IIA IIA-IAP Practice Test - Questions Answers

Comprehensive and Detailed Step-by-Step Explanation:

Inherent Risk: This is the risk that exists in an environment or process before any actions or controls are applied to mitigate it. It reflects the natural vulnerability of the process to errors or misstatements.

Residual Risk: This is the risk that remains after controls or mitigation strategies have been applied. It reflects the organization's risk exposure post-control implementation.

Control Risk: This relates to the risk that controls designed to prevent or detect errors may not operate effectively.

Thus, the correct answer is B. Inherent Risk since the question specifies the absence of any actions to control or modify the circumstances.

Comprehensive and Detailed Step-by-Step Explanation:

Planning Phase: According to the International Standards for the Professional Practice of Internal Auditing (ISPPIA), Standard 2200 (Engagement Planning), the internal auditor must establish the engagement's objectives, scope, and criteria during the planning phase. This ensures that the audit is focused and aligned with organizational objectives and stakeholder expectations.

Performance Phase: During this phase, auditors execute the planned activities, but the scope and objectives are typically fixed unless there are significant changes in circumstances.

Final Engagement Report: The final report documents the outcomes of the audit, not the scope or objectives, which are pre-determined.

IIA Standard 2200: Engagement Planning.

IIA Standard 2210: Engagement Objectives.

IIA Implementation Guides on Engagement Planning emphasize determining the scope and objectives early to provide direction and clarity.

Thus, the correct answer is A. During the planning of the engagement.

Comprehensive and Detailed Step-by-Step Explanation:

Competency Principle: According to the IIA Code of Ethics, internal auditors must apply the knowledge, skills, and experience needed to perform their duties effectively.

Key Characteristics: Continuous improvement in proficiency, quality of services, and effectiveness directly align with the principle of competency.

Other Options:

Option B: Describes the principle of confidentiality, which emphasizes the responsible use and protection of sensitive information.

Option C: Reflects the principle of integrity, which focuses on avoiding conflicts of interest or situations impairing professional judgment.

Thus, the correct answer is A.

Comprehensive and Detailed Step-by-Step Explanation:

Exit Meetings: The purpose of an exit meeting is to ensure that management understands and agrees (or documents any disagreements) with the audit findings, conclusions, and recommendations. Proper documentation ensures that there is a record of the discussion, which can be referred to later if disputes arise about the content.

Other Options:

Option A: The IIA Standards do not explicitly mandate documenting exit meetings. While it is a best practice, it is not a direct requirement.

Option C: The exit meeting's primary purpose is to clarify findings, not evaluate the auditor's performance.

Thus, the correct answer is B.

Comprehensive and Detailed Step-by-Step Explanation:

The engagement supervisor identifies tasks that are completed and remaining tasks during the process of documenting the work program.

Reference to IIA Standards:

According to the IIA's Performance Standards 2200 - Engagement Planning, an internal audit work program should detail the procedures necessary to achieve the engagement's objectives.

Standard 2240 - Engagement Work Program explicitly states that internal auditors must develop and document work programs that achieve the objectives of the engagement.

Key Responsibilities:

Documenting the work program involves listing tasks already performed to avoid redundancy and tasks remaining to ensure coverage of all planned activities.

Supervisors are responsible for overseeing this process and ensuring the work aligns with the overall engagement plan.

Relevance to Audit Practice:

The work program serves as a roadmap for auditors, detailing specific steps to be taken.

Identifying completed and pending tasks ensures proper time management and resource allocation during the engagement.

Comprehensive and Detailed Step-by-Step Explanation:

Reference to IIA Standards:

IIA Performance Standard 1220.A2: Internal auditors must consider using technology-based audit techniques and other data analysis tools.

Performance Standard 2320 - Analysis and Evaluation: Sufficient and appropriate analysis should be performed to achieve the engagement's objectives.

Best Audit Practice for the Scenario:

Option A involves using generalized audit software (GAS) to extract relevant data from the loan file and stratify it based on specific criteria (e.g., age of loans, collateral backing). This ensures a statistically valid sample.

By examining a stratified sample, the auditor can determine