Free IIA IIA-CIA-Part2 Practice Exam with Questions & Answers | Set: 14

When an internal auditor is asked to join a project team to help design controls in a software application, the most appropriate action is to advise the project team on how to develop effective controls. This advisory role ensures that the internal auditor provides expert guidance on control design without becoming directly responsible for implementation, maintaining their independence and objectivity. This approach allows the internal auditor to contribute valuable insights while ensuring that controls are properly integrated into the application.

IIA Standard 2120: Risk Management

IIA Practice Guide: Information Technology Controls

A flowchart is primarily used to evaluate the design of controls by visually representing the sequence of operations, decision points, and control activities within a process. This helps the internal auditor identify weaknesses, redundancies, and gaps in internal controls.

Preparing for testing the effectiveness of controls (A) comes later in the audit process, after evaluating the design.

Planning for evaluating potential losses (B) focuses on risk assessment rather than control design.

Preparing a sampling plan (C) is a different step in the audit process, where the auditor determines the scope and sample size.

A. To better understand and influence executives' planning:Influencing planning is not a primary purpose of networking.

B. To make executives aware of the benefits that the internal audit activity can provide:Correct. Networking ensures executives understand how internal audit can add value.

C. To assist executives in setting the organization’s risk appetite:Risk appetite is primarily a management responsibility.

D. To have a better understanding of the training needed for the audit team:Training needs can be assessed through other means.

CIA Exam Syllabus Reference:

Domain IV: Managing the Internal Audit Function – Stakeholder Engagement.

Verifying that recipients are valid employees is crucial in preventing payroll fraud. This audit objective ensures that only legitimate employees receive payments, thereby mitigating the risk of ghost employees or payments to terminated employees. While verifying amounts, payment timeliness, and benefit deductions are important, ensuring the validity of recipients directly addresses the potential for fraudulent activities in the payroll process.

IIA Practice Guide on Auditing Employee Compensation and Benefits.

IIA Standard 1220: Due Professional Care.

 Conducting a documented skills assessment helps in identifying the existing competencies and any gaps within the internal audit team.

 Post-audit surveys can provide feedback on the performance and areas for improvement, which can be used to further refine the skills and competencies of the audit staff (Ref: [16†source])

Introduction:

When duplicate payments are identified and corrected, the management’s response typically addresses the immediate impact or effect of the issue.

Types of Action Plans:

Condition-Based: Addresses the condition or the issue itself.

Cause-Based: Focuses on the underlying cause of the issue.

Root Cause-Based: Delves deeper to identify and address the fundamental reason for the issue.

Effect-Based: Focuses on addressing the consequences or the effects of the issue.

Options Analysis:

Option A: A condition-based action plan would involve identifying and rectifying the condition that led to the duplicate payments.

Option B: A cause-based action plan would address the immediate causes of the duplicate payments.

Option C: A root cause-based action plan would investigate and mitigate the fundamental reasons behind the duplicate payments.

Option D: An effect-based action plan addresses the consequences of the duplicate payments, such as recouping the funds, which is what management did in this scenario.

Conclusion:

Management’s action in recouping the duplicate payments is an effect-based action plan as it focuses on addressing the impact of the error.

Internal Audit Standards and Practice Guides .

When proposing interim changes to the annual audit plan due to emerging risks, the most appropriate action for the CAE is to communicate with the CEO and present the revised audit plan to the board for approval. This ensures that senior management is informed and supportive of the changes, and that the board, which holds the ultimate oversight responsibility, formally approves the revised plan. References:

The IIA’s International Standards for the Professional Practice of Internal Auditing (Standards), Standard 2020 - Communication and Approval.

The IIA’s Practice Guide on Engagement Planning.

Interim communications are used when urgent issues require immediate attention by management before the final audit report is issued (Standard 2440 – Disseminating Results).

Option A involves follow-up but does not require an interim report.

