IIA-CIA-Part2 Practice of Internal Auditing Question and Answers

According to IIA guidance, an appropriate role for the internal audit activity with regard to the organization's risk management program is to attain an adequate understanding of the organization's key risk mitigation strategies. This enables internal auditors to evaluate the effectiveness of risk management processes and provide assurance on the adequacy of risk controls. Identifying and managing risks, ensuring risk management processes exist, and ensuring controls exist to mitigate risks are responsibilities of management, not internal audit.

References:

IIA Standards: 2120 - Risk Management

IIA Practice Guide: Internal Audit's Role in Risk Management

In internal auditing, the "condition" of an observation refers to the specific state or situation that has been identified during the audit. It describes what is actually occurring and provides the factual basis for the observation. In this case, the statement "... the subsidiary did not submit required documentation for registration in the prior year." explicitly describes the observed deficiency, which is the failure to submit the necessary documentation. This condition highlights the exact issue that needs to be addressed by management.

References:

IIA Practice Guide: "Audit Documentation"

IIA Standard 2410: "Criteria for Communicating"

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.References:

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

According to IIA guidance, there is no specific frequency mandated for conducting organization-wide risk assessments. Instead, the internal audit activity should perform risk assessments as necessary to reflect significant changes in the organization's business environment, risk profile, and operations. This flexibility allows the internal audit activity to remain responsive and relevant in a dynamic risk landscape.

IIA References:

IIA Standard 2010: Planning requires the CAE to establish risk-based plans to determine the priorities of the internal audit activity, consistent with the organization’s goals. The frequency and timing of risk assessments should be adapted to the organization’s changing conditions.

The IIA Practice Guide on Risk Assessment in Audit Planning emphasizes that risk assessments should be updated as needed, particularly when there are significant changes in the organization or external environment.

Audit criteria should be appropriate and specific to each audit assignment, considering the unique context and objectives of each engagement. Consistency across all audit assignments (Option A) is not always feasible or desirable, as it could lead to inappropriate assessments. Instead, criteria should be flexible to allow the identification of nonadherence, represent reasonable standards, and align with good management practices relevant to each specific audit.References:

IIA Standard 2201: Planning Considerations.

IIA Practice Guide on Audit Planning.

Internal control questionnaires (ICQs) are useful tools for internal auditors to guide interviews with auditees. They help ensure that all relevant aspects of internal controls are covered systematically during the interview process. While ICQs can help in evaluating the design and existence of controls, they primarily provide a structured format for gathering information from auditees about controls in place, rather than serving as direct audit evidence themselves. Therefore, they aid in the interview process by ensuring comprehensive coverage of control-related inquiries.References: The IIA's International Standards for the Professional Practice of Internal Auditing, Standard 2201 - Planning Considerations.

According to IIA guidance, if the internal audit team lacks the necessary skills and knowledge to perform an audit, the CAE should consider obtaining external expertise. Accepting the engagement and hiring an external expert allows the internal audit activity to leverage specialized knowledge while fulfilling the audit request. This approach ensures that the audit is conducted effectively and meets the required standards, while also addressing any competency gaps within the internal audit team.

References:

Institute of Internal Auditors (IIA) Standards: Attribute Standards 1210: Proficiency

IIA Practice Guide: Obtaining External Assistance in the Conduct of Internal Auditing

An engagement work program is of greatest value to audit management when it helps ensure the achievement of the engagement objectives. The work program outlines the audit procedures and tests that need to be performed to gather sufficient and appropriate evidence to support the audit findings and conclusions. By aligning the work program with the engagement objectives, auditors can focus their efforts on the most critical areas, ensure that all necessary steps are taken, and ultimately achieve the intended outcomes of the audit.References:

Institute of Internal Auditors (IIA), International Standards for the Professional Practice of Internal Auditing (Standards), Standard 2240 – Engagement Work Program.

Successful change management requires prompt decision-making and actions, as well as ensuring that changes lead to improvement or reform. Respecting the traditions of the organization and controlling internal and external communications are important, but not as critical to the success of change management as the necessity for timely actions and positive outcomes. References:

IIA Practice Guide - Change Management: Facilitating Organizational Change

IIA Standards - 2210: Engagement Objectives

When the chief audit executive (CAE) is uncertain whether the internal audit team has the necessary knowledge to conduct a specific engagement, such as reviewing testing procedures for a large information system, the most appropriate course of action is to engage an external service provider with the required expertise. This option helps to preserve the independence and objectivity of the internal audit activity.

IIA Standard 1210 – Proficiency:

This standard requires that internal auditors possess the knowledge, skills, and other competencies needed to perform their responsibilities. If the current team lacks the necessary skills, the CAE must seek external expertise.

Preserving Independence:

Engaging an external service provider helps maintain the independence of the internal audit function, as the expertise is sourced from an independent party. This prevents potential conflicts of interest that might arise if resources are borrowed from within the organization (e.g., from the IT department).

IIA Practice Advisory 1210.A1-1:

This advisory suggests that the CAE may employ external experts to provide specialized knowledge for certain audit engagements, ensuring the audit activity remains independent and objective.

Option A (Contract with the software vendor): This could compromise independence, as the vendor may have a vested interest in the outcome of the audit.

Option B (Ask for a knowledgeable resource from IT): Using internal resources, especially from the IT department being audited, could impair independence and objectivity.

Option D (Request resources through the external auditor): This might be appropriate in some cases, but it is not as direct and effective as hiring an external provider with specialized skills for this specific engagement.

Detailed Explanation:Why Not Other Options?Conclusion: Option C is correct as it ensures the internal audit function maintains its independence while acquiring the necessary expertise to conduct the engagement effectively, in line with IIA standards.

The primary reason the chief audit executive should consider the organization's strategic plans when developing the annual audit plan is that strategic plans reflect the organization's business objectives and overall attitude toward risk. Understanding the strategic direction of the organization helps the internal audit function align its activities with the key risks and objectives, ensuring that the audit plan is relevant and adds value to the organization by focusing on areas that could impact the achievement of strategic goals.

References:

IIA Standards: 2010 - Planning

IIA Practice Guide: Developing the Internal Audit Strategic Plan

To obtain a responsive action plan from management, the auditor is most likely to achieve this when both parties agree on the "Effect" attribute of the audit finding. The "Effect" refers to the impact or potential impact of the identified issue on the organization's operations, objectives, or risk profile. When management and the auditor agree on the significance and consequences of the finding, there is a shared understanding of the urgency and importance of addressing the issue. This alignment increases the likelihood that management will develop and commit to an effective action plan to remediate the finding.

References:

IIA Practice Guide: "Formulating and Expressing Internal Audit Opinions"

COSO Internal Control – Integrated Framework

Data analytics is the most efficient technique to identify patterns and anomalies that may indicate the splitting of planned purchases to avoid the approval process. By applying data analytics, the internal auditor can analyze the entire dataset to detect unusual patterns, such as multiple purchases just below the approval threshold made within a short timeframe. This method is more effective than random sampling or manual examination as it can quickly and accurately identify instances of potential malpractice across large volumes of transactions.References:

The Institute of Internal Auditors (IIA) - Practice Guide: Data Analytics

The chief audit executive (CAE) has the responsibility to provide assurance and insight on risk management processes. In a meeting with senior management to discuss significant risks, the CAE should focus on evaluating whether the risks accepted by senior management align with the organization’s risk appetite and are within acceptable levels. The CAE should ensure that the risk management practices are adequate and that senior management is aware of any risks that might exceed the organization's tolerance levels. This approach is aligned with the role of internal audit in providing independent and objective evaluations.

References:

Institute of Internal Auditors (IIA) Standards: Performance Standards 2120: Risk Management

IIA Practice Guide: Assessing the Risk Management Process

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.References:

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

Step-by-Step Detailed Explanation:

A. Determine whether the purchasing department complies with policy by examining a random selection of purchase orders:Correct. Reviewing a random sample of purchase orders is a standard procedure for evaluating compliance with purchasing policies, such as approval requirements, vendor selection, and adherence to budget constraints.

B. Evaluate whether purchasing requests are properly approved by authorized staff by obtaining independent verification from the vendors:Vendor verification is not typically used to evaluate internal approvals as this information is available within the organization’s records.

C. Ascertain whether material receipts are recorded on a timely basis by reviewing physical inventory stock counts:Physical inventory reviews focus on inventory management and reconciliation, not specifically on the timeliness of receipts.

D. Determine whether prices charged for goods received are correct by reviewing the appropriate accounts payable record by vendor:While reviewing accounts payable records helps verify the accuracy of pricing, it does not directly evaluate the purchasing department’s adherence to procedures.

CIA Exam Syllabus Reference:

Domain V: Performing Internal Audit Services – Audit Engagement Objectives and Procedures.

A risk that is deemed "unacceptable" to the organization is one where the residual risk (the remaining risk after controls are applied) exceeds the organization's risk tolerance level. This means that despite controls in place, the level of risk remains higher than what the organization is willing to accept. Identifying such risks is critical for ensuring appropriate management action to mitigate them further. References:

The IIA’s Practice Guide on Risk Management.

