Free IIA IIA-CIA-Part2 Practice Exam with Questions & Answers | Set: 5

According to the IIA's Standards, specifically Standard 1210 - Proficiency, internal auditors must possess the knowledge, skills, and other competencies needed to perform their individual responsibilities. If the internal audit activity lacks the necessary skill set to conduct a requested consulting engagement, the most appropriate action for the CAE is to decline the engagement request. This ensures that the internal audit activity does not compromise the quality and effectiveness of its services.

The IIA Standards emphasize that the chief audit executive (CAE) should develop the internal audit plan based on a thorough assessment of risks facing the organization. This risk-based approach ensures that the most significant and relevant areas are prioritized. While input from senior management and regulatory requirements are also important, the primary driver should be the most recent and comprehensive risk assessment. References:

IIA Standards - 2010: Planning

IIA Practice Guide - Developing the Risk-based Internal Audit Plan

 CSR Policy Development: In developing a Corporate Social Responsibility (CSR) policy, it is important that the principles of CSR are communicated and understood throughout the organization.

 Integration into Decision-Making: Management’s responsibility includes ensuring that CSR principles are not only communicated but also integrated into the organization's decision-making processes at all levels. This ensures that CSR is part of the organizational culture and operational strategies.

 Board’s Role: While the board has a role in overseeing and ensuring that CSR objectives are established and risks are managed, the day-to-day responsibility for integrating CSR into business operations lies with management.

 IIA Guidance: According to IIA guidance, internal auditors should evaluate the design, implementation, and effectiveness of the organization’s ethics-related objectives, programs, and activities, which include CSR initiatives (Standard 2110 - Governance).

 References:

Effective communication and integration of CSR principles ensure that the organization operates in a socially responsible manner, aligning its business practices with societal expectations and contributing to sustainable development​​​​.

The IIA's International Standards for the Professional Practice of Internal Auditing (Standards) provide guidance on the reporting requirements of the quality assurance and improvement program. According to Standard 1320, "The chief audit executive must communicate the results of the quality assurance and improvement program to senior management and the board." This communication must include the results of both internal and external assessments and ongoing monitoring. Specifically, the results of ongoing monitoring of the internal audit activity’s performance should be reported to senior management and the board at least annually. This ensures that the internal audit activity maintains its proficiency, enhances its effectiveness, and complies with the Standards.

The primary reason for an internal auditor to use a risk and control questionnaire when auditing financial processes is to gain an understanding of the control environment. These questionnaires help auditors identify and evaluate the presence and effectiveness of controls within the financial processes. They provide a structured way to gather information about the control environment, helping auditors understand the organization's risk management and control practices before conducting detailed testing.

IIA Standards: 2201 - Planning Considerations

IIA Practice Guide: Internal Auditing and Fraud

When a significant finding is noted early during a review of the accounts payable function, the best course of action for communicating the issue is to inform internal accounting management via an interim memorandum update. This allows for timely communication and potential early remediation actions, ensuring that management is aware of the issue and can address it promptly before the final audit report is issued.

Professional Care: Ensuring that internal auditors demonstrate due professional care involves establishing clear policies and procedures that guide their activities.

Guidance and Standards: These policies and procedures help ensure that the internal audit activity adheres to professional standards and best practices.

Standard Compliance: According to the IIA’s Performance Standard 2040 – Policies and Procedures, the CAE must establish policies and procedures to guide the internal audit activity.

Quality Assurance: Properly developed policies and procedures contribute to the overall quality and effectiveness of the internal audit activity, ensuring that engagements are conducted with due professional care.

Stratified sampling is used when the population can be divided into distinct subgroups (strata) that differ significantly from each other but are internally homogeneous. In the context of auditing, revenue earned through cash receipts or as receivables would have different characteristics and risk profiles. Stratifying the population allows the auditor to ensure that each subgroup is adequately represented in the sample, leading to more reliable and accurate audit conclusions.

The Institute of Internal Auditors (IIA) Practice Guide: Audit Sampling

IIA Standard 2320 - Analysis and Evaluation

According to IIA guidance, mentoring relationships can significantly enhance professional development for internal auditors. Informal meetings between the mentor and the mentee allow for more open and flexible interactions, fostering a supportive environment for learning and development. While formal documentation can be useful, the primary value of mentoring often comes from the informal, ongoing dialogue and relationship that supports continuous learning and professional growth.

