Free IIA IIA-CHAL-QISA Practice Exam with Questions & Answers

According to the IIA Standards, an internal audit activity must have an external assessment conducted at least once every five years by a qualified, independent reviewer or review team from outside the organization. The validation by an external team ensures that the internal audit activity's self-assessments and quality assurance practices meet the required standards.

Introduction:

The engagement scope outlines the boundaries of the audit activities, specifying the methods and techniques to be employed during the engagement.

Scope Definition:

The scope includes the areas to be reviewed, the nature and extent of testing, and the specific objectives and criteria to be used.

Options Analysis:

Option A: Specifying compliance targets is part of planning but too specific for the overall engagement scope.

Option B: Detailing the use of both random and judgmental samplings defines the methodology clearly, which is appropriate for the engagement scope.

Option C: Considering the probability of significant errors is part of the risk assessment process, not the scope itself.

Option D: Analyzing wire transfers is a specific audit test rather than a definition of the engagement scope.

Conclusion:

Specifying both random and judgmental samplings as part of the engagement scope provides a clear and comprehensive methodology for the audit, making it the most appropriate choice.

Analytical review procedures involve evaluating financial information by studying plausible relationships among financial and non-financial data.

Government Index Comparison: Comparing the organization's increase in health-care costs with a relevant government index provides a benchmark to assess whether the cost increases are in line with broader economic trends.

Claims Review: While reviewing all claims could help identify specific overpayments, it is more labor-intensive and less effective for evaluating overall reasonableness.

Competitive Bids: Obtaining bids from other health-care administrators might control future costs but does not evaluate the reasonableness of past cost increases.

Industry Comparison: Comparing costs with those incurred by similar organizations could be useful but might not provide a standardized measure like a government index.

References:

"Auditing and Assurance Services: An Integrated Approach," which details the use of analytical procedures in evaluating financial data.

Preliminary Communication:Preliminary communication to management of the area under review is essential in setting clear expectations and ensuring transparency regarding the upcoming audit.

Key Elements to Include:

Scope of the Engagement:Define what will be covered in the audit to ensure that management understands the focus areas and objectives.

Estimated Time Frame:Provide a timeline for the audit activities, including the start and end dates, to help management plan and allocate resources accordingly.

Names of the Auditors:Identify the auditors involved to facilitate communication and coordination with the audit team.

IIA Guidance:According to the IIA standards, communicating these elements helps in building a cooperative relationship and ensures that there are no misunderstandings regarding the audit process.

References:

IIA Standard 2201 – Planning Considerations .

Collaboration with Compliance Teams: Internal auditors often collaborate with internal compliance teams to leverage their work. This allows auditors to gain insights and expand their audit coverage efficiently.

IIA Standards: According to the Institute of Internal Auditors (IIA), internal auditors can rely on the work of other assurance providers, including internal compliance teams, as long as the auditors assess the adequacy and competency of the compliance team's work.

Efficiency in Audit Coverage: By relying on internal compliance teams, internal auditors can ensure comprehensive coverage of the organization without significantly increasing direct audit hours, thus enhancing efficiency.

The guidelines for preparing audit engagement workpapers emphasize clarity, completeness, and accuracy to ensure that they can be easily understood and used by others within the auditing function.

Option A: Workpapers should be understandable to the auditor in charge and the chief audit executive.

While workpapers must indeed be clear to the auditor in charge and the chief audit executive, this guideline does not fully capture the broader requirement for understandability to other auditors.

Option B: Workpapers should be understandable to the audit client and the board.

Although transparency with the audit client and the board is important, workpapers are primarily internal documents used to support the audit process and conclusions.

Option C: Workpapers should be understandable to another internal auditor who was not involved in the engagement.

This is the most comprehensive requirement, ensuring that any internal auditor, even if not originally involved, can review the workpapers, understand the procedures performed, and the conclusions reached. This is crucial for maintaining continuity, quality control, and facilitating reviews or future audits.

Option D: Workpapers should be understandable to external auditors and regulatory agencies.

While external auditors and regulatory agencies may review workpapers, the primary audience is internal auditors, who need to ensure the workpapers are detailed and clear enough for effective internal use and review.

Performing a cost-benefit analysis when management decides not to implement a recommendation is a prime example of residual risk assessment. This involves evaluating the potential impacts and remaining risks associated with the decision, thereby determining the residual risk that the organization will continue to face.

Cost-Benefit Analysis: This helps in understanding the financial implications and benefits that would have been realized had the recommendation been implemented versus the risks of not implementing it.

Risk Assessment: By assessing the residual risk, the CAE can provide a clearer picture of the ongoing risks that the organization needs to manage.

Management Decision Impact: This analysis assists in making informed decisions and understanding the trade-offs involved in addressing audit observations.

References:

"Audit and Assurance Services: An Integrated Approach," which explains residual risk assessment and the importance of cost-benefit analysis in audit recommendations .

Demonstrating due professional care involves using appropriate technology and data analysis techniques to enhance the audit's effectiveness and efficiency. These tools help auditors identify anomalies, trends, and potential areas of risk more accurately and timely, reflecting a higher standard of care in their audit activities.

References:

"Auditing Standards and Guidelines," which emphasize the importance of using advanced techniques in audit processes.

Training new hires on fraud and employee misconduct is a proactive measure that raises awareness and educates employees about the organization’s policies and the consequences of fraudulent behavior.

Such training helps create a culture of integrity and compliance, making employees less likely to engage in or tolerate fraud.

Continuous education and reinforcement of ethical behavior are essential components of an effective fraud prevention strategy

Identify the Conflict of Interest:The internal auditor learns about a large loan made to another auditor's relative, which represents a conflict of interest.

Refer to Professional Standards:According to the Institute of Internal Auditors' (IIA) standards, an internal auditor must maintain objectivity and avoid conflicts of interest (IIA Standard 1100 – Independence and Objectivity).

Escalate the Issue:The appropriate course of action is to escalate this matter to the chief audit executive (CAE) and management, as they are responsible for determining the impact of the conflict and the appropriate response.

Decision Making:The CAE and management will assess whether the conflict of interest could impair the auditor's objectivity and decide whether the auditor should be removed from the engagement or if additional oversight is needed.

Documentation:It is important to document the conflict and the decision-making process in the audit documentation for transparency and accountability.

References:

The IIA’s International Standards for the Professional Practice of Internal Auditing, specifically Standard 1100 on Independence and Objectivity.