COSO’s Enterprise Risk Management – Integrating with Strategy and Performance.

A significant residual risk that would exceed the organization's acceptable risk level is likely to be one that has severe consequences, such as causing injuries or environmental pollution. These types of risks can have substantial legal, financial, and reputational impacts on an organization and are typically beyond acceptable levels of risk tolerance. References:

COSO’s Enterprise Risk Management – Integrating with Strategy and Performance.

The IIA’s Practice Guide on Risk Management.

The primary reason for audit supervision to include the approval of the engagement report is to ensure that the findings and conclusions presented in the report are substantiated by adequate and appropriate evidence. This is critical for maintaining the credibility and reliability of the audit function.

IIA Standard 2340 – Engagement Supervision:

This standard requires that engagements be properly supervised to ensure that objectives are achieved, audit work is performed according to appropriate standards, and that the results are supported by sufficient, reliable, and relevant evidence.

Substantiation of Findings:

Approval of the engagement report by the supervisor ensures that the findings and conclusions are not only accurate but also supported by documented evidence. This substantiation is essential for the report to be credible and for the audit to fulfill its purpose.

IIA Practice Advisory 2340-1:

The advisory emphasizes the role of supervisors in reviewing and approving the engagement report to ensure that all findings are well-founded and appropriately supported by the audit evidence.

Option A (Ensure objectives are met): While meeting objectives is important, the primary focus of report approval is to ensure that the findings are substantiated.

Option B (Ensure senior management support): Support from management is necessary, but it should be based on a report that is well-supported by evidence.

Option C (Ensure style and grammar): Style and grammar are secondary considerations; the primary focus should be on the accuracy and substantiation of findings.

Detailed Explanation:Why Not Other Options?Conclusion: Option D is correct because the primary reason for the supervisor’s approval of the engagement report is to ensure that the findings are substantiated by evidence, ensuring the credibility and reliability of the audit report, in line with IIA standards.

When auditing an organization's cash-handling activities, the most reliable form of testimonial evidence comes from a knowledgeable person who is independent of the cashiering duty. This independence ensures that the testimonial evidence is unbiased and not influenced by those directly involved in the processes being reviewed. Such evidence is considered more reliable as it is less likely to be affected by personal interests or biases.

References:

The Institute of Internal Auditors (IIA) Practice Guide: Evaluating Evidence

IIA Standard 2310 - Identifying Information

According to the IIA’s Fraud and Internal Audit position paper1, internal auditors should not investigate fraud unless they have the specific experience and expertise required to do so. Therefore, the most appropriate option for the chief audit executive is to appoint an independent fraud investigation specialist to work with the selected internal auditors. This will ensure that the investigation is conducted in a professional and ethical manner, and that the evidence is not compromised or tainted. The other options are not suitable because they do not address the immediate need for fraud investigation expertise, and they may expose the organization to legal or reputational risks.

One of the primary drawbacks of using internal control questionnaires is the risk that management may not provide honest or accurate answers. This can occur due to a variety of reasons, including a lack of knowledge, intentional deception, or a misunderstanding of the questions. As a result, the responses may not accurately reflect the true state of the controls, leading to incomplete or misleading audit conclusions.

References:

The Institute of Internal Auditors (IIA) Practice Guide: Assessing the Adequacy of Risk Management Using ISO 31000

IIA Standard 2310 - Identifying Information

To increase the deterrent effect of a code of business conduct, it should include appropriate descriptions of penalties for misconduct and notifications that violations may lead to criminal prosecution. These elements clearly communicate the serious consequences of unethical behavior, thus reinforcing the importance of adhering to the code. References: = IIA Practice Guide on "Evaluating Ethics-related Programs and Activities".

Audit workpaper preparation is an essential aspect of an internal auditor's work that contributes significantly to their professional development. Preparing workpapers helps auditors develop their skills in documenting audit evidence, supporting audit conclusions, and enhancing their understanding of the audit process. This process ensures that the auditor gains a thorough understanding of the engagement and strengthens their analytical and documentation skills.

IIA References:

IIA Standard 2330: Documenting Information requires internal auditors to prepare workpapers that document relevant information to support the conclusions and engagement results. This process is integral to their professional development, as it hones their ability to capture and organize audit evidence effectively.

The Practice Guide on Audit Documentation emphasizes that workpaper preparation helps auditors develop critical thinking and ensures that they can justify their findings and conclusions based on documented evidence.

When the chief audit executive (CAE) evaluates the possibility of relying on external auditors' work, the primary focus should be on examining the objectivity and any perceived or actual conflicts of interest that might affect the external auditors' work. Ensuring that the external auditors are objective and free from conflicts is crucial for determining whether their work can be relied upon by the internal audit activity.

IIA Standard 2050 – Coordination and Reliance:

This standard requires that the internal audit activity coordinates its efforts with external auditors to ensure proper coverage and minimize duplication of efforts. When relying on external auditors, the CAE must assess the external auditors’ objectivity and independence.

Objectivity and Conflicts of Interest:

Objectivity refers to the unbiased mental attitude that allows external auditors to perform their work with integrity and impartiality. Conflicts of interest, whether perceived or actual, can compromise this objectivity. The CAE needs to ensure that external auditors are free from any relationships or interests that could affect their judgment.

IIA Practice Advisory 2050-2:

The advisory suggests that the internal audit activity should evaluate the competence, objectivity, and independence of external auditors before relying on their work. A thorough examination of potential conflicts of interest is essential to ensure that the reliance on their work is justified.

Option A (Perform comprehensive background checks): While background checks may be useful, the primary focus should be on objectivity and conflicts of interest.

Option B (Recalculate all financial calculations): This approach is excessive and unnecessary if the external auditors’ work can be relied upon.

Option D (Review audit tests in previous audits): While reviewing previous work is important, it does not address the key issue of objectivity and independence.

Detailed Explanation:Why Not Other Options?Conclusion: Option C is correct because the CAE must focus on ensuring that external auditors are objective and free from conflicts of interest, which is essential for relying on their work, in accordance with IIA standards.

Internal control questionnaires are used to determine whether specific control procedures are in place within an organization. They help auditors identify the existence and implementation of controls designed to mitigate risks. These questionnaires can provide a preliminary understanding of the control environment and identify areas that may require further detailed testing.

References:

The Institute of Internal Auditors (IIA) Practice Guide: Using Internal Control Questionnaires to Assess Risk

IIA Standard 2130 - Control

According to IIA guidance, an engagement work program is designed to test the effectiveness of process controls within an organizational process. This involves evaluating whether the controls are adequately designed and operating effectively to mitigate identified risks and achieve the process objectives. The work program outlines the specific procedures and steps auditors will take to gather evidence and assess the controls in place, ensuring that they address the relevant risks and comply with the organization's standards and policies.References:

IIA Standard 2240: Engagement Work Program

IIA Practice Guide: Internal Audit Quality Assurance

An internal control questionnaire is most appropriate in situations where controls need to be assessed across decentralized offices. This tool helps gather consistent information on the presence and effectiveness of controls in multiple locations, ensuring a standardized approach to control assessment. It allows for efficient data collection and comparison, which is critical in decentralized environments where processes and controls may vary. References: IIA Practice Guide – Evaluating Internal Controls, IIA Standard 2130 – Control

When a client decides not to implement recommended process improvements from a consulting engagement, the internal audit activity should confirm the decision with management and document it in the audit file. This approach ensures that the audit trail is complete and that there is a record of management’s acceptance of the associated risks. Escalating the issue to the board (Option A) or initiating an assurance engagement (Option D) might be necessary if the risks are significant, but these actions are not the immediate next steps. Continuous follow-up (Option C) is more relevant to assurance engagements rather than consulting engagements.References:

IIA Standard 2500: Monitoring Progress.

IIA Practice Guide on Consulting Engagements.

External benchmarking using trend analysis involves comparing a company's performance metrics with industry standards or averages over a certain period to identify trends and areas for improvement. Comparing common-size financial statements of the subsidiary with the averages of the industry for the last two periods allows for a normalized comparison by expressing financial statement items as a percentage of a common base figure (e.g., total assets or sales). This method highlights the subsidiary's financial structure and performance trends in relation to industry norms, facilitating a comprehensive analysis. References:

"Internal Auditing: Assurance & Advisory Services" (The Institute of Internal Auditors)

"Benchmarking: An Essential Tool for Assessment, Improvement, and Market Leadership" (Michael J. Spendolini)

The step that would accomplish the objective of testing management's identification and prioritization of critical data collected by the organization is to document and test a data inventory and classification program by determining the data classification levels and framework. This involves verifying that management has established a comprehensive data inventory and that data classification processes are in place and effectively implemented. It ensures that data is appropriately categorized based on its criticality and sensitivity, aligning with the organization’s risk management framework and data governance policies.References: IIA's Global Technology Audit Guide (GTAG) on Data Privacy and Protection, which outlines best practices for data classification and management.