Option C is a whistleblower concern that would be investigated confidentially, not reported as an interim memo.

Option D reflects incomplete fieldwork, not a reporting need.

Option B, a material variance in inventory, represents a significant and immediate issue that requires prompt communication to management before the audit concludes.

Thus, the most appropriate situation for issuing an interim report is Option B.

The organization and content of workpapers should be based on the professional judgment of the internal auditor. Workpapers should provide sufficient detail to support the audit findings and conclusions but do not need to answer every conceivable question. Standard 2330 – Documenting Information states that internal auditors must document relevant information to support the conclusions and engagement results. This allows for flexibility and professional judgment in determining what is necessary and appropriate to include.

Institute of Internal Auditors (IIA), International Standards for the Professional Practice of Internal Auditing (Standards), Standard 2330 – Documenting Information.

The most likely reason the chief risk officer (CRO) chose the workshop approach is that it allows workshop participants to learn while contributing ideas toward the objectives. Workshops facilitate an interactive and collaborative environment where participants can share their insights and experiences. This approach helps in generating innovative solutions and fosters a sense of ownership among participants. It also enables participants to gain a better understanding of the issues at hand and the potential improvements that can be made. References: IIA Practice Guide – Facilitation and Collaboration Techniques, COSO Framework on Risk Management

If operational management has not implemented effective actions to address a significant control breach, the most appropriate next step for the chief audit executive is to discuss the matter with senior management. This step involves escalating the issue to a higher level of authority to ensure that the risks associated with the control breach are properly understood and addressed. If senior management fails to take appropriate action, the CAE may then escalate the issue to the board.

IIA Standard 2500: Monitoring Progress

IIA Practice Guide: Auditing Organizational Governance

Intervening during an audit involving ethical wrongdoing (Option 1) and negotiating a settlement of an employee claim for personal damages (Option 4) represent significant ethical risks if exhibited by an organization’s board. These actions could indicate attempts to influence or undermine the audit process and the fair handling of ethical issues, leading to potential conflicts of interest and compromising the integrity of the organization’s governance processes. Discussing periodic reports of ethical breaches (Option 2) and authorizing an investigation of an unsafe product (Option 3) are appropriate and responsible board actions that do not pose ethical risks.

IIA Standard 1110: Organizational Independence.

IIA Code of Ethics.

According to the Institute of Internal Auditors (IIA) guidance, the chief audit executive (CAE) should develop a risk-based audit plan that takes into account the organization's risk management framework, including its risk appetite levels. This aligns with Standard 2010 – Planning, which states that the CAE must establish a risk-based plan to determine the priorities of the internal audit activity, consistent with the organization’s goals. Risk appetite levels from management are a critical component of understanding the organization’s risk profile and should be incorporated into the audit plan. Thus, the CAE may incorporate risk information, including risk appetite levels from management, at her discretion.

IIA's International Standards for the Professional Practice of Internal Auditing, Standard 2010 – Planning.

If management accepts the issue identified by the internal audit team but takes no remedial action, the next step for the chief audit executive (CAE) is to escalate the issue to senior management. This ensures that senior management is aware of the unresolved significant issue and can take appropriate action to address it. Escalation is a critical step in ensuring that risks are managed effectively and that necessary corrective actions are implemented.

The Institute of Internal Auditors (IIA) Standard 2600

Comprehensive and Detailed Explanation:

An Integrated Test Facility (ITF) creates fictitious test data within a live system without disrupting actual operations. This allows the auditor to test the processing logic of applications under real conditions, ensuring transactions are processed consistently and correctly.

Utility software (A) supports system operations but does not test logic.

Parallel simulation (C) reprocesses transactions in an auditor-controlled system, but this does not test logic in the live environment.

Generalized audit software (D) analyzes data but does not simulate processing logic.

Therefore, the most effective method to test application logic in real time is Integrated Test Facility (B), as it directly evaluates processing accuracy within the operational system.