The Institute of Internal Auditors (IIA) - Practice Guide: Talent Management

Trend analysis is the analytics procedure that an internal auditor would use to compare performance information from one quarter to another. This technique involves analyzing data over a specific period to identify patterns, trends, and changes in performance metrics. Trend analysis helps auditors understand the direction of key performance indicators and assess whether performance is improving, declining, or remaining stable.

When dealing with the communication of audit results to external parties, the internal auditor must adhere to IIA standards regarding confidentiality, approval processes, and the appropriate handling of sensitive information.

IIA Standard 2440 – Disseminating Results:

This standard outlines that the chief audit executive (CAE) must approve the communication of engagement results to parties outside the organization. The CAE is responsible for ensuring that the distribution of audit findings is appropriate and does not compromise confidentiality or integrity.

Confidentiality and Authorization:

The internal auditor must protect the confidentiality of the information obtained during the audit. Sharing this information with external parties, such as an advertising agency, should only occur with proper authorization, typically from the CAE.

IIA Code of Ethics – Confidentiality:

The Code of Ethics requires auditors to respect the value and ownership of information they receive and to not disclose information without appropriate authority. In this case, if the audit client requests the report to be shared with an external party, the internal auditor must first obtain approval from the CAE to ensure this disclosure is appropriate.

Option B (May not communicate results): While confidentiality is crucial, the CAE can authorize the sharing of information with external parties if it is deemed appropriate.

Option C (Include instructions for limited distribution): While limiting further distribution is a good practice, the initial sharing still requires the CAE’s approval.

Option D (Verbal communication only): This restricts the auditor unnecessarily. The key is obtaining proper authorization, not limiting the form of communication.

Detailed Explanation:Why Not Other Options?Conclusion: Option A is correct as it ensures that the results can be communicated to the external party with the appropriate approval from the CAE, in line with IIA standards on dissemination and confidentiality.

The most effective way to identify the HR department's risks and controls, especially after recent process changes, is to discuss the department's present strategies and objectives with the head of the HR department. This approach allows the auditor to gain current and relevant insights directly from the person most knowledgeable about the department's current operations, risks, and controls. It ensures that the auditor understands the current environment, any new challenges, and the specific controls in place to mitigate risks. This method is more comprehensive and current compared to reviewing past reports or generalized organizational frameworks, which might not reflect recent changes accurately.

The Institute of Internal Auditors (IIA) Standard 2010 – Planning: "The chief audit executive must establish risk-based plans to determine the priorities of the internal audit activity, consistent with the organization’s goals."

IIA Practice Guide on "Engaging with Stakeholders"

After considering fraud scenarios and identifying and prioritizing fraud risks, the next immediate action for the internal auditor is to determine which controls are in place to mitigate those risks. This step involves assessing the effectiveness of existing controls and identifying any gaps where controls may be insufficient or absent. Understanding the control environment is crucial for developing a comprehensive fraud risk assessment and ensuring that appropriate measures are in place to prevent and detect fraud.

Institute of Internal Auditors (IIA), Practice Guide – Internal Auditing and Fraud.

To ensure that recommendations for enhancing internal controls have been effectively implemented, the internal auditor should conduct appropriate testing to verify management responses. This involves re-performing procedures, reviewing documentation, and possibly observing operations to confirm that the corrective actions have been adequately executed and are effective. Simply seeking a management assurance declaration (Option B) or observing corrective measures (Option A) may not provide sufficient evidence of proper implementation. Following up during the next scheduled audit (Option C) may delay the verification process, potentially allowing risks to persist.

IIA Standard 2500: Monitoring Progress.

IIA Practice Guide on Follow-up Processes in Internal Auditing.

Diversion typically involves redirecting resources or assets for personal use, not just having an undisclosed interest.

Tax evasion involves deliberate falsification of financial information to avoid tax liabilities.

Skimming is taking cash before it is recorded in the accounting system, usually difficult to detect.

Disbursement fraud involves creating fictitious invoices or vendors to divert funds.

These definitions are aligned with common fraud schemes outlined in the ACFE (Association of Certified Fraud Examiners) Fraud Tree and various IIA practice guides.