The chief audit executive (CAE) can best illustrate the value of the internal audit activity by reporting the overall performance resulting from the internal audit balanced scorecard. The balanced scorecard includes metrics that measure the effectiveness, efficiency, and impact of the internal audit function, providing a comprehensive view of its contributions to the organization. This approach demonstrates how internal audit activities align with and support the organization's strategic objectives. References:

The IIA’s Practice Guide on Measuring Internal Audit Performance.

The IIA’s Practice Guide on Internal Audit Effectiveness.

Step-by-Step Detailed Explanation:

A. The decision affects the test procedures performed:Correct. The choice between statistical and nonstatistical sampling affects the design of the sample selection, execution of audit procedures, and the nature of conclusions drawn. Statistical sampling involves probabilistic techniques that influence sample size and evaluation, whereas nonstatistical sampling relies on auditor judgment.

B. The auditor's response to errors detected will be influenced:While error response is critical, it is influenced more by the nature and materiality of the errors than by the sampling approach.

C. The competence of the evidence obtained is greater with statistical sampling:This is incorrect because the competence of evidence depends on the procedure itself, not the sampling method used. Both methods can yield competent evidence if applied correctly.

D. Nonstatistical sampling may be more cost effective:While this can sometimes be true, it is context-dependent and not universally applicable, so it is not the best answer.

CIA Exam Syllabus Reference:

Domain II: Risk Management and Control – Sampling Techniques and Audit Evidence.

To investigate unusually high employee turnover at the organization's primary manufacturing plant, the internal auditor is likely to use benchmarking. Benchmarking involves comparing the organization’s turnover rates with those of similar organizations or industry standards to identify deviations and potential issues. This approach helps in understanding whether the turnover rate is indeed unusually high and what factors may be contributing to it.

References:

IIA Practice Guide: Benchmarking in Internal Audit

IIA Standards: 1220 - Due Professional Care

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

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

Sampling is commonly involved in reperformance and inspection procedures. Reperformance involves the internal auditor independently executing procedures or controls to verify the results obtained by the entity. Inspection involves examining records, documents, or tangible assets. Both of these audit procedures frequently use sampling techniques to select items for testing, which helps ensure that the auditor's conclusions are based on representative data without the need to examine every item in the population.

References:

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

Generally Accepted Auditing Standards (GAAS) related to audit evidence and sampling

In the initial risk assessment phase, it is critical for the internal auditor to understand the current policies and procedures in place. By obtaining the most current approved copies of the organization's privacy policy, the auditor can assess whether these policies are in compliance with privacy laws and are effectively implemented. This approach provides a solid foundation for understanding the existing controls and identifying areas where there may be gaps or weaknesses. Consulting with legal counsel or a specialist can be subsequent steps if further expertise is needed, but understanding the internal policies is the primary and essential first step.References:

Institute of Internal Auditors (IIA), International Standards for the Professional Practice of Internal Auditing (Standards), Standard 2210 – Engagement Objectives.

When the CAE determines whether the internal audit activity has confirmed the status of all management's corrective actions, it helps in assessing residual risk. Residual risk is the risk that remains after management's actions to mitigate inherent risk. By confirming the status of corrective actions, the CAE can evaluate whether the risks identified during the audit have been adequately addressed and what level of risk still exists, ensuring that the internal control environment is effective and that management's risk responses are appropriate.References: COSO's Enterprise Risk Management Framework and The IIA's International Standards for the Professional Practice of Internal Auditing.

According to the IIA guidance, sufficient information is defined as information that is factual, adequate, and convincing. This means that the information gathered during an audit must be based on verifiable facts, must be enough to form a reasonable conclusion, and must be persuasive enough to support the audit findings and recommendations. Ensuring information meets these criteria is essential for the credibility and reliability of the audit process.

References:

IIA Standard 2310: "Identifying Information"

IIA Practice Advisory 2310-1: "Identifying Information"

When an internal audit team leader encounters difficulties due to the lack of a system of internal controls, the most appropriate course of action is to add a consulting component to the scheduled assurance engagement. This approach allows the internal audit team to provide advice and recommendations on establishing internal controls while still fulfilling their assurance responsibilities. By integrating consulting activities, the auditors can help the business unit improve its control environment, which can then be assessed in the assurance engagement.

References:

The Institute of Internal Auditors (IIA) Practice Guide: Consulting Engagements

IIA Standard 1130 - Impairment to Independence or Objectivity

Internal auditors generally determine the priority of the areas within the engagement scope by assessing the risk of those areas. This involves estimating the likelihood of a risk occurring and the potential impact of that risk on the organization. High-risk areas with a high likelihood of occurrence and significant impact are prioritized to ensure that critical risks are addressed promptly. This risk-based approach to prioritization helps ensure that the audit resources are focused on the most significant areas, enhancing the effectiveness and efficiency of the audit.References:

The Institute of Internal Auditors (IIA) - Standards for the Professional Practice of Internal Auditing, Standard 2010 - Planning

According to IIA Standards, acceptable practices for testing conformance through a quality assurance review include conducting a self-assessment with independent validation (2) and arranging for reciprocal peer review with another CAE (4). These methods provide a cost-effective and practical approach to ensuring compliance with professional standards, especially for small internal audit activities. Using an external service provider (1) and arranging for a review by qualified employees outside of the IAA (3) are also valid, but self-assessment with independent validation and peer review are specifically highlighted for smaller IAAs. References: IIA Standard 1312 – External Assessments, IIA Practice Guide – Quality Assurance and Improvement Program

To manage the risk associated with volatile crude oil prices, purchasing crude oil-related derivatives such as futures or options is an appropriate risk management technique. These financial instruments allow the organization to hedge against price fluctuations by locking in prices or securing the right to purchase at a specific price, thereby providing financial stability and predictability. Option A is not directly related to hedging crude oil price risks. Option B involves speculative trading, which can be risky. Option D may not be feasible or cost-effective compared to using derivatives.References: COSO's Enterprise Risk Management – Integrating with Strategy and Performance.

Top of Form

According to the IIA Standards, particularly Standard 2500 - Monitoring Progress, internal auditors are responsible for monitoring the disposition of results communicated to management. They need to assess whether management has taken appropriate action to address audit findings or has consciously accepted the risk of not taking action. The follow-up process is crucial to ensure that identified risks are managed effectively. References: = IIA’s Standard 2500 - Monitoring Progress and Practice Guide on Follow-up Processes.

One disadvantage of using flowcharts during a risk assessment is that they may not capture serious risks that are not part of the linear process flow. Flowcharts are excellent tools for visualizing processes and identifying control points within a structured workflow. However, they might overlook risks that arise from non-linear interactions, external factors, or complex interdependencies that are not easily represented in a flowchart format. This limitation can result in an incomplete risk assessment if the auditor relies solely on flowcharts without considering other methods to identify all potential risks.References:

Institute of Internal Auditors (IIA), Practice Guide – Auditing the Control Environment.

The sections of the workpapers most likely to require changes after considering an important compensating control would include the effect of the control weakness, the conclusion on the control weakness, and the recommendation for the control weakness. The effect might be mitigated by the compensating control, leading to a different conclusion and potentially altering the recommendation.

IIA References:

IIA Standard 2310: Identifying Information requires that sufficient, reliable, relevant, and useful information must be obtained to support the engagement results. If a compensating control was not adequately considered, the conclusion and recommendations related to the control weakness might need to be revised to reflect a more accurate assessment.

The Practice Guide on Evaluating Internal Controls suggests that all relevant controls, including compensating controls, should be considered when forming conclusions and making recommendations.

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.

References:

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

IIA Standard 2320 - Analysis and Evaluation

Upon discovering a potential conflict of interest, the most appropriate action for the internal auditor is to inform the audit supervisor. This ensures that the issue is properly addressed and investigated according to the organization's policies and procedures. The audit supervisor can then decide on the appropriate course of action, including whether further investigation is warranted. References: = IIA Standard 2440 - Disseminating Results and IIA Standard 2600 - Resolution of Senior Management’s Acceptance of Risks.

Step-by-Step Detailed Explanation:

A. The policy for granting, modifying, and deleting user access:Correct. Understanding the policy ensures the auditor knows the framework and controls in place.

B. A sample of change request forms:Useful for testing but not as foundational as reviewing the policy.

C. User access reports reviewed by management:This evaluates monitoring but does not establish a baseline understanding of controls.

D. A current listing of system users and employees:Important for reconciliation but secondary to understanding the control framework.

CIA Exam Syllabus Reference:

Domain V: Performing Internal Audit Services – Preliminary Surveys.

