Practice Free IIA-CIA-Part1 Exam Online Questions
Question #70
While preparing the audit plan for an automobile manufacturing company, the chief audit executive (CAE) noted that the company’s engineering department received a high risk ranking. However, the internal audit activity is understaffed, and current staff do not possess the necessary skills to adequately assess the effectiveness of the engineering department.
What is the most appropriate course of action for the CAE to take?
- A . Include the engineering department on the audit plan, use the available internal audit resources to conduct the review, and exclude procedures that cannot be adequately assessed.
- B . Advise management to accept the assessed risk until the internal auditors are able to review the area adequately.
- C . Recruit internal auditors with the required competencies and wait until they are employed before including this audit on the internal audit plan.
- D . Proceed with a review of the engineering department but supplement the internal audit team with nonauditors from an external engineering company who have the required skills to assist
Correct Answer: D
D
Explanation:
The most appropriate course of action for the CAE when facing a lack of internal audit staff with necessary skills to audit a high-risk area, like the engineering department, is to supplement the internal audit team with external experts who possess the required competencies. This approach ensures that the audit can be conducted effectively and comprehensively, allowing for an accurate assessment of risks and controls in the engineering department without delaying the review until new auditors can be hired and trained.
Reference: Institute of Internal Auditors (IIA) – International Professional Practices Framework (IPPF)
D
Explanation:
The most appropriate course of action for the CAE when facing a lack of internal audit staff with necessary skills to audit a high-risk area, like the engineering department, is to supplement the internal audit team with external experts who possess the required competencies. This approach ensures that the audit can be conducted effectively and comprehensively, allowing for an accurate assessment of risks and controls in the engineering department without delaying the review until new auditors can be hired and trained.
Reference: Institute of Internal Auditors (IIA) – International Professional Practices Framework (IPPF)
Question #72
An internal auditor at a multinational organization is reviewing the effectiveness of the organization’s risk management framework.
In this scenario, which of the following statements is true?
- A . The auditor should consider local cultures and customs in various regions when assessing control effectiveness.
- B . Regardless of their location, employees at all levels share responsibility for designing effective controls to mitigate risks.
- C . To achieve an effective internal control environment, the organization’s risk management plan must be documented and communicated to all levels throughout each region.
- D . Setting clear objectives is a precondition to effectively identifying, assessing, and responding to the organization’s risks.
Correct Answer: D
D
Explanation:
Setting clear objectives is crucial for effective risk management. Clear objectives provide a basis for identifying, assessing, and responding to risks. They ensure that all risk management activities are aligned with the organization’s goals and help to prioritize risks based on their potential impact on achieving these objectives. Without clear objectives, it is challenging to evaluate the relevance and significance of risks and to develop appropriate risk responses.
Reference: COSO Enterprise Risk Management Framework
IIA Practice Guide: Assessing the Adequacy of Risk Management Using ISO 31000
D
Explanation:
Setting clear objectives is crucial for effective risk management. Clear objectives provide a basis for identifying, assessing, and responding to risks. They ensure that all risk management activities are aligned with the organization’s goals and help to prioritize risks based on their potential impact on achieving these objectives. Without clear objectives, it is challenging to evaluate the relevance and significance of risks and to develop appropriate risk responses.
Reference: COSO Enterprise Risk Management Framework
IIA Practice Guide: Assessing the Adequacy of Risk Management Using ISO 31000
Question #73
According to IIA guidance, which of the following actions best demonstrates due professional care by an internal auditor when she discovers a number of fraud-related red flags during an audit engagement?
- A . Conclude the engagement and inform management that fraud has occurred
- B . Perform further testing to verify the existence of fraud.
- C . Suspend the engagement and undertake a formal fraud investigation.
- D . Notify the board of the possible fraud immediately
Correct Answer: B
B
Explanation:
When an internal auditor discovers fraud-related red flags during an audit engagement, the action that best demonstrates due professional care is to perform further testing to verify the existence of fraud. This approach ensures that any findings of fraud are based on thorough investigation and sufficient evidence, rather than premature conclusions. This procedure aligns with the IIA’s guidance on due diligence and the thorough investigation of anomalies.
Reference: IIA International Standards for the Professional Practice of Internal Auditing.
