Free IIA IIA-CIA-Part1 Practice Exam with Questions & Answers | Set: 8

The concept of due professional care in internal auditing involves applying the care and skill expected of a reasonably prudent and competent auditor. This includes understanding the appropriate steps and techniques for various types of engagements, including consulting engagements. Demonstrating a good understanding of the steps involved in carrying out a consulting engagement (Option C) aligns with the IIA Standard 1220: Due Professional Care, which requires internal auditors to apply the necessary care and skill in their work. This understanding is essential for executing their duties effectively and ensuring that engagements are conducted with appropriate rigor and thoroughness.

IIA Standards, Standard 1220: Due Professional Care

IIA's International Professional Practices Framework (IPPF)

According to IIA guidance, the internal audit charter is a critical document that defines the purpose, authority, and responsibility of the internal audit activity. It is endorsed by the organization's governing body and establishes the internal audit function's position within the organization, including its reporting lines and access to records and personnel.

To assess whether the independence of the internal audit activity is at risk of being compromised, reviewing the internal audit charter provides the best source of evidence. This document outlines the independence and objectivity of the internal audit function and specifies the reporting structure to senior management and the board, which are essential elements in safeguarding independence.

IIA Standard 1000: Purpose, Authority, and Responsibility

IIA Practice Guide: Independence and Objectivity

Ensuring that internal audit staff are regularly informed of changes to policies and procedures is crucial for maintaining due professional care. Regular updates ensure that auditors are aware of current standards, methodologies, and best practices, which helps them perform their duties effectively and with due diligence.

Option A: Reviewing workpapers after the final engagement report is issued is too late to ensure due professional care.

Option B: Independent assessments by entry-level staff might not ensure the required objectivity and proficiency.

Option D: Destroying training documents does not contribute to due professional care and may hinder ongoing training and development efforts.

IIA Standard 1230: Continuing Professional Development.

IIA Standard 1220: Due Professional Care.

Effective third-party risk management involves conducting thorough due diligence before entering into a contract to ensure that the third party meets the organization's standards and requirements. Conducting due diligence only after contract signing is a significant red flag, as it indicates that the organization might be engaging with third parties without fully understanding the associated risks. This can lead to inadequate risk management and potential issues with compliance, performance, and security. References: The IIA’s International Standards for the Professional Practice of Internal Auditing (Standards), specifically Standard 2210 - Engagement Objectives, and COSO’s Enterprise Risk Management - Integrating with Strategy and Performance.

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.

COSO Enterprise Risk Management Framework

IIA Practice Guide: Assessing the Adequacy of Risk Management Using ISO 31000

Developing a risk and control model for an engagement should take into account the specific characteristics, processes, and risks of the organization being audited. Tailoring the model ensures that the controls are relevant and effective for the specific context of the organization, leading to a more accurate and useful audit outcome. References:

IIA's International Professional Practices Framework (IPPF), particularly on risk-based auditing and control frameworks.

When an internal auditor suspects that a tender was tailored for a specific bidder, the next appropriate action is to analyze the technical terms and conditions of the tender (Option D). This step involves a detailed examination of the tender documentation to identify any specific terms that may have been included to favor a particular bidder. Such an analysis can provide evidence of bias or manipulation. According to the IIA Standards, auditors must gather sufficient, reliable, and relevant evidence to support their findings (Standard 2310: Identifying Information).

IIA Standards, Standard 2310: Identifying Information

IIA Practice Guide: Evaluating Third-party Risk Management

Protecting the objectivity of internal auditors is a crucial aspect of maintaining the integrity and reliability of the internal audit function. According to the International Standards for the Professional Practice of Internal Auditing (Standards), specifically Standard 1120: Individual Objectivity, internal auditors must have an impartial, unbiased attitude and avoid any conflict of interest. Prohibiting auditors from accepting gifts from audit clients or potential clients (Option C) is a clear measure to prevent conflicts of interest and ensure that auditors remain objective and free from undue influence. This practice is in line with maintaining the highest level of ethical standards as per the IIA's Code of Ethics.

IIA Standards, Standard 1120: Individual Objectivity

IIA Code of Ethics

Corporate social responsibility (CSR) reporting typically includes information on how a company's operations impact the community and environment. Reporting the number of complaints related to traffic from a new factory reflects the organization's commitment to addressing community concerns and environmental impact, which are key aspects of CSR. References:

Global Reporting Initiative (GRI) Standards.

IIA guidance on CSR and sustainability reporting.

According to IIA guidance, a new internal auditor is expected to possess a broad understanding of IT risks and controls. This competency is crucial because:

IT risks and controls are integral to the overall control environment and impact all areas of an organization.

Knowledge of IT risks and controls enables auditors to assess the effectiveness of controls over information systems, data security, and technology infrastructure.

As technology evolves, internal auditors must understand how to evaluate IT-related controls to provide relevant assurance and advisory services.

While technical industry-specific expertise, cybersecurity expertise, and forensic accounting knowledge are valuable, they are not core competencies expected of every new internal auditor according to IIA guidance. The fundamental requirement is a solid grasp of IT risks and controls.

The Institute of Internal Auditors (IIA) Competency Framework.

"Internal Auditing: Assurance & Advisory Services" by IIA, Chapter on IT Risks and Controls.

IIA's Global Internal Audit Competency Framework.

In the context of an assurance engagement, the auditor determines the scope of the engagement during the planning phase, which includes identifying the specific areas to be reviewed. In this case, if the engagement included a review of the security and privacy of payroll records, it means that during the planning phase, the auditor identified this area as part of the engagement scope. This step is crucial to ensure that the engagement objectives are met and that all relevant risks and controls are evaluated.

The IIA Standards: Standard 2200 – Engagement Planning: "Internal auditors must develop and document a plan for each engagement, including the engagement’s objectives, scope, timing, and resource allocations."

The IIA Practice Guide: "Engagement Planning: Establishing Objectives and Scope": Emphasizes the importance of defining the scope during the planning phase.

Operating management in an organization is responsible for implementing CSR principles and overseeing CSR performance (Option A). This involves ensuring that the CSR initiatives align with the organization's goals and values, and that these initiatives are executed effectively. Management's role includes setting objectives, developing strategies, and monitoring the progress of CSR activities. This responsibility is outlined in various frameworks and guidelines for corporate social responsibility, emphasizing the need for management to take an active role in CSR implementation and oversight.

IIA Practice Guide: Internal Audit's Role in Corporate Social Responsibility

ISO 26000: Guidance on Social Responsibility

If the internal audit activity lacks the necessary skills and competencies to complete an ad-hoc assurance engagement, the most appropriate and professional action is to politely decline the engagement due to a lack of qualified staff. This decision upholds the IIA's standards on professional proficiency and due professional care.

The Institute of Internal Auditors (IIA) - International Standards for the Professional Practice of Internal Auditing.

Conformance with the Standards relating to continuing professional development of internal auditors is best demonstrated by self-assessments against a competency framework. Such self-assessments allow internal auditors to evaluate their skills and knowledge against defined criteria to identify areas for improvement and ensure ongoing professional development. This approach is directly aligned with the IIA's Standards, which emphasize the importance of continuous improvement and competency in internal audit practices.

The Institute of Internal Auditors (IIA) - International Standards for the Professional Practice of Internal Auditing