When assigning tasks to audit team members, the auditor in charge primarily considers factors that directly affect the quality and efficiency of the audit, such as the auditors' experience and availability, as well as the need for outside resources. While the sufficiency of budgeted hours is important for overall audit planning, it is not a direct factor in the assignment of specific tasks to team members. The assignment is more focused on ensuring that the right skills are matched to the tasks and that resources are properly coordinated with client availability. References:

IIA Standards - 1200: Proficiency and Due Professional Care

IIA Practice Guide - Coordination and Reliance: Developing an Assurance Map

For a one-person audit function, the primary focus is on ensuring that there is a clear understanding of the audit policies and procedures without the need for extensive documentation. According to the IIA's guidance, a memorandum stating the policies and procedures would suffice for a one-person audit function, providing a concise yet comprehensive outline of the necessary protocols to follow. This approach ensures that the sole auditor has clear directives while avoiding the administrative burden of maintaining a more extensive manual that might be necessary for larger audit teams.References:

The Institute of Internal Auditors (IIA) - Practice Advisory 2040-1: Policies and Procedures

The chief audit executive (CAE) has the responsibility to communicate audit results, including residual risks, to senior management. According to IIA Standard 2410 - Criteria for Communicating, the CAE should communicate the engagement’s objectives, scope, conclusions, recommendations, and action plans. Residual risk, being a part of the audit outcome, should be reported at the same time as the audit results to ensure that senior management is fully informed of all aspects of the engagement. This allows senior management to understand the remaining risks after control measures have been applied.References:

The Institute of Internal Auditors (IIA) - Standards for the Professional Practice of Internal Auditing, Standard 2410 - Criteria for Communicating

According to the International Professional Practices Framework (IPPF), issuing an interim report is appropriate for keeping management informed of audit progress, especially when audit engagements extend over a long period of time, and for communicating any significant changes in the scope of the engagement. Interim reports serve as a means of maintaining transparency with management and ensuring that any adjustments to the audit plan are communicated promptly.

IIA References:

IIA Standard 2440: Disseminating Results allows for interim reporting when there is a need to communicate significant findings or changes in scope before the final report is issued. This ensures that management remains informed of critical issues that may impact the audit or the organization.

The Practice Guide on Communicating Interim Results suggests that interim reports are useful for providing updates during long engagements or when there are significant changes in the engagement's scope that management needs to be aware of.

Flowcharts are a valuable tool in internal auditing, particularly during the audit planning phase. They provide a visual representation of business processes, which helps internal auditors gain a comprehensive understanding of how these processes function.

Understanding Business Processes:

Flowcharts are used to depict the steps in a process, illustrating how inputs are transformed into outputs, the sequence of activities, and the points where decisions are made. This visual representation makes it easier for auditors to understand the flow of transactions, identify potential control points, and recognize areas where risks may arise.

IIA Standard 2201 – Planning Considerations:

According to this standard, internal auditors must consider the objectives, scope, and risks associated with the audit engagement during the planning phase. Understanding business processes is crucial for this, and flowcharts are an effective way to achieve this understanding.

IIA Practice Advisory 2210.A1-1:

This advisory suggests using various tools, including flowcharts, to enhance understanding of the area under review. Flowcharts help auditors see the process as a whole and identify where controls should be in place.

Option A (Understanding management's risk tolerance): Flowcharts focus on processes, not on management’s subjective risk tolerance.

Option C (Determining the size of the audit team): While flowcharts provide process insights, they do not directly inform team size decisions.

Option D (Understanding organizational objectives): Flowcharts focus on specific processes rather than high-level organizational objectives.

Detailed Explanation:Why Not Other Options?Conclusion: Option B is correct as it aligns with the purpose of flowcharts in audit planning, which is to understand business processes effectively.

In this scenario, the most appropriate action for the internal auditor is to verify that the risk highlighted by the previous audit has indeed been addressed by the new IT system. This involves a detailed examination of the system documentation and possibly testing the controls within the new system. Once the auditor confirms that the new system adequately addresses the identified risk, they should report this finding to senior management and close the issue.

This approach ensures that the internal audit activity adheres to the IIA Standards regarding follow-up on audit findings, which requires auditors to ensure that agreed-upon actions have been implemented effectively.

IIA References:

IIA Standard 2500: Monitoring Progress mandates that the chief audit executive must establish and maintain a system to monitor the disposition of results communicated to management. This includes ensuring that the risks identified are appropriately addressed.

The Practice Advisory 2500.A1-1: Follow-up Process advises that follow-up is a critical part of the audit process, and it is essential to confirm that management actions address the risks identified during the audit.

Given these considerations, the correct answer is A. The auditor examines the system documentation of the new system to verify that the risk has been addressed in the new system, then reports to senior management the closure of the issue.

The best description of the organization's procedures in this context is that they represent a cause of the organization's accumulation of large travel advances. The lack of a requirement for justification for travel advances greater than a specific amount is a procedural gap that directly contributes to the accumulation of large travel advances. This gap in the procedure is the root cause that leads to the observed condition of large travel advances accumulating without sufficient oversight or justification.References: IIA's International Standards for the Professional Practice of Internal Auditing, Standard 2310 – Identifying Information, and related practice advisories on root cause analysis in audit observations.

An operational audit is the most appropriate type of audit engagement to determine how an organization could be more profitable in the long term. Operational audits focus on the efficiency and effectiveness of an organization's operations, processes, and procedures. They assess whether resources are being used optimally to achieve business objectives and identify opportunities for cost savings, process improvements, and enhanced productivity. This type of audit is designed to provide insights and recommendations that can help an organization improve its profitability over the long term by streamlining operations and eliminating inefficiencies.

References:

The Institute of Internal Auditors (IIA) Practice Guide: Operational Auditing: A Guide for Internal Auditors

IIA Standard 2110 - Governance

In internal auditing, the engagement workpapers typically contain more detailed descriptions of observations than the preliminary observation document because workpapers serve as the primary evidence and record of the audit procedures and findings. Similarly, a preliminary observation document generally contains more detail than the final audit report, as it serves as an initial, comprehensive documentation of the findings before they are summarized for final reporting.

References:

The Institute of Internal Auditors (IIA) Standards

Internal Audit Documentation and Reporting Standards

A material impact on the accuracy of the prior year's financial statements due to the inaccurate operation of controls is a significant issue that would likely prompt special notification from the chief audit executive (CAE) to senior management. This is because such an issue can have substantial implications for the organization's financial reporting, stakeholder trust, and compliance with regulatory requirements. Immediate notification ensures that senior management can take timely corrective action to address and remediate the issue.

References:

The Institute of Internal Auditors (IIA) Standards

Internal Audit Guidelines on Material Misstatements and Communication

If an internal auditor identifies that some employees have inappropriate access to a key system in the early stage of an audit, the best course of action is to issue an interim audit report so that management can implement action plans. This approach ensures that the identified issue is formally communicated to management promptly, allowing them to take immediate corrective action to mitigate the risk. It also documents the auditor's findings and recommendations, providing a clear audit trail and supporting accountability. Obtaining verbal assurance or creating a ticket might address the issue temporarily but lacks the formal documentation and follow-up mechanisms inherent in an interim audit report.

References:

IIA Standard 2440: "Disseminating Results"

IIA Practice Advisory 2440-1: "Communicating Interim Engagement Results"

To determine the projected misstatement for the population using ratio estimation, the following calculation can be used:

Projected Misstatement=(Sample MisstatementSample Book Value)×Population Book ValueProjected Misstatement=(Sample Book ValueSample Misstatement​)×Population Book Value

Given:

Sample Misstatement = $420,000

Sample Book Value = $12,000,000

Population Book Value = $20,000,000

Projected Misstatement=(420,00012,000,000)×20,000,000Projected Misstatement=(12,000,000420,000​)×20,000,000

Projected Misstatement=0.035×20,000,000=700,000Projected Misstatement=0.035×20,000,000=700,000

Therefore, the projected misstatement is $700,000.

References:

IIA Standards: 2320 - Analysis and Evaluation

IIA Practice Guide: Statistical Sampling

The most appropriate approach for internal audit activity to follow up on management action plans is to create a tracking system. This ensures that follow-up activities are systematically monitored and documented. Such a system can track the status of action plans, provide reminders for due dates, and record progress updates, thus ensuring that management's corrective actions are implemented and effective. Regular monitoring and tracking are essential to verify that issues identified in audits are addressed in a timely manner.

References:

Institute of Internal Auditors (IIA) Standards: Implementation Standards 2500 – Monitoring Progress

COSO Framework: Monitoring Activities Component

In internal auditing, when assessing the accuracy and completeness of employee time reporting, auditors often use sampling to determine the overall compliance of the process. In this scenario, the internal auditor sampled 30 employee time reports and found 5 incorrect and 4 unsupported reports. This indicates that a majority (21 out of 30) were accurate, suggesting that the organization generally ensures accurate reporting. However, the presence of incorrect and unsupported reports indicates deficiencies that need to be addressed, but do not point to systemic fraud or abuse. Thus, option D accurately reflects the findings by acknowledging both the general accuracy and the instances of errors.References:

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

COSO Framework - Control Activities and Monitoring

According to IIA guidance, the primary purpose of the exit conference is to ensure timely communication of observations and findings, especially those that require immediate management action. This meeting allows auditors to discuss their findings with management, address any disagreements, and clarify the facts before the final report is issued. It does not require the attendance of both the chief audit executive and the chief executive over the activity (B), nor is it solely for reviewing anticipated results (C) or the performance of the internal auditors (D). References: IIA Standard 2440 – Disseminating Results, IIA Practice Advisory 2440-1

The flowchart indicates that different individuals are responsible for various stages of the bank reconciliation process. The Treasury Accountant posts payments and performs reconciliations, while the Senior Treasury Accountant obtains and uploads bank statements, and the Treasury Supervisor approves/reviews the reconciliations. This segregation of duties ensures that no single individual has control over all aspects of the financial transaction process, which helps in preventing errors and fraud.References:

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

"Auditing and Assurance Services" by Alvin A. Arens, Randal J. Elder, and Mark S. Beasley

Analytical procedures involve evaluating financial and operational information by comparing it with expected values. These expectations can be based on historical data, industry benchmarks, budgets, or other relevant criteria. The primary purpose of analytical procedures is to identify any unusual or unexpected variations that could indicate potential issues or areas requiring further investigation.

