor
- D . Project manager planned hours versus time spent for all prior year projects
Correct Answer: A
A
Explanation:
According to the Standards, the risk register should include information about identified risks and how these are being managed. Management’s acceptance of inadequate controls for a significant risk such as cybersecurity should be documented as it represents a known risk exposure that the organization has chosen to accept. This helps ensure transparency and informs subsequent audit activities and decisions.
Reference: International Standards for the Professional Practice of Internal Auditing, specifically on risk assessment and management.
A
Explanation:
According to the Standards, the risk register should include information about identified risks and how these are being managed. Management’s acceptance of inadequate controls for a significant risk such as cybersecurity should be documented as it represents a known risk exposure that the organization has chosen to accept. This helps ensure transparency and informs subsequent audit activities and decisions.
Reference: International Standards for the Professional Practice of Internal Auditing, specifically on risk assessment and management.
Question #189
Which of the following best describes the internal audit activity’s contribution to the implementation of the risk management framework?
- A . Internal audit identifies key risk areas during assurance reviews and provides audit findings.
- B . Internal audit assists with the prioritization of identified risks.
- C . Internal audit participates in setting the risk appetite.
- D . Internal audit takes part in the design of risk mitigation measures.
Correct Answer: B
B
Explanation:
The internal audit activity contributes to the implementation of the risk management framework by assisting with the prioritization of identified risks. This is done through the provision of assurance and consulting services that help the organization to understand which risks are most significant and how they should be addressed based on their impact and likelihood.
Reference: IIA Performance Standards on risk management; literature on internal audit’s role in risk assessment and management.
B
Explanation:
The internal audit activity contributes to the implementation of the risk management framework by assisting with the prioritization of identified risks. This is done through the provision of assurance and consulting services that help the organization to understand which risks are most significant and how they should be addressed based on their impact and likelihood.
Reference: IIA Performance Standards on risk management; literature on internal audit’s role in risk assessment and management.
Question #190
According to IIA guidance, which of the following is most critical to ensuring that an organization’s risk management program remains effective over time?
- A . Ensuring a fully executed assurance role for the internal audit activity.
- B . Conducting risk evaluations that include ranking the relative importance of each risk.
- C . Establishing a risk management function and appointing a chief risk officer.
- D . Conducting a combination of ongoing risk reviews and individual evaluations.
Correct Answer: D
D
Explanation:
Ensuring an organization’s risk management program remains effective over time is most critically supported by conducting a combination of ongoing risk reviews and individual evaluations. This approach allows for continuous monitoring and updating of the risk landscape, ensuring that the risk management processes adapt to changes in both internal and external conditions.
Reference: IIA guidance on effective risk management practices
D
Explanation:
Ensuring an organization’s risk management program remains effective over time is most critically supported by conducting a combination of ongoing risk reviews and individual evaluations. This approach allows for continuous monitoring and updating of the risk landscape, ensuring that the risk management processes adapt to changes in both internal and external conditions.
Reference: IIA guidance on effective risk management practices