Practice Free IIA-CIA-Part1 Exam Online Questions
Question #11
Which of the following must be considered by the chief audit executive before writing the internal audit charter?
- A . Internal auditors’ level of competencies and skills.
- B . The manner in which the internal audit activity is viewed by the board.
- C . Evaluation of staff certifications and continued development.
- D . Effectiveness of the quality assurance and improvement program.
Correct Answer: B
B
Explanation:
Before writing the internal audit charter, the chief audit executive (CAE) must consider how the internal audit activity is viewed by the board. The internal audit charter is a formal document that defines the purpose, authority, and responsibility of the internal audit activity. It should align with the expectations and requirements of the board and senior management. Understanding the board’s perception and expectations helps in crafting a charter that ensures appropriate support and engagement from key stakeholders, thereby enhancing the effectiveness and alignment of the internal audit function with organizational objectives.
Reference: IIA Standard 1000 C Purpose, Authority, and Responsibility.
IIA’s Practice Advisory on Developing the Internal Audit Charter.
B
Explanation:
Before writing the internal audit charter, the chief audit executive (CAE) must consider how the internal audit activity is viewed by the board. The internal audit charter is a formal document that defines the purpose, authority, and responsibility of the internal audit activity. It should align with the expectations and requirements of the board and senior management. Understanding the board’s perception and expectations helps in crafting a charter that ensures appropriate support and engagement from key stakeholders, thereby enhancing the effectiveness and alignment of the internal audit function with organizational objectives.
Reference: IIA Standard 1000 C Purpose, Authority, and Responsibility.
IIA’s Practice Advisory on Developing the Internal Audit Charter.
Question #12
Which of the following is a true statement regarding controls such as ethical values, tone at the top and operational style?
- A . Transaction testing, mapping and flowcharting is applicable while testing such controls
- B . Breakdowns in the these types of controls have historically led to fraudulent financial reporting
- C . Such controls can be defined as inherently ob)ective and tangible elements of control
- D . From an audit perspective it is significantly easier to assess ethical values than segregation of duties
Correct Answer: B
B
Explanation:
A true statement regarding controls such as ethical values, tone at the top, and operational style is that breakdowns in these types of controls have historically led to fraudulent financial reporting. These are elements of what is often referred to as "soft controls" and play a critical role in shaping the corporate culture that governs employee behavior. When these controls are weak or improperly managed, they can contribute to an environment conducive to fraud.
Reference: Studies and reports on corporate governance and internal controls, including research on fraud cases.
B
Explanation:
A true statement regarding controls such as ethical values, tone at the top, and operational style is that breakdowns in these types of controls have historically led to fraudulent financial reporting. These are elements of what is often referred to as "soft controls" and play a critical role in shaping the corporate culture that governs employee behavior. When these controls are weak or improperly managed, they can contribute to an environment conducive to fraud.
Reference: Studies and reports on corporate governance and internal controls, including research on fraud cases.
Question #13
Which of the following would be addressed in the internal audit charter?
- A . Expertise requirements for internal auditors
- B . Functional and administrative reporting lines for the chief audit executive
- C . Audit engagements to be completed in the next fiscal year
- D . Budget requirements for each engagement
Correct Answer: B
B
Explanation:
The internal audit charter is a formal document that outlines the purpose, authority, and responsibility of the internal audit activity. It includes the functional and administrative reporting lines for the chief audit executive, which helps define the independence and objectivity of the internal audit function. This charter is crucial as it also establishes the framework within which the internal audit team operates, ensuring alignment with organizational goals and governance frameworks.
Reference: The Institute of Internal Auditors (IIA) – International Professional Practices Framework (IPPF)
B
Explanation:
The internal audit charter is a formal document that outlines the purpose, authority, and responsibility of the internal audit activity. It includes the functional and administrative reporting lines for the chief audit executive, which helps define the independence and objectivity of the internal audit function. This charter is crucial as it also establishes the framework within which the internal audit team operates, ensuring alignment with organizational goals and governance frameworks.
Reference: The Institute of Internal Auditors (IIA) – International Professional Practices Framework (IPPF)
Question #14
Which of the following internal control components has COSO identified as the most important?
- A . Information and communication
- B . Risk assessment
- C . Control activities
- D . Control environment
Correct Answer: D
D
Explanation:
According to the Committee of Sponsoring Organizations of the Treadway Commission (COSO), the control environment is the most important component of internal control. The control environment sets the tone of the organization, influencing the control consciousness of its people. It is the foundation for all other components of internal control, providing discipline and structure. A strong control environment is essential for effective internal control as it includes elements such as integrity, ethical values, management’s operating style, and the assignment of authority and responsibility.