IIA References:

IIA Standard 2320: Analysis and Evaluation requires internal auditors to analyze and evaluate the information gathered during an engagement. Analytical procedures are a critical part of this process, as they help auditors identify trends, anomalies, and areas of risk by comparing actual results with expectations.

The Practice Guide on Analytical Procedures defines these procedures as the analysis of relationships between different sets of data, with the goal of identifying inconsistencies or unexpected patterns.

Before developing the audit work program, it is essential to review the contract for evidence of authorization. This step ensures that the contract is valid and approved by the appropriate parties, forming a critical basis for the compliance audit. By confirming authorization, the auditor can ascertain that the contract is legitimate and enforceable, and understand its key terms and conditions, which is necessary for planning and executing the audit effectively. Other steps, such as selecting a sample or assessing risks, are important but should follow after understanding the contract’s validity and scope.References:

Institute of Internal Auditors (IIA), International Standards for the Professional Practice of Internal Auditing (Standards), Standard 2201 – Planning Considerations.

According to IIA guidance, the chief audit executive (CAE) is responsible for reviewing and approving the final audit report and determining who will receive it. The CAE ensures that the report is complete, accurate, and disseminated to appropriate parties. Including management's responses in the final report and coordinating post-engagement conferences with management, while important, are not the CAE's primary responsibilities.

References:

IIA Standards: 2440 - Disseminating Results

IIA Practice Guide: Communicating Results to Management and the Board

The primary reasons for outsourcing internal audit activities typically include accessing a wider range of skills and competencies, complementing existing expertise for specific engagements, and strengthening core audit functions. Contingency planning, while beneficial, is not a primary reason for outsourcing internal audit activities as it pertains more to risk management strategies rather than the core objectives of outsourcing. References: = IIA’s Practice Advisory 1210.A1-1: Obtaining External Service Providers to Support or Complement the Internal Audit Activity.

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.

To immediately enhance and maintain long-term IT audit quality, inviting qualified staff from the IT department to serve as guest auditors is a viable solution. This approach provides immediate access to IT expertise, ensuring high-quality audits. Additionally, it fosters collaboration between the IT and internal audit departments, promotes knowledge transfer, and helps build internal audit staff capabilities over time. This method is both cost-effective and sustainable, compared to contracting external specialists continuously.References:

The Institute of Internal Auditors (IIA) - Standards for the Professional Practice of Internal Auditing, Standard 1210 - Proficiency and Standard 2230 - Engagement Resource Allocation

According to IIA guidance, when assembling an engagement team to audit a vendor, it is crucial to include internal auditors who have expertise in investigating vendor fraud. This expertise is essential for identifying and assessing fraud risks associated with the vendor and ensuring a thorough and effective audit. While proficiency in financial statement analysis and local accounting principles is valuable, the specific context of vendor fraud requires specialized knowledge in that area.

References:

IIA Standards: 1210.A2 - Proficiency

IIA Practice Guide: Auditing Third-Party Risk Management

An assurance map is a tool that provides a visual representation of the coverage of risks by various assurance providers. It supports the auditor's decision by showing which risks are being addressed by internal audit and other functions, and which risks are not being tested. This can help justify the auditor's decision not to test a particular risk, by demonstrating that it has already been covered or deemed low priority. References:

"Internal Auditing: Assurance & Advisory Services" (The Institute of Internal Auditors)

"Creating an Assurance Map" (IIA Practice Guide)

According to IIA guidance, the chief audit executive (CAE) should maintain independence and objectivity in their role. While the CAE can manage and coordinate risk management processes, audit those processes, and be involved in risk oversight committees, they should not accept management's responsibility for risk management without the board's approval. This ensures that there is no conflict of interest and maintains the CAE's independence. References:

IIA Standards - 1110: Organizational Independence

IIA Practice Advisory - 2060-1: Reporting to Senior Management and the Board

The chief audit executive (CAE) is responsible for ensuring that the conclusions reached by the external service provider are adequately supported. While the audit committee approves the audit plan and the CEO may approve the engagement of external service providers, it is the CAE's responsibility to oversee the entire audit process, including the quality and substantiation of the conclusions and recommendations made by the external auditors. References:

The IIA’s International Standards for the Professional Practice of Internal Auditing (Standards), specifically Standard 1312 - External Assessments.

The IIA’s Practice Guide on Outsourcing and Cosourcing of Internal Audit Activities.

Meeting with the procurement card program administrator is a crucial step in identifying relevant risks and controls. This individual can provide detailed insights into how the procurement card program operates, potential risks, existing controls, and any issues or areas of concern. This information is vital for developing a comprehensive understanding of the program and for planning the audit engagement effectively. Actions like comparing card transaction types against policy guidelines, determining cardholder limit exceedances, and developing scope and objectives are important but are typically undertaken after initial risk and control identification.References:

The Institute of Internal Auditors (IIA) - Practice Guide: Engagement Planning

According to the IIA guidance, engagement supervisors' review notes are used during the audit process to ensure thoroughness and accuracy. Once these review notes have been addressed, they can be removed from the final documentation. This practice ensures that the final audit report is clear and concise, containing only the necessary documentation to support audit findings and conclusions. The review notes are considered part of the working papers during the review process but do not need to be retained in the final audit documentation once all issues have been resolved.

References:

The Institute of Internal Auditors (IIA) Standard 2330 – Documenting Information: "Internal auditors must document relevant information to support the conclusions and engagement results."

IIA Practice Guide on "Audit Documentation"

According to IIA guidance, reliable information must be factual, adequate, and convincing to ensure that a prudent and informed person would reach the same conclusions as the internal auditor. This means that the information should be supported by sufficient and appropriate evidence that can be independently verified and substantiated. Reliability of information is crucial for the credibility of audit findings and for making informed decisions based on those findings.

References:

The Institute of Internal Auditors (IIA) Standard 2310 – Identifying Information: "Internal auditors must identify sufficient, reliable, relevant, and useful information to achieve the engagement’s objectives."

IIA Practice Guide on "Audit Evidence"

According to the Institute of Internal Auditors (IIA) guidance, organizations have the most influence over the "opportunity" aspect of the fraud triangle. The fraud triangle consists of three elements: pressure, opportunity, and rationalization. While pressure and rationalization are largely influenced by personal and external factors beyond the organization's direct control, opportunity refers to the circumstances that allow fraud to occur, which can be directly managed and controlled by the organization through internal controls, policies, and procedures. References: = IIA's "Managing the Business Risk of Fraud: A Practical Guide" and the IIA's Practice Guide on "Internal Audit's Role in Preventing and Detecting Fraud".

Vouching is the manual audit approach that involves testing the validity of a document by following it backward to a previously prepared record. This method helps auditors verify the authenticity and accuracy of transactions by tracing them back to their source documents, such as invoices, receipts, or purchase orders. Vouching is commonly used to detect errors or fraud.

References:

The Institute of Internal Auditors (IIA) Standards

Auditing Techniques and Procedures

In the "Define IT Universe" stage of the IT audit plan development process, the primary action is to identify significant applications that support the business operations. This step involves mapping out the IT environment, including key systems, applications, and infrastructure components that are critical to achieving business objectives. By identifying these significant applications, auditors can focus on areas that have the greatest impact on the organization's performance and risk profile. This stage sets the groundwork for subsequent steps such as risk assessment, ranking subjects, and selecting audit engagements.

References:

IIA Global Technology Audit Guide (GTAG): "Developing the IT Audit Plan"

ISACA’s COBIT Framework for IT Governance and Management

A drawback of using Internal Control Questionnaires (ICQs) is that they can be less efficient than conducting observations and inspections when many control procedures need to be covered. ICQs can be time-consuming to complete and may not provide the depth of understanding that direct observation and inspection can achieve. They often require follow-up to clarify responses, which can further increase the time and resources needed to obtain the necessary assurance.

References:

The Institute of Internal Auditors (IIA) Practice Guide on "Audit Evidence Collection"

IIA Standard 2310 – Identifying Information: "Internal auditors must identify sufficient, reliable, relevant, and useful information to achieve the engagement’s objectives."

A cause-based recommendation aims to address the root cause of an issue to prevent its recurrence. By recommending the removal of inappropriate user access, the audit report is identifying the underlying problem (the granting of inappropriate access) and suggesting a solution that will help prevent this issue from happening again. This type of recommendation is focused on mitigating risks by addressing their causes, thereby strengthening the control environment.References:

The Institute of Internal Auditors (IIA), Practice Guide on Writing Audit Reports

"Internal Auditing: Assurance and Advisory Services" by Urton L. Anderson et al.