B
Explanation:
When an internal auditor discovers fraud-related red flags during an audit engagement, the action that best demonstrates due professional care is to perform further testing to verify the existence of fraud. This approach ensures that any findings of fraud are based on thorough investigation and sufficient evidence, rather than premature conclusions. This procedure aligns with the IIA’s guidance on due diligence and the thorough investigation of anomalies.
Reference: IIA International Standards for the Professional Practice of Internal Auditing.
Question #74
Whch of the following would show appropriate disclosure of nonconformance with the Standards?
- A . The chief audit executive (CAE) documented in the personal file a critical conflict of interest involving an internal audit on a upcoming contracting engagement.
- B . The CAE discussed with the board an issue regarding the internal activity performing an IT engagement without proper skills and knowledge.
- C . The CAE met with the peer review team to discuss an internal auditor’s failure to meet the annual requirements for continuing professional education.
- D . The CAE revealed to revealed to operational manager that he failed to appropriately consider risks while he was developing the audit plan.
Correct Answer: B
B
Explanation:
Appropriate disclosure of nonconformance with the Standards is demonstrated when the chief audit executive (CAE) discusses with the board issues regarding the internal audit activity performing an IT engagement without proper skills and knowledge. This direct communication with the board about significant issues affecting the internal audit function’s ability to conform to professional standards is
crucial for ensuring accountability and transparency.
Reference: IIA Standards on communication and disclosure of nonconformance.
B
Explanation:
Appropriate disclosure of nonconformance with the Standards is demonstrated when the chief audit executive (CAE) discusses with the board issues regarding the internal audit activity performing an IT engagement without proper skills and knowledge. This direct communication with the board about significant issues affecting the internal audit function’s ability to conform to professional standards is
crucial for ensuring accountability and transparency.
Reference: IIA Standards on communication and disclosure of nonconformance.
Question #75
Which of the following documents are internal auditors most likely to be asked to sign as a demonstration of due professional care?
A description of their job responsibilities,
- A . A non-disclosure agreement.
- B . An annual declaration of commitment to
- C . The IIA s Code of Ethics.
- D . The internal audit charter.
Correct Answer: B
B
Explanation:
Internal auditors are most likely to be asked to sign a non-disclosure agreement as a demonstration of due professional care. This helps ensure the confidentiality of information encountered during audits, maintaining integrity and trustworthiness in their professional conduct.
Reference: IIA Code of Ethics and standards on confidentiality and professional conduct.
B
Explanation:
Internal auditors are most likely to be asked to sign a non-disclosure agreement as a demonstration of due professional care. This helps ensure the confidentiality of information encountered during audits, maintaining integrity and trustworthiness in their professional conduct.
Reference: IIA Code of Ethics and standards on confidentiality and professional conduct.
Question #76
An accounts payable clerk has recently transferred into the internal audit activity and has been assigned to an engagement related to accounts payable processes for which he was previously responsible.
Which of the following is the best action for the new internal auditor to take?
- A . If it is an assurance engagement, accept the assignment because direct knowledge of the existing accounts payable processes wifi provide depth and add more value.,
- B . If it is a consulting engagement, decline the assignment and ask to be reassigned, because in a consulting engagement the auditor must not assess operations for areas in which they were previously responsible.
- C . If it is a consulting engagement, accept the assignment because direct knowledge of the existing accounts payable processes will provide depth and add more value.
- D . If it is an assurance engagement, accept the assignment because the chief audit executive had knowledge of the internal auditor’s previous role when this engagement was assigned.
Correct Answer: B
B
Explanation:
If the assignment is a consulting engagement, the best action for the new internal auditor, who recently transferred from being an accounts payable clerk, is to decline the assignment and ask to be reassigned. This avoids any conflict of interest and maintains objectivity, as the auditor would be evaluating processes for which they were previously responsible, potentially compromising the independence and objectivity required in consulting engagements.
Reference: IIA Standards 1120 – Objectivity
B
Explanation:
If the assignment is a consulting engagement, the best action for the new internal auditor, who recently transferred from being an accounts payable clerk, is to decline the assignment and ask to be reassigned. This avoids any conflict of interest and maintains objectivity, as the auditor would be evaluating processes for which they were previously responsible, potentially compromising the independence and objectivity required in consulting engagements.
Reference: IIA Standards 1120 – Objectivity
Question #77
Which of the following is most likely to impair the organizational independence of the internal audit activity?
