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

According to IIA guidance, the most appropriate action for a new chief audit executive to gain an understanding of the current level of knowledge, skills, and competencies required by an internal audit activity is to identify gaps in the activity’s proficiency based on criteria defined by a widely accepted competency framework. This method directly addresses the proficiency needs and aligns the internal audit team’s capabilities with professional standards and the demands of their specific roles within the organization.References: The IIA's guidance on internal audit competency frameworks, which suggests using established standards to assess and align internal audit capabilities.

===============

To achieve conformance with the Standards, the chief audit executive must include the activity of reporting the results of the quality assurance and improvement program (QAIP) to senior management and the board. This is essential for maintaining transparency and accountability in the internal audit activity’s efforts to uphold and enhance the quality of its operations.References: IIA Standard 1300: Quality Assurance and Improvement Program.

Fraud awareness training is considered the most effective option listed for detecting fraud within an organization. Training helps in raising awareness among employees about the signs of fraud, the importance of reporting suspicious activities, and the organization's policies related to fraud prevention. A strong awareness program serves as both a deterrent and a detection mechanism, making employees vigilant and more likely to identify and report fraudulent activities.References: Institute of Internal Auditors (IIA) resources on fraud detection and prevention best practices.

According to IIA guidance on professional development, a successful mentorship program should be inclusive and beneficial for all levels of staff, from new hires to highly experienced auditors. This approach ensures continuous learning and knowledge sharing across all experience levels, thereby enhancing the overall effectiveness and cohesion of the internal audit team.References: Institute of Internal Auditors (IIA) - Guidance on Continuing Professional Development and Mentorship Programs

A consulting service is the type of engagement that requires the client to agree with the techniques used by the internal audit activity. In consulting engagements, the scope and objectives, as well as the methodology and techniques to be used, are agreed upon with the client to ensure that the services meet their needs and expectations.References: IIA International Standards for the Professional Practice of Internal Auditing.

When asked to provide consulting services regarding the risks related to implementing a proposed new inventory management system, the internal audit activity should consider whether the benefits derived from the requested assessment would exceed the cost of providing the consulting service. This ensures that the engagement adds value to the organization, aligning with the principles of efficiency and effectiveness in internal auditing.References: The IIA's guidance on conducting consulting engagements and assessing value and benefits relative to cost.

Memberships in professional organizations play a crucial role in the professional development of internal auditors. These organizations often provide access to a wealth of resources including training, certification opportunities, latest industry news, networking events, and seminars that align with current industry trends. These resources are tailored specifically to help auditors meet the evolving demands and expectations of their primary stakeholders.References: Institute of Internal Auditors (IIA) - Guidelines on Continuing Professional Education and Development

In responding to a request from senior management for the internal audit activity to review and amend policies when auditing the purchasing department, the chief audit executive would most likely give primary consideration to maintaining internal audit independence. This request potentially places the internal audit activity into a management role, which could impair its independence and the ability to perform unbiased audits in the future. According to IIA standards, internal auditors should avoid taking on operational responsibilities to preserve their independence.References: IIA Standards on independence and objectivity.

This indicator suggests that the organization’s ethics program might not be well-developed if the responsibility for communicating ethics compliance is decentralized to the level of employees' direct managers without broader oversight or structured programs. Effective ethics programs typically involve centralized communication strategies that ensure consistency and comprehensiveness across the organization.References: Institute of Internal Auditors (IIA) - Guidance on Developing an Ethics ProgramQUESTION NO: 400

Which of the following is most likely to impair the internal audit activity's independence?

A. Undertaking audit work in an area where internal auditors lack the necessary skills.

B. Establishing an internal audit activity without documented policies and procedures.

C. Assigning compliance responsibilities to the chief audit executive.

D. Concluding that an internal control is effective without first obtaining evidence

Answer: C

Assigning compliance responsibilities to the chief audit executive (CAE) can impair the internal audit activity's independence. When the CAE has operational responsibilities, such as compliance, it may lead to a conflict of interest or self-review, both of which can compromise the independence required to objectively assess and report on the organization’s risks and controls.References: Institute of Internal Auditors (IIA) - International Standards for the Professional Practice of Internal Auditing, particularly those concerning independence and objectivity.

Implementing fair work and pay practices and a policy to treat employees equitably and consistently will most likely reduce the pressure or incentive as a common characteristic of fraud. These measures can help diminish feelings of unfair treatment or dissatisfaction among employees, which are often drivers behind the rationalization for committing fraud.References: Fraud Triangle and organizational behavior literature.

The best reason why the engagement supervisor should take care in explaining to local management the criteria that will be used to measure the effectiveness of the control environment is that the assessment will cover soft controls and company values. Soft controls, such as ethical conduct and organizational culture, are less tangible and can be subject to different interpretations. Clearly defining and communicating the criteria for assessing these controls is crucial to ensure transparency and mutual understanding of the audit's focus and objectives.References: IIA guidelines and best practices in evaluating the control environment, emphasizing the importance of clear communication about the scope and criteria of an audit, especially when it involves qualitative aspects like soft controls and organizational values.

The best example of a risk appetite statement concerning an investment portfolio is one that explicitly states a tolerance level for investment earnings volatility, such as "We have a moderate tolerance for investment earnings volatility with a target value at risk of $50 million." This statement directly addresses the organization’s willingness to accept risk and quantifies it, which is characteristic of effective risk appetite statements.References: IIA best practices on defining risk appetite, which recommend quantifying risk tolerance in financial terms to guide strategic decision-making.

===============

While internal auditors are not primarily fraud investigators, their role does include a responsibility to demonstrate adequate professional skepticism. This means being alert to conditions that may indicate possible fraud or error while performing audit engagements. Demonstrating skepticism is essential in enabling auditors to conduct thorough and effective audits, especially concerning fraud risks.References: Institute of Internal Auditors (IIA) - Practice Advisories on Fraud and Professional Skepticism.

The primary reason for establishing a continuing professional development program within an organization's internal audit activity is to ensure all internal audit responsibilities can be met. This program aims to maintain and enhance the knowledge, skills, and abilities of the internal auditors so they can effectively perform their duties and adapt to changes in the profession or industry.References: IIA guidelines on continuing professional education and development.

System validations and edit checks on vendor identification numbers are primary controls that effectively reduce the risk of setting up duplicate vendors in the system. These controls ensure that each vendor's information is unique and verified against existing records before a new vendor is entered into the system, thereby preventing duplication.References: Institute of Internal Auditors (IIA) - Risk Control Matrices and Internal Control Frameworks