Reference: COSO Framework: Emphasizes the importance of the control environment as the foundation for all other components of internal control.
The IIA Standards: Standard 2120 C Risk Management: "The internal audit activity must evaluate the effectiveness and contribute to the improvement of risk management processes."
D
Explanation:
According to the Committee of Sponsoring Organizations of the Treadway Commission (COSO), the control environment is the most important component of internal control. The control environment sets the tone of the organization, influencing the control consciousness of its people. It is the foundation for all other components of internal control, providing discipline and structure. A strong control environment is essential for effective internal control as it includes elements such as integrity, ethical values, management’s operating style, and the assignment of authority and responsibility.
Reference: COSO Framework: Emphasizes the importance of the control environment as the foundation for all other components of internal control.
The IIA Standards: Standard 2120 C Risk Management: "The internal audit activity must evaluate the effectiveness and contribute to the improvement of risk management processes."
Question #15
Which of the following should play a leading role in overseeing the ethical atmosphere of an organization?
- A . Internal audit activity.
- B . Operating management.
- C . Senior management.
- D . Board of directors.
Correct Answer: D
D
Explanation:
The board of directors plays a leading role in overseeing the ethical atmosphere of an organization. They are responsible for establishing and promoting the organization’s values and ethical standards. The board sets the tone at the top and ensures that senior management implements policies and procedures that support ethical behavior throughout the organization. This oversight includes monitoring compliance with ethical standards and addressing any ethical issues that arise.
Reference: The IIA’s International Professional Practices Framework (IPPF) – Practice Guide on Ethical Leadership.
COSO’s Enterprise Risk Management C Integrating with Strategy and Performance.
D
Explanation:
The board of directors plays a leading role in overseeing the ethical atmosphere of an organization. They are responsible for establishing and promoting the organization’s values and ethical standards. The board sets the tone at the top and ensures that senior management implements policies and procedures that support ethical behavior throughout the organization. This oversight includes monitoring compliance with ethical standards and addressing any ethical issues that arise.
Reference: The IIA’s International Professional Practices Framework (IPPF) – Practice Guide on Ethical Leadership.
COSO’s Enterprise Risk Management C Integrating with Strategy and Performance.
Question #16
Due to extreme liquid fuel price fluctuations, management decided to designate a specific price below which liquid fuel shall not be sold to customers, but instead shall be pumped into storage tanks.
Which of the following risk responses has management selected?
- A . Risk reduction.
- B . Risk transfer.
- C . Risk acceptance.
- D . Risk avoidance.
Correct Answer: D
D
Explanation:
Management’s decision to set a specific price below which liquid fuel shall not be sold, but instead stored, represents Risk avoidance. This approach involves eliminating the risk entirely by avoiding the activity that generates the risk. In this scenario, by deciding not to sell fuel below a certain price, management avoids the risk of losses due to price fluctuations.
Reference: ISO 31000: Risk Management Guidelines.
COSO ERM Framework.
D
Explanation:
Management’s decision to set a specific price below which liquid fuel shall not be sold, but instead stored, represents Risk avoidance. This approach involves eliminating the risk entirely by avoiding the activity that generates the risk. In this scenario, by deciding not to sell fuel below a certain price, management avoids the risk of losses due to price fluctuations.
Reference: ISO 31000: Risk Management Guidelines.
COSO ERM Framework.
Question #17
Management is installing security cameras to identify unauthorized physical access to the organization’s warehouse.
This is an example of which of the following types of controls?
- A . Detective controls.
- B . Key controls.
- C . Primary controls.
- D . Preventive controls
Correct Answer: A
A
Explanation:
Installing security cameras to identify unauthorized physical access to a warehouse is an example of detective controls. Detective controls are designed to identify and alert the occurrence of an unwanted or risky event, such as unauthorized access, after the fact, allowing for timely corrective action to be taken.
Reference: Basic control types and functions in security management
A
Explanation:
Installing security cameras to identify unauthorized physical access to a warehouse is an example of detective controls. Detective controls are designed to identify and alert the occurrence of an unwanted or risky event, such as unauthorized access, after the fact, allowing for timely corrective action to be taken.
Reference: Basic control types and functions in security management
Question #18
Which of the following are some of the requirements of the quality assurance and improvement program (QAIP)?
