Free IIA IIA-CIA-Part2 Practice Exam with Questions & Answers | Set: 13

The internal audit activity's role in regard to the organization's risk management program includes ensuring that a proper and effective risk management process is in place. This involves evaluating the risk management processes and providing assurance that risks are identified and managed effectively. The internal audit activity should not be responsible for managing risks (Option A), but should ensure there is a systematic process (Option B). Attaining an adequate understanding of key mitigation strategies (Option C) and identifying appropriate controls (Option D) are part of the audit process, but ensuring the existence of a proper process is the primary responsibility. References: IIA Standard 2120 – Risk Management

 Implementing environmental and social safeguards aligns with the broader organizational goal of achieving sustainable development.

 These safeguards ensure that the organization operates in a manner that is environmentally responsible and socially conscious, which is crucial for long-term sustainability

When an internal auditor is unable to find supporting documentation for selected accounts during a test, the appropriate next step is to contact management to determine if the documentation is stored elsewhere. This ensures that all potential sources of evidence are explored before drawing any conclusions.

IIA Standard 2310 – Identifying Information:

This standard requires auditors to obtain sufficient, reliable, relevant, and useful information to support their findings. If documentation is missing, the auditor must investigate further to determine if the evidence exists in another location or form.

Contacting Management:

Before concluding that the test failed or expanding the sample, the auditor should first check with management to see if the documentation might be stored in an alternative location. This step ensures that the audit results are based on a thorough and complete examination of available evidence.

IIA Practice Advisory 2330.A1-1:

The advisory suggests that auditors should consider all sources of evidence and confirm with management if there are any alternative ways to obtain the necessary information.

Option A (Conclude that the test failed): This conclusion would be premature without first attempting to locate the missing documentation.

Option B (Select new accounts): This could lead to the same issue if the documentation is not missing but simply stored elsewhere.

Option C (Expand the sample size): Expanding the sample is unnecessary if the issue is simply that the documentation is stored in a different place.

Detailed Explanation:Why Not Other Options?Conclusion: Option D is correct because it involves taking the logical next step of contacting management to locate the missing documentation, ensuring that the audit is thorough and the conclusions drawn are based on all available evidence, in line with IIA standards.

A. Book value per common share ratio is lower than that of the prior year:This represents year-over-year comparison, which is an example of historical benchmarking, not internal benchmarking.

B. Staff turnover ratio is higher than the comparable organization in the same industry:This represents external benchmarking, as it involves comparing against a peer organization.

C. Utilities expense of the sales unit is higher than that of the customer service unit:Correct. This is internal benchmarking, as it compares performance metrics within the same organization.

D. Sales are significantly higher than the industry’s average for five years:This is an example of external benchmarking against the industry standard.

CIA Exam Syllabus Reference:

Domain V: Performing Internal Audit Services – Benchmarking Techniques.

The organization’s ongoing risk monitoring process is the most critical factor because risk management is a continuous activity. The Chief Audit Executive (CAE) must ensure that identified risks are addressed within the context of ongoing risk monitoring. This enables management to take corrective action and integrate risk mitigation into strategic planning.

The organization's attitude to hierarchy (A) may influence communication effectiveness but does not determine risk response.

The organization's whistleblowing strategy (B) relates more to reporting misconduct rather than managing identified risks.

The organization's risk management policy (D) sets overall guidelines, but ongoing risk monitoring ensures practical application.

According to Standard 2330 – Documenting Information, only information that is sufficient, relevant, and supports engagement results should be retained in workpapers. Since the workpapers already contain sufficient evidence, additional notes that do not add value should not be included. Option B is correct: omit unnecessary notes from the workpapers.

Step by Step Comprehensive Detailed Explanation with References:

Introduction:

Internal auditors use process mapping to document and understand the steps involved in a process.

Purpose of Narrative Memoranda:

Narrative memoranda are written descriptions that outline the steps of a process, often used when the process is straightforward.

Options Analysis:

Option A: Detailed risk assessment is usually more comprehensive and may require flowcharts or other detailed diagrams.

Option B: Identifying individuals who perform key roles typically requires organization charts or responsibility matrices.

Option C: Narrative memoranda are best suited for explaining simple processes in a clear and concise manner.

Option D: Documenting outputs that support other activities might require more detailed mapping techniques.

Conclusion:

Narrative memoranda are effective for explaining simple processes, providing a straightforward and understandable framework.

Internal Audit Standards and Practice Guides.