A gap analysis is used to assess the completeness of sales invoices by identifying any missing records within a sequence. This technique helps in pinpointing any sales that might have been omitted or unrecorded during the invoicing process. By comparing expected sequences with actual recorded transactions, the auditor can identify discrepancies and ensure all sales are accounted for.

References:

The Institute of Internal Auditors (IIA) Practice Guide: Data Analytics

IIA Standard 2320 - Analysis and Evaluation

The most critical factor in determining which engagements should be included in the annual internal audit plan is the organization's annual risk management strategy. This strategy identifies the key risks facing the organization and ensures that the internal audit plan aligns with the areas of highest risk. This prioritization helps ensure that internal audit resources are focused on areas that could have the most significant impact on the organization. References:

"Internal Auditing: Assurance & Advisory Services" (The Institute of Internal Auditors)

"Risk-Based Internal Auditing" (IIA Practice Guide)

According to IIA guidance, the chief audit executive (CAE) has several appropriate options when the audit objectives are not complete despite the auditor having worked the full amount of budgeted hours. The CAE should determine if the work already completed is sufficient to conclude the engagement (2). The CAE should also provide feedback on areas of improvement for future engagements (3) and give instructions and directions to complete the audit (4). Allowing the auditor to decide whether to extend the audit engagement (1) is not typically an appropriate option as this decision should involve senior management or the CAE to ensure alignment with organizational priorities and resource allocation. References: = IIA Standard 2010 - Planning, IIA Standard 2020 - Communication and Approval, IIA Standard 2040 - Policies and Procedures.

A RACI (responsible, accountable, consult, and inform) chart is the tool that an internal auditor should use to determine whether all principal stakeholders are involved in a project. A RACI chart clearly defines roles and responsibilities for each task or deliverable in a project, ensuring that all necessary stakeholders are identified and their involvement is appropriately documented.

References:

IIA Practice Guide: Auditing Project Management Activities

IIA Standards: 2201 - Planning Considerations

To confirm the existence of a specific vehicle selected from the fixed asset register, the best indirect evidence would be to compare the registered details of the vehicle with a date-stamped photograph. This method provides a verifiable form of evidence that the vehicle exists and matches the details recorded in the asset register. It ensures that the vehicle is still in possession of the organization and can be indirectly verified without the need for physical presence at an off-site location.

References:

IIA Practice Guide: "Auditing Fixed Assets"

COSO Internal Control – Integrated Framework

Proper engagement supervision is documented through formal records that show a systematic review and oversight process. A completed engagement workpaper review checklist provides evidence that the supervisor has reviewed and approved the work done by the audit team. This formal checklist ensures all critical aspects of the engagement are reviewed systematically, meeting the standards for proper supervision documentation. References:

"Internal Auditing: Assurance & Advisory Services" (The Institute of Internal Auditors)

"International Standards for the Professional Practice of Internal Auditing" (IIA)

According to the International Standards for the Professional Practice of Internal Auditing, the CAE must be kept informed of significant issues and deficiencies that are not addressed by management. Standard 2600 - Communicating the Acceptance of Risks requires the CAE to report any situation where management has accepted a level of risk that may be unacceptable to the organization. If the engagement supervisor learns that agreed-upon remedial actions have not been implemented, the CAE needs to be notified to determine further steps, ensuring that risks are managed appropriately and in alignment with the organization's risk tolerance. This response aligns with the internal audit function's responsibility to follow up on management's corrective actions.References: The IIA's International Standards for the Professional Practice of Internal Auditing, Standard 2600 - Communicating the Acceptance of Risks.

Internal control questionnaires are an efficient information-gathering method for an internal auditor to determine whether specified control procedures are in place. These questionnaires are designed to capture detailed information about controls through structured questions, enabling auditors to quickly identify the existence and nature of controls. This method is systematic and allows for comprehensive coverage of various control aspects, making it efficient for initial assessments.References:

IIA Standard 2240: Engagement Work Program

IIA Practice Guide: Using Control Self-Assessment for Continuous Improvement

When developing a workpaper preparation policy, it is essential to ensure that all workpapers are directly related to the engagement objectives. The term "relevant" in this context means that the workpapers must be pertinent and appropriate to the audit engagement’s objectives, ensuring that they support the findings, conclusions, and recommendations.

IIA Standard 2330 – Documenting Information:

This standard requires that internal auditors document relevant information to support engagement conclusions and recommendations. Relevance is key because it ensures that the documentation directly pertains to the objectives of the audit engagement.

Relevance of Workpapers:

Relevant workpapers are those that provide evidence and information that directly supports the audit’s objectives. This relevance ensures that the audit’s findings and conclusions are based on information that is applicable and directly related to the scope of the audit.

IIA Practice Advisory 2330-1:

The advisory suggests that workpapers should be organized and structured in a way that clearly relates to the audit objectives. Including a requirement for relevance in the workpaper policy helps ensure that all documented evidence is pertinent to the audit's goals.

Option A (Understandable): While workpapers should be understandable, this does not directly address the need for workpapers to relate to the engagement objectives.

Option C (Economical): Workpapers being economical refers to their efficiency in documentation, not their relevance to objectives.

Option D (Complete): Completeness is important but refers to the extent of documentation rather than its relevance to specific objectives.

Detailed Explanation:Why Not Other Options?Conclusion: Option B is correct because including the requirement that workpapers be relevant ensures that they directly relate to the engagement objectives, aligning with IIA standards on documentation.

The most appropriate conclusion for the auditor to include in the audit report is that the organization had weaknesses in its review process which allowed questionable transactions with some vendors. This conclusion directly addresses the identified issue of questionable vendor documentation and implies that there are control deficiencies in the review process that need to be addressed to prevent such occurrences in the future.

References:

IIA Standards: 2410 - Criteria for Communicating

IIA Practice Guide: Reporting and Monitoring

The engagement work program is primarily based on the scope and audit objectives of the engagement. The work program outlines the specific procedures to be followed during the audit to achieve the defined objectives within the scope of the engagement. It serves as a detailed plan that guides the audit team in their work, ensuring that all necessary areas are covered.

IIA References:

IIA Standard 2240: Engagement Work Program states that internal auditors must develop and document work programs that achieve the engagement objectives. These work programs are directly tied to the scope and objectives of the audit, which determine the nature and extent of audit procedures.

The Practice Guide on Engagement Planning explains that the work program should be designed to address the key risks and objectives identified during the planning phase, ensuring that the audit is comprehensive and focused on the most critical areas.

In this scenario, the internal auditor performed a test of controls on the accounts receivable ledger and found that the error rate was within management's expectations. Since the audit focused on the accounts receivable controls, the conclusion should be specific to the scope of the engagement. The auditor can provide positive assurance about the effectiveness of the controls over the recording of transactions in the accounts receivable ledger, as the evidence gathered supports this conclusion.

IIA References:

IIA Standard 2410: Criteria for Communicating states that communications must include the engagement’s objectives and scope as well as applicable conclusions, recommendations, and action plans. Since the engagement was focused on accounts receivable, the assurance provided should relate specifically to the controls in that area.

The Practice Guide on Communicating Results emphasizes that conclusions and assurance should be directly related to the scope of the engagement and the evidence obtained.

One of the five basic financial statement assertions that an internal auditor evaluates when assessing controls over financial reporting is "existence or occurrence." This assertion verifies that assets, liabilities, and equity interests actually exist at a given date, and that recorded transactions have actually occurred during a given period. It ensures that the financial statements are not overstated through the inclusion of fictitious or erroneous items.

References:

COSO Framework

PCAOB Auditing Standard No. 15: Audit Evidence

The risk-factor approach involves developing a list of internal and external risk considerations, creating a scale to assess each risk, and allocating the relative importance of each risk. This approach allows the auditor to systematically evaluate risks based on predefined criteria and weightings, ensuring a comprehensive risk assessment across the organization’s processes.

References:

The Institute of Internal Auditors (IIA) Standards

Risk Assessment Methodologies in Internal Auditing

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.References:

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

Control Self-Assessment (CSA) is a process through which employees at various levels of an organization can participate in assessing the effectiveness of risk management and control processes. The direct benefits of CSA include allowing process owners to identify, evaluate, and recommend improvements for control deficiencies (Option B), improving the control environment (Option C), and increasing control consciousness (Option D). However, allowing management to have input into the audit plan (Option A) is not a direct benefit of CSA. This involvement is more related to audit planning and risk assessment rather than the CSA process itself. References:

The IIA’s Practice Guide on Control Self-Assessment.

According to IIA guidance, the chief audit executive (CAE) is directly responsible for establishing the objectives, scope, and plan for each engagement. This responsibility ensures that each audit is properly focused and aligned with the overall goals and risk areas of the organization. While maintaining a quality assurance program and providing professional development opportunities are important, they are not solely the CAE's responsibility without management support. Periodic review and approval of the internal audit charter is typically a joint responsibility with senior management and the board. References:

The IIA’s International Standards for the Professional Practice of Internal Auditing (Standards), Standard 2010 - Planning.