- A . The OAIP should be conducted at least once every three years, and must be performed by an external assessor.
- B . The OAIP should be conducted on an ongoing basis, and can be completed as a self-assessment.
- C . he QAIP should include both internal assessments performed by staff and external assessments performed by independent, objective individuals
- D . The OAIP should be performed with scoping limitations established by the board.
Correct Answer: C
C
Explanation:
The quality assurance and improvement program (QAIP) should include both internal assessments performed by staff and external assessments performed by independent, objective individuals. This ensures that the internal audit activity maintains high standards of quality and adheres to professional guidelines.
Option A: The QAIP must include ongoing internal assessments and external assessments every five years, not necessarily every three years.
Option B: While ongoing self-assessments are part of QAIP, external assessments by independent assessors are also required.
Option D: The board may set scoping limitations, but the comprehensive nature of QAIP includes both internal and external evaluations without board-imposed restrictions.
Reference: IIA Standard 1300: Quality Assurance and Improvement Program.
IIA Standard 1312: External Assessments.
C
Explanation:
The quality assurance and improvement program (QAIP) should include both internal assessments performed by staff and external assessments performed by independent, objective individuals. This ensures that the internal audit activity maintains high standards of quality and adheres to professional guidelines.
Option A: The QAIP must include ongoing internal assessments and external assessments every five years, not necessarily every three years.
Option B: While ongoing self-assessments are part of QAIP, external assessments by independent assessors are also required.
Option D: The board may set scoping limitations, but the comprehensive nature of QAIP includes both internal and external evaluations without board-imposed restrictions.
Reference: IIA Standard 1300: Quality Assurance and Improvement Program.
IIA Standard 1312: External Assessments.
Question #19
Which of the following situations is most likely to prompt the internal audit activity to disclose its nonconformance with the Standards?
- A . One of the organization’s senior internal auditors owns a side business, though to date, no sales have been made to this business.
- B . The annual internal audit plan includes performance audits of main business processes, but reviews of high-risk development projects were not considered.
- C . The internal audit activity committed to carrying out an audit of documentation on investment hedging, and a hedging expert was contracted to assist with the engagement.
- D . A periodic quality self-assessment of the internal audit activity identified a number of improvement areas with regard to key performance indicators.
Correct Answer: B
B
Explanation:
The internal audit activity must align its activities with the organization’s risks. Not considering high-risk development projects in the audit plan could indicate nonconformance with the Standards, specifically regarding risk-based planning. The Standards require internal audit to consider all significant risks when developing the audit plan, and failing to do so may require disclosure of nonconformance.
Reference: The IIA’s International Standards for the Professional Practice of Internal Auditing (Standards), specifically Standard 2010 – Planning, and Standard 1300 – Quality Assurance and Improvement Program.
B
Explanation:
The internal audit activity must align its activities with the organization’s risks. Not considering high-risk development projects in the audit plan could indicate nonconformance with the Standards, specifically regarding risk-based planning. The Standards require internal audit to consider all significant risks when developing the audit plan, and failing to do so may require disclosure of nonconformance.
Reference: The IIA’s International Standards for the Professional Practice of Internal Auditing (Standards), specifically Standard 2010 – Planning, and Standard 1300 – Quality Assurance and Improvement Program.
Question #20
Which of the following statements is true regarding the independent peer review process undertaken to fulfill the requirement for an external quality assessment?
- A . Two individuals in the same internal audit activity may perform an independent peer review as long as they do not report to the same audit manager
- B . Individuals from a separate but related organization such as an affiliate may perform peer reviews
- C . Individuals working in separate internal audit activities may be considered independent as long as do not report to the same chief audit executive
- D . Peer reviews are generally less cost-effective than hiring an external quality assessor
Correct Answer: C
C
Explanation:
Individuals working in separate internal audit activities can be considered independent for the purpose of conducting a peer review, provided they do not report to the same chief audit executive (CAE). This separation helps to ensure that the reviewers do not have a conflict of interest or undue influence from shared reporting lines, thus maintaining the integrity of the external quality assessment process.
Reference: IIA Standard 1312 – External Assessments
C
Explanation:
Individuals working in separate internal audit activities can be considered independent for the purpose of conducting a peer review, provided they do not report to the same chief audit executive (CAE). This separation helps to ensure that the reviewers do not have a conflict of interest or undue influence from shared reporting lines, thus maintaining the integrity of the external quality assessment process.
Reference: IIA Standard 1312 – External Assessments