For audit evidence to be considered reliable, it must be accurate, truthful, and verifiable. The absence of the bank heading, logo, or address on the bank statements raises concerns about the authenticity and integrity of the documents. Without these elements, there is no assurance that the statements are legitimate and have not been tampered with or falsified. Therefore, this evidence may not be reliable for audit purposes.

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

"Auditing: A Risk-Based Approach to Conducting a Quality Audit" by Karla M. Johnstone, Audrey A. Gramling, Larry E. Rittenberg

An internal control questionnaire (ICQ) is a tool used by auditors to gather detailed information about the internal control system of an audited area. The primary purpose of an ICQ is to identify and assess risks that could prevent the area from achieving its objectives. By systematically covering various control points, the questionnaire helps the auditor evaluate the adequacy and effectiveness of controls in place and identify areas where controls may be lacking or need improvement.

The Institute of Internal Auditors (IIA) - Practice Guide: Internal Control Questionnaire

A draft internal audit report citing deficient conditions should be reviewed with relevant stakeholders to ensure accuracy, address concerns, and plan corrective actions. This includes the client manager and her superior (Option 1) to inform them of the findings and obtain their perspective. It should also be reviewed with anyone who may object to the report’s validity (Option 2) to address potential disagreements or misunderstandings early in the process. Finally, it should include anyone required to take action (Option 3) so they are aware of their responsibilities and can begin planning remediation efforts. While it may be beneficial to review with those who receive the final report (Option 4), it is not essential for the draft stage. References:

The IIA’s International Standards for the Professional Practice of Internal Auditing (Standards), Standard 2440 - Disseminating Results.

When an internal auditor receives a document displaying all the steps of a process and the path taken as transactions flow between each step, the auditor is most likely to use this document to perform an assessment of the adequacy of process controls. This flowchart or process map helps the auditor understand the process, identify key control points, and evaluate whether the existing controls are sufficient to mitigate risks within the process.

IIA Standards: 2201 - Planning the Engagement

IIA Practice Guide: Internal Auditing and Fraud

The primary reason the CAE should actively network and build relationships with senior management and the board is to fulfill their responsibility to keep the board appropriately informed. This is crucial for ensuring that the board has a clear understanding of the risks, control issues, and internal audit findings that may impact the organization.

IIA References:

IIA Standard 2060: Reporting to Senior Management and the Board requires the CAE to report periodically to senior management and the board on the internal audit activity's purpose, authority, responsibility, and performance relative to its plan. The CAE must also communicate significant risk exposures and control issues.

The IIA Practice Guide on Effective Communication with Stakeholders highlights the importance of regular and effective communication between the CAE, senior management, and the board to ensure transparency and alignment on key issues.

 Competitive Strategies: Recognized competitive strategies include cost leadership, differentiation, focus, and innovation. Each strategy emphasizes different aspects of competitive advantage.

 Cost Leadership Strategy:

Efficiency Focus: Cost leadership focuses on gaining efficiencies and reducing costs to offer products or services at a lower price than competitors. This strategy aims to achieve the lowest operational costs and prices in the industry.

Economies of Scale: It involves optimizing production processes, achieving economies of scale, and minimizing expenses to maintain competitive pricing.

 Comparison with Other Strategies:

Focus Strategy: Concentrates on serving a particular market niche with specialized products or services.

Innovation Strategy: Emphasizes creating unique products or services through innovation and technological advancement.

Differentiation Strategy: Focuses on offering unique and superior products or services that stand out from competitors.

 IIA Guidance and References:

Cost leadership as a competitive strategy centers on achieving cost efficiencies to gain a competitive edge in pricing, making it a strategic choice for organizations looking to compete on price rather than product differentiation​​​​.

The most important determinant of the objectives and scope of assurance engagements is the preliminary risk assessment performed by internal auditors. This assessment identifies the key risks that the engagement should address and ensures that the audit is focused on areas of highest risk and significance to the organization. While organizational charts, business objectives, and management requests are important inputs, the internal auditors' preliminary risk assessment ensures that the audit addresses the most critical areas. References:

The IIA’s International Standards for the Professional Practice of Internal Auditing (Standards), specifically Standard 2210 - Engagement Objectives.

The IIA’s Practice Guide on Engagement Planning.

The primary purpose of financial statement audit engagements is to review financial reports and ensure they comply with generally accepted accounting principles (GAAP). This involves verifying the accuracy and fairness of the financial statements, ensuring they provide a true and fair view of the organization's financial position and performance. References: = IIA Practice Guide: “Auditing Financial Statements” and IIA Standard 2110.A1.