- A . The chief audit executive (CAE) reports administratively to the chief financial officer.
- B . The CAE oversees the effectiveness of the organization’s risk management function.
- C . The CAE reports functionally to the CEO.
- D . The CAE managed the finance department for the past five years.
Correct Answer: A
A
Explanation:
The organizational independence of the internal audit activity is most likely to be impaired if the chief audit executive (CAE) reports administratively to the chief financial officer (CFO). Reporting to the CFO can create a conflict of interest and reduce the perceived and actual independence of the internal audit function, as the CFO has direct involvement in financial management and operations, which are common subjects of audits. This reporting structure could potentially limit the CAE’s ability to report issues impartially and independently.
Reference: IIA’s International Standards for the Professional Practice of Internal Auditing regarding
organizational independence.
A
Explanation:
The organizational independence of the internal audit activity is most likely to be impaired if the chief audit executive (CAE) reports administratively to the chief financial officer (CFO). Reporting to the CFO can create a conflict of interest and reduce the perceived and actual independence of the internal audit function, as the CFO has direct involvement in financial management and operations, which are common subjects of audits. This reporting structure could potentially limit the CAE’s ability to report issues impartially and independently.
Reference: IIA’s International Standards for the Professional Practice of Internal Auditing regarding
organizational independence.
Question #78
Which level of corporate social responsibility does whistleblowing in companies primarily support?
- A . Ethical responsibility.
- B . Economic responsibility.
- C . Legal responsibility.
- D . Discretionary responsibility.
Correct Answer: A
A
Explanation:
Whistleblowing is aligned with ethical responsibility, encouraging transparency and ethical behavior within organizations. IIA guidance on corporate social responsibility emphasizes that ethical responsibility involves safeguarding stakeholders’ interests.
A
Explanation:
Whistleblowing is aligned with ethical responsibility, encouraging transparency and ethical behavior within organizations. IIA guidance on corporate social responsibility emphasizes that ethical responsibility involves safeguarding stakeholders’ interests.
Question #79
Which action by senior management indicates to the internal auditor that there may be fraudulent activities occurring within the organization?
- A . Setting unrealistic targets for staff to achieve
- B . Granting external audit firms access to staff and records.
- C . Automating some processes and allowing others to be performed manually
- D . Enforcing a zero-tolerance policy for misconduct
Correct Answer: A
A
Explanation:
Setting unrealistic targets for staff to achieve is a potential red flag indicating that there may be fraudulent activities occurring within the organization. When senior management sets targets that are unattainable, it can create pressure on employees to engage in unethical or fraudulent behavior to meet these goals. This is one of the elements of the fraud triangle (pressure, opportunity, and rationalization) that can lead to fraudulent activities.
Reference: IIA Practice Guide: Fraud and Internal Audit
COSO Fraud Risk Management Guide
A
Explanation:
Setting unrealistic targets for staff to achieve is a potential red flag indicating that there may be fraudulent activities occurring within the organization. When senior management sets targets that are unattainable, it can create pressure on employees to engage in unethical or fraudulent behavior to meet these goals. This is one of the elements of the fraud triangle (pressure, opportunity, and rationalization) that can lead to fraudulent activities.
Reference: IIA Practice Guide: Fraud and Internal Audit
COSO Fraud Risk Management Guide
Question #80
Which of the following resources would be most effective for an organization that would like to improve how it informs stakeholders of its social responsibility performance?
- A . ISO 26000.
- B . Global Reporting Initiative.
- C . Open Compliance and Ethics Group.
- D . COSO’s enterprise risk management framework
Correct Answer: B
B
Explanation:
The Global Reporting Initiative (GRI) is the most effective resource for an organization looking to improve how it informs stakeholders of its social responsibility performance. The GRI provides a comprehensive set of standards for sustainability reporting, which includes guidelines on how to communicate social responsibility efforts transparently and effectively to stakeholders.
Reference: Global Reporting Initiative (GRI) standards; literature on sustainability reporting.
B
Explanation:
The Global Reporting Initiative (GRI) is the most effective resource for an organization looking to improve how it informs stakeholders of its social responsibility performance. The GRI provides a comprehensive set of standards for sustainability reporting, which includes guidelines on how to communicate social responsibility efforts transparently and effectively to stakeholders.
Reference: Global Reporting Initiative (GRI) standards; literature on sustainability reporting.