The IIA’s Practice Guide on Developing the Internal Audit Plan.

Step-by-Step Detailed Explanation:

A. ICQs are most useful in more organic, decentralized organizations with specialized departmental or regional characteristics:ICQs are standard tools and can be used in a variety of organizational structures, not just decentralized ones.

B. An ICQ can be used effectively either by sending it in advance for management of the area under review to complete or by testing each procedure and recording the results:Correct. ICQs are versatile tools that can be used for both self-assessment by management and as part of a detailed audit procedure.

C. An ICQ is not an efficient tool, as it can only inquire about controls and it does not test them:ICQs can test controls indirectly by revealing whether they are documented and applied properly.

D. ICQs are also known as checklist audits and encourage management of the area under review to answer "no" or "yes" more accurately:ICQs are not limited to a checklist format and their value goes beyond simple yes/no answers.

CIA Exam Syllabus Reference:

Domain V: Performing Internal Audit Services – Tools for Assessing Internal Controls.

When there is a deadlock between the internal auditor and management over a significant issue such as access controls, escalating the issue to senior management is the most effective strategy. This approach ensures that the disagreement is addressed at a higher organizational level, where a decision can be made that aligns with the organization's risk tolerance and priorities. References: = IIA Standard 2600 - Resolution of Senior Management's Acceptance of Risks.

When an internal auditor finds that the incidents of noncompliance exceed the organization's acceptable tolerance level, this should be included in the final engagement report. In this case, the 8 out of 90 desks found with sensitive information represent an 8.9% noncompliance rate, which exceeds the organization's tolerance limit of 4%. Reporting this observation in the final engagement report ensures that management is informed and can take necessary corrective actions to address the noncompliance.

References:

IIA Standards: 2410 - Criteria for Communicating

IIA Practice Guide: Reporting and Monitoring

The primary objective of an internal audit engagement supervisor is to uphold the quality of the internal audit actively. This involves ensuring that the audit procedures are performed effectively, the findings are accurate and reliable, and the audit meets the necessary professional standards. The supervisor oversees the audit team's work, provides guidance and support, and ensures that the engagement is conducted according to the internal audit plan and methodology. This role is crucial in maintaining the credibility and integrity of the audit function.References:

IIA Standard 2340: Engagement Supervision

IIA Practice Guide: Internal Auditing and Assurance

According to IIA guidance, a draft work program prepared by the engagement supervisor after concluding a preliminary assessment would test the process controls. The work program outlines the specific procedures and steps the internal audit team will take to evaluate the effectiveness of the controls in place to mitigate identified risks.

References:

IIA Standards: 2240 - Engagement Work Program

IIA Practice Guide: Engagement Planning

Best practices in internal auditing emphasize the importance of follow-up on engagement outcomes to ensure that agreed-upon actions are implemented and effective. According to Standard 2500 – Monitoring Progress, the chief audit executive must establish and maintain a system to monitor the disposition of results communicated to management. This ensures that corrective actions are taken and that the internal audit function fulfills its role in improving the organization's governance, risk management, and control processes. Allocating resources for follow-up is crucial to maintain accountability and support continuous improvement.References:

Institute of Internal Auditors (IIA), International Standards for the Professional Practice of Internal Auditing (Standards), Standard 2500 – Monitoring Progress.

When developing a talent management strategy, a chief audit executive would find a gap analysis most helpful. A gap analysis identifies the differences between the current skills and competencies of the internal audit staff and the skills and competencies needed to achieve the audit function's objectives. This analysis helps in understanding the specific areas where training, recruitment, or other talent development efforts are necessary, thus enabling the development of a targeted and effective talent management strategy.

References:

IIA Practice Guide: "Talent Management for Internal Auditors"

IIA Standard 2030: "Resource Management"

According to IIA guidance, the release of prior internal audit reports to external parties must be carefully managed to protect the confidentiality and integrity of the information. The CAE must obtain approval from the board and senior management before releasing such reports. This ensures that sensitive information is disclosed appropriately and in alignment with the organization's governance and compliance policies. References: = IIA Standard 2060 - Reporting to Senior Management and the Board.

The recognition element of a typical internal audit report should describe a brief synopsis of the process or area under review. This section provides context and background information about the scope and focus of the audit, helping readers understand the subject matter of the audit and its significance within the organization. It sets the stage for the detailed findings and recommendations that follow in the report.References:

Institute of Internal Auditors (IIA), International Standards for the Professional Practice of Internal Auditing (Standards), Standard 2410 – Criteria for Communicating.

An internal audit procedures manual typically includes detailed information on the methodologies, tools, and techniques used during audits. It also outlines the protocols and guidelines for auditors to follow, including their authority and the scope of their work. Clearly defining the extent of the auditor's authority to collect data from management ensures that auditors understand their rights and limitations, which is essential for carrying out effective and efficient audits.References:

The Institute of Internal Auditors (IIA), Practice Guide on Developing the Internal Audit Manual

"Internal Auditing: Assurance and Advisory Services" by Urton L. Anderson, Michael J. Head, Sridhar Ramamoorti, Chris A. Bailey, and David A. Sarens

A key planning step for internal auditors to establish appropriate engagement objectives is to evaluate management's risk assessment and the internal audit activity's risk assessment. This step ensures that the audit focuses on areas of highest risk and aligns with the organization's risk management framework. By understanding and incorporating the organization's risk priorities, the internal auditors can design their engagements to provide maximum value and assurance regarding the control environment and risk management processes.

References:

The Institute of Internal Auditors (IIA) Standard 2010: Planning

IIA Practice Advisory 2010-2: Using the Risk Management Process in Internal Audit Planning

The most effective step in helping the auditor determine whether fraud exists after observing a double payment transaction on a supplier invoice is to perform data analytics on the supplier's information, invoiced amounts, and payments performed. Data analytics allows the auditor to systematically analyze large volumes of transactions to identify patterns, anomalies, and potential fraudulent activities. This approach is more comprehensive and effective in uncovering fraud than simply extending the audit scope or switching to a fraud investigation engagement without a thorough initial analysis.

References:

IIA Standards: 1220.A1 - Due Professional Care

IIA Practice Guide: Auditing for Fraud

According to internal auditing standards and best practices, the distribution of audit reports, especially those involving third-party service providers, must be handled with caution. The CAE should consult with legal counsel and the chief compliance officer before distributing the audit report to ensure that the organization's legal and compliance obligations are met. This ensures that any sensitive information is protected and that the distribution is aligned with the organization's policies and contractual agreements with the service provider.

References:

The Institute of Internal Auditors (IIA) Standards

Internal Audit Guidelines on Confidentiality and Distribution of Audit Reports

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.References:

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

In the context of the fraud triangle, the condition where a vice president’s unquestioned authority enabled the theft of funds is best described as "opportunity." Opportunity refers to the circumstances that allow fraud to occur, including the ability to override controls or exploit a lack of oversight. This is one of the three elements of the fraud triangle, which also includes rationalization and pressure. References: IIA Practice Guide – Fraud and Internal Audit, COSO Fraud Risk Management Guide

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.

References:

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"

According to IIA guidance, the internal audit activity (IAA) can evaluate risk management processes without the need for safeguards. This activity aligns with the internal auditors' role in providing assurance on the effectiveness of the risk management process. Coaching management (Option A) and developing risk management strategies (Option B) involve direct participation in management functions, which could impair objectivity and require safeguards. Facilitating the identification and evaluation of risks (Option C) might also involve a degree of management participation that could compromise independence without proper safeguards. References: IIA Standard 2120 – Risk Management, IIA Practice Guide – Assessing the Adequacy of Risk Management Processes

The request for new vendor information to be summarized weekly and for invoices to be flagged automatically in the processing system indicates the use of continuous auditing. Continuous auditing involves ongoing, real-time monitoring of transactions and controls, which allows for the early detection of anomalies or issues.

IIA References:

IIA Standard 2320: Analysis and Evaluation suggests that internal auditors should use appropriate technology to support their analysis. Continuous auditing tools are designed to monitor transactions continuously, enabling auditors to identify and address risks more proactively.

The Practice Guide on Continuous Auditing outlines the benefits of real-time monitoring and how it can be integrated into the audit process to enhance the timeliness and relevance of audit results.

Discovery sampling is most effective for investigating the auditor's suspicion that the head of commercial lending has been granting loans without the required collateral. This sampling technique is designed to detect at least one occurrence of a specific characteristic (in this case, loans without collateral) within a population. It is particularly useful for identifying fraud or non-compliance with specific policies and procedures. Discovery sampling focuses on finding exceptions, making it suitable for the auditor’s investigation into potential misconduct.References: The IIA's Global Technology Audit Guide (GTAG) and The IIA's International Standards for the Professional Practice of Internal Auditing.

According to the Institute of Internal Auditors (IIA) guidance, workpapers are crucial for documenting the evidence that supports audit findings and conclusions. They serve as the primary reference for any reported control deficiencies, providing detailed documentation and justification for the audit results. Workpapers must be thorough and clearly demonstrate the basis for audit observations and recommendations. While audit reports summarize findings, the detailed support for these findings is found within the workpapers.

References:

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

IIA Practice Guide, "Audit Workpapers."

According to the IIA Standards, particularly in the context of risk management consulting, internal audit activities may provide risk management consulting services under specific conditions. These conditions include:

There is a clear strategy and timeline to migrate risk management responsibility back to management.This condition ensures that the internal audit's involvement in risk management is temporary and transitional, emphasizing the principle that management retains ultimate responsibility for risk management.

The nature of services provided to the organization is documented in the internal audit charter.This condition ensures transparency and clarity about the internal audit's role in risk management, as outlined in the internal audit charter. This documentation is essential for defining the scope and limitations of the internal audit's consulting role.

In contrast, options 2 and 3 are inappropriate under the Standards:

The internal audit activity has the final approval on any risk management decisions (Option 2): This would compromise the independence and objectivity of the internal audit function, as internal auditors should not make management decisions.

The internal audit activity gives objective assurance on all parts of the risk management framework for which it is responsible (Option 3): This creates a conflict of interest because internal auditors cannot objectively audit areas where they have direct responsibility.

IIA References:

IIA Standard 2050: Coordination and Reliance emphasizes that internal audit should not assume management responsibilities, including final risk management decisions, to maintain objectivity and independence.

IIA Standard 1000: Purpose, Authority, and Responsibility and related guidance stress the importance of documenting the internal audit’s role in the audit charter, especially when the internal audit is involved in consulting activities like risk management.

The current ratio is a financial metric that measures a company's ability to pay short-term obligations with its current assets. It is calculated by dividing current assets by current liabilities. This ratio provides insight into the liquidity and short-term debt-paying ability of a company, making it a key indicator for assessing financial health and stability in the short term.References:

The Institute of Internal Auditors (IIA), Financial Ratios and Analysis

"Financial Management: Theory & Practice" by Eugene F. Brigham and Michael C. Ehrhardt

In the scenario provided, the bakery chain's statistical model predicts that daily sales should have an inverse relationship with rainy days, meaning that on rainy days, sales are generally expected to be lower. However, if an auditor notices that on a rainy day, total sales are greater than expected when compared to the cost of ingredients used, this could indicate potential employee theft of food. The reasoning is that if sales are unusually high despite weather conditions that typically depress sales, it may be that the reported sales are inflated or that ingredients are being used without corresponding sales being recorded, which could suggest theft.

IIA References:

IIA Standard 1220: Due Professional Care implies that auditors should consider the likelihood of significant errors, fraud, or noncompliance when assessing risks and performing audit procedures. Unusual patterns or deviations from expected results, as seen in this scenario, should raise red flags for potential fraudulent activity, such as theft.

According to IIA guidance, the internal audit plan should be based on an assessment of risks to the organization (1), designed to determine the effectiveness of the organization's risk management process (2), and aligned with the organization's goals (4). The development of the audit plan is typically the responsibility of the chief audit executive, often with input from senior management and the audit committee, rather than being solely developed by senior management (3). References: IIA Standard 2010 – Planning, IIA Practice Guide – Developing the Internal Audit Plan

The best possible engagement objectives are those derived from a comprehensive risk assessment that incorporates inputs from both senior management and the company's risk function experts. This approach ensures that the internal audit objectives are aligned with the organization's strategic priorities and risk landscape. By combining insights from senior management with the technical expertise of risk function experts, the internal audit activity can develop well-rounded and relevant engagement objectives that address the most significant risks facing the organization.

References:

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 "Internal Audit Planning"

A periodic report from the chief audit executive (CAE) to the board typically includes information about the internal audit activity's purpose, authority, responsibility, and performance relative to the audit plan. This report ensures that the board is kept informed about the internal audit activity’s alignment with organizational goals, its independence, and any significant issues or deviations from the plan.

IIA References:

IIA Standard 2060: Reporting to Senior Management and the Board requires the CAE to report periodically to the board on the internal audit activity’s purpose, authority, responsibility, and performance relative to its plan. This standard ensures that the board has a clear understanding of how the internal audit activity is fulfilling its role.

The Practice Guide on Effective Communication with the Board recommends that the CAE provide regular updates on the internal audit activity’s progress against its plan and any significant issues that require the board’s attention.

Establishing credibility, trust, and rapport is critical to the success of an effective interview. When interviewees trust the auditor and feel comfortable, they are more likely to provide honest and useful information. Building rapport also helps in reducing resistance and ensuring a smooth flow of communication during the interview.

IIA References:

IIA Standard 2420: Quality of Communications emphasizes the importance of clear, accurate, and constructive communication. Establishing trust and rapport during interviews contributes to the quality of information gathered, which in turn enhances the overall quality of audit communications.

The Practice Guide on Effective Interviewing Techniques discusses the importance of building rapport and trust to encourage openness and candidness from interviewees.

The statement that the risk management process supports internal audit by evaluating whether critical controls are adequate and effective is true. The risk management process provides a framework for identifying, assessing, and managing risks, and internal audit uses this information to evaluate the adequacy and effectiveness of controls in place to mitigate those risks. This support helps internal audit focus on areas of high risk and ensure that controls are functioning as intended.

References:

IIA Standards: 2120 - Risk Management

IIA Practice Guide: Assessing the Adequacy of Risk Management Processes

According to IIA guidance, to maximize the value of the current internal audit activity (IAA) resources, it is appropriate to hire external resources to provide subject-matter expertise while ensuring they are supervised (3). Additionally, assigning auditors to complex audits for learning opportunities helps in skill development and enhances the overall capability of the IAA (4). These strategies ensure that the IAA can address complex and high-risk areas effectively while also fostering professional growth among internal auditors. References: IIA Practice Guide – Staffing the Internal Audit Activity, IIA Standard 2030 – Resource Management

According to IIA guidance, a newly promoted chief audit executive (CAE) should prioritize the review of audit reports based on the significance of the findings indicated by the opinion statements. A graded positive opinion (1) suggests that the audit found strong controls with no significant issues, while a third-party opinion (4) typically involves external assessments that may not require immediate internal action. Therefore, these opinions would receive the lowest review priority. In contrast, negative assurance opinions (2) and limited assurance opinions (3) indicate potential issues or limitations in the effectiveness of controls, necessitating higher priority review to address any significant concerns promptly. References: IIA Standard 2410 – Criteria for Communicating, IIA Practice Advisory 2410-1

According to IIA guidance, the chief audit executive (CAE) is responsible for evaluating and verifying management's response to audit recommendations. The CAE must also determine the need and scope for additional work based on the adequacy and timeliness of management's corrective actions. This ensures that the audit recommendations are effectively implemented and that any residual risks are appropriately managed. References: IIA Standard 2500 – Monitoring Progress, IIA Practice Advisory 2500.A1-1

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.

References:

The Institute of Internal Auditors (IIA) Standards

Internal Audit Communication and Reporting Protocols

Issuing an opinion on the overall effectiveness of internal control inherently carries the risk of increased audit risk and associated legal implications. This is because the opinion represents a high level of assurance, and any errors or omissions in the underlying audit work can lead to significant consequences, including potential legal liability. Therefore, auditors must be thorough and ensure that their conclusions are well-supported by the evidence obtained during the audit process.

References:

The Institute of Internal Auditors (IIA) Practice Guide: Forming an Opinion on the Overall Adequacy and Effectiveness of Internal Controls

IIA Standard 2400 - Communicating Results

During the design evaluation phase of an audit, the internal auditor's primary role is to assess whether the controls in place are appropriately designed to mitigate risks. This includes identifying key controls such as those over segregation of duties, which is a fundamental control to prevent fraud and errors by ensuring that no single individual has control over all aspects of a transaction.

IIA References:

IIA Standard 2201: Planning Considerations highlights the importance of evaluating the adequacy of controls during the design phase. Identifying controls over segregation of duties is a critical step in this process as it ensures that the design is robust and capable of mitigating risks.

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.

The rotational model refers to a staffing arrangement where employees, such as internal auditors, are rotated into different roles within the organization, often for a fixed period. In this scenario, a senior internal auditor is hired within the internal audit activity for two years before transitioning to an operations manager role. This model helps in developing a deeper understanding of the organization, broadening skill sets, and fostering cross-functional expertise. It benefits both the internal audit activity and the broader organization by facilitating knowledge transfer and career development.

References:

The Institute of Internal Auditors (IIA) Practice Guide on "Implementing a Rotational Internal Audit Program"

IIA Standard 1210 – Proficiency: "Internal auditors must possess the knowledge, skills, and other competencies needed to perform their individual responsibilities."

Stratified sampling is the most suitable technique for selecting customers for testing the IT support department’s success in meeting service levels, as it involves dividing the population into distinct subgroups (strata) based on certain characteristics (in this case, customer size classification based on annual expenditures and service nature). This method ensures that each subgroup is adequately represented in the sample, providing more reliable and relevant results. References:

The IIA’s Global Technology Audit Guide (GTAG) on Data Analysis Technologies.

The IIA’s Practice Guide on Audit Sampling.