Practice Free IIA-CIA-Part1 Exam Online Questions
Question #191
Which of the following actions should the audit committee take to promote organizational independence for the internal audit activity?
- A . Delegate final approval of the risk-based internal audit plan to the chief audit executive (CAE).
- B . Approve the annual budget and resource plan for the internal audit activity.
- C . Assist the CAE with hiring objective and competent internal audit staff.
- D . Encourage the CAE to communicate and coordinate with the external auditor.
Correct Answer: B
B
Explanation:
To promote organizational independence for the internal audit activity, the audit committee should approve the annual budget and resource plan for the internal audit activity. This action ensures that the internal audit has sufficient resources to independently carry out its mandate without undue influence from management.
Reference: IIA guidance and standards concerning the role of the audit committee in supporting the independence and resources of the internal audit function.
B
Explanation:
To promote organizational independence for the internal audit activity, the audit committee should approve the annual budget and resource plan for the internal audit activity. This action ensures that the internal audit has sufficient resources to independently carry out its mandate without undue influence from management.
Reference: IIA guidance and standards concerning the role of the audit committee in supporting the independence and resources of the internal audit function.
Question #192
An employee accepts cash payments from customers and does not record the sale.
This is an example of which of the following types of fraud?
- A . Asset misappropriation.
- B . Skimming
- C . Corruption.
- D . Lapping.
Correct Answer: B
B
Explanation:
Skimming is the type of fraud that involves an employee accepting cash payments and failing to record the sales, thereby diverting the cash for personal use. This kind of fraud occurs before the transaction is recorded in the accounting records, making it particularly stealthy since it does not directly affect the accounting system.
Reference: Fraud classification and types in internal audit literature
B
Explanation:
Skimming is the type of fraud that involves an employee accepting cash payments and failing to record the sales, thereby diverting the cash for personal use. This kind of fraud occurs before the transaction is recorded in the accounting records, making it particularly stealthy since it does not directly affect the accounting system.
Reference: Fraud classification and types in internal audit literature
Question #193
Six months after an employee was transferred to the internal audit activity his former operating manager requested that he return to assist a project team with the evaluation of a new pricing module for the organization’s online ordering system.
According to IIA guidance which of the following statements is true?
- A . The auditor cannot be assigned to this project, as it has been fewer than 12 months since he was transferred from that department.
- B . Another internal auditor should be appointed to the engagement to preserve the independence of the internal audit activity
- C . The auditor cannot participate in the assignment, as providing an opinion would impair his objectivity
- D . The auditor may participate on the project, as the nature of the assignment is consulting
Correct Answer: C
C
Explanation:
According to the IIA’s guidance on independence and objectivity, an internal auditor who has been transferred from another department should not audit any function or process of their former department until a reasonable period has passed, typically around one year. Participating in such projects or audits could impair their objectivity because of familiarity or bias related to their former role and relationships within the department. In this case, providing an opinion on a project related to their former department could impair objectivity due to potential conflicts of interest.
Reference: The Institute of Internal Auditors (IIA) – Standards for Objectivity
C
Explanation:
According to the IIA’s guidance on independence and objectivity, an internal auditor who has been transferred from another department should not audit any function or process of their former department until a reasonable period has passed, typically around one year. Participating in such projects or audits could impair their objectivity because of familiarity or bias related to their former role and relationships within the department. In this case, providing an opinion on a project related to their former department could impair objectivity due to potential conflicts of interest.
Reference: The Institute of Internal Auditors (IIA) – Standards for Objectivity
Question #194
Which of the following best describes the differences between internal auditors and external auditors?
- A . External auditors are concerned about misstatements in the organization’s financial statements, while internal auditors are concerned about fraudulent activities that could impact the organization’s financial statements
- B . External auditors are required to hold an accounting designation and are responsible for continuing their education, while internal auditors are required to hold an internal audit designation.
- C . External auditors focus on the accuracy and understandability of financial statements, while internal auditors help the organization accomplish its objectives by evaluating and improving the effectiveness of the control process.
- D . External auditors are not employees of the organization, while internal auditors are employees who have in-depth knowledge of the business, making their opinion more reliable to the board and senior management.
Correct Answer: C
C
Explanation:
The best description of the differences between internal and external auditors is that external auditors focus on the accuracy and understandability of financial statements, while internal auditors help the organization accomplish its objectives by evaluating and improving the effectiveness of the control process. This distinction highlights the broader scope of internal audit activities, which extend beyond financial accuracy to include operational effectiveness, risk management, and internal control efficiency.
Reference: Common distinctions between internal and external audit roles as discussed in auditing literature and IIA guidance.
C
Explanation:
The best description of the differences between internal and external auditors is that external auditors focus on the accuracy and understandability of financial statements, while internal auditors help the organization accomplish its objectives by evaluating and improving the effectiveness of the control process. This distinction highlights the broader scope of internal audit activities, which extend beyond financial accuracy to include operational effectiveness, risk management, and internal control efficiency.
Reference: Common distinctions between internal and external audit roles as discussed in auditing literature and IIA guidance.
Question #195
An internal auditor is assessing how the organization processes financial transactions and whether written policies and procedures are followed. The auditor requested to meet with certain employees to understand their related roles and responsibilities. However the employees refuse to meet with the auditor claiming they are too busy.
Which of the following responses would best demonstrate the auditor’s conflict-resolution skills?
- A . The auditor considers the employees to be unresponsive and proceeds to document the actions and concerns as a scope limitation that can affect the engagement
- B . The auditor considers other options to determine whether the employees are processing financial transactions as required by the organization
- C . The auditor meets with senior management of the organization to discuss the employees’ behavior and possible resolutions that would satisfy all parties
- D . The auditor meets with the department supervisor and staff to discuss the employees’ actions in order to obtain an understands and potential resolution
Correct Answer: C
C
Explanation:
Demonstrating conflict-resolution skills involves addressing the issue through appropriate channels and seeking a resolution that satisfies all parties involved. By meeting with senior management, the
auditor acknowledges the employees’ refusal to meet and elevates the concern to a higher level. This approach allows senior management to understand the situation and take appropriate actions to facilitate the audit process while considering the employees’ workload and potential constraints. It demonstrates the auditor’s ability to handle conflicts professionally and seek collaborative solutions.
Reference: The IIA Standards: Standard 2400 C Communicating Results: "Internal auditors must communicate the results of engagements."
IIA Practice Guide: "Interpersonal Skills for Internal Auditors": Discusses the importance of effective communication and conflict-resolution skills in internal auditing.
C
Explanation:
Demonstrating conflict-resolution skills involves addressing the issue through appropriate channels and seeking a resolution that satisfies all parties involved. By meeting with senior management, the
auditor acknowledges the employees’ refusal to meet and elevates the concern to a higher level. This approach allows senior management to understand the situation and take appropriate actions to facilitate the audit process while considering the employees’ workload and potential constraints. It demonstrates the auditor’s ability to handle conflicts professionally and seek collaborative solutions.
Reference: The IIA Standards: Standard 2400 C Communicating Results: "Internal auditors must communicate the results of engagements."
IIA Practice Guide: "Interpersonal Skills for Internal Auditors": Discusses the importance of effective communication and conflict-resolution skills in internal auditing.
Question #196
Which of the following is an example of a risk reduction strategy?
- A . Outsourcing the payroll function.
- B . Absorbing the cost of losses.
- C . Insuring fixed assets.
- D . Installing cameras around the plant
Correct Answer: C
C
Explanation:
Insuring fixed assets is an example of a risk reduction strategy known as risk transfer. By taking out insurance, an organization transfers the financial risk associated with damage or loss of assets to an insurance company. This strategy effectively reduces the organization’s exposure to potential losses from such risks.
Reference: Risk management frameworks and strategies
C
Explanation:
Insuring fixed assets is an example of a risk reduction strategy known as risk transfer. By taking out insurance, an organization transfers the financial risk associated with damage or loss of assets to an insurance company. This strategy effectively reduces the organization’s exposure to potential losses from such risks.
Reference: Risk management frameworks and strategies
Question #197
According to IIA guidance, which of the following statements is true regarding reporting the results of the quality assurance and improvement program?
- A . Results of internal assessments need to be reported to the board at least once every five years.
- B . The external assessor must present the findings from the external assessment to senior management and the board upon completion.
- C . Deficiencies within the internal audit activity must be reported to the board as soon as they are noted.
- D . Results of ongoing monitoring of the internal audit activity’s performance must be reported to senior management and the board at least annually
Correct Answer: D
D
Explanation:
According to IIA guidance, the results of ongoing monitoring of the internal audit activity’s performance must be reported to senior management and the board at least annually. This ensures that the board and senior management are regularly informed about the effectiveness and efficiency of the internal audit function, aligning with the IIA’s standards on quality assurance and improvement.
Reference: The Institute of Internal Auditors (IIA) – International Standards for the Professional Practice of Internal Auditing.
D
Explanation:
According to IIA guidance, the results of ongoing monitoring of the internal audit activity’s performance must be reported to senior management and the board at least annually. This ensures that the board and senior management are regularly informed about the effectiveness and efficiency of the internal audit function, aligning with the IIA’s standards on quality assurance and improvement.
Reference: The Institute of Internal Auditors (IIA) – International Standards for the Professional Practice of Internal Auditing.
Question #198
According to the Standards, which of the following demonstrates the proficiency of an internal auditor?
- A . Each internal auditor must hold one or more certifications in the area of fraud and seek out continuing professional development related to fraud detection and fraud investigation.
- B . Each internal auditor must have sufficient knowledge of IT risks and controls, and be able to evaluate the risk of fraud and the manner in which it is managed by the organization.
- C . Each internal auditor on the engagement team must possess the same level of knowledge, skills, and other competencies as other auditors on the engagement team.
- D . Each internal auditor must be paired, by the chief audit executive, with an individual who possesses the knowledge, skills, or other competencies required to complete the audit.
Correct Answer: B
Question #199
An internal auditor is reviewing employee travel expenses from the previous six months for fraud.
Which of the following tests would best detect instances where personal travel has been claimed?
- A . Verifying whether claims have been properly authorized for payment
- B . Verifying whether claims are properly supported by invoices or other documents.
- C . Confirming that all claims are within the limits of the organization’s travel policy.
- D . Reconciling claims against business the requests that were approved by supervisors
Correct Answer: D
D
Explanation:
The most effective way to detect fraudulent claims for personal travel as business expenses is by reconciling claims against the business requests approved by supervisors. This method helps to verify that each claim corresponds directly to an approved and legitimate business activity, which is a critical checkpoint in detecting fraud in travel expenses.
Reference: Institute of Internal Auditors (IIA) Standards and Guidelines.
D
Explanation:
The most effective way to detect fraudulent claims for personal travel as business expenses is by reconciling claims against the business requests approved by supervisors. This method helps to verify that each claim corresponds directly to an approved and legitimate business activity, which is a critical checkpoint in detecting fraud in travel expenses.
Reference: Institute of Internal Auditors (IIA) Standards and Guidelines.
Question #200
Which of the following activities would breach the principles of The IIA’s Code of Ethics?
- A . The internal auditor is keeping personal notes from an engagement conducted on the
organization’s information system security for future use. - B . The internal auditor is performing an engagement of the purchasing department where he used to work five years ago.
- C . The internal auditor is using information from a recent engagement to assist with a friend’s business.
- D . The internal auditor is discussing relevant information involving questionable vendors with a government regulatory agency.
Correct Answer: C
C
Explanation:
Using information from an engagement to assist a friend’s business violates the IIA Code of Ethics, as it breaches confidentiality and objectivity. Internal auditors must maintain impartiality and not misuse information for personal or external advantage.
C
Explanation:
Using information from an engagement to assist a friend’s business violates the IIA Code of Ethics, as it breaches confidentiality and objectivity. Internal auditors must maintain impartiality and not misuse information for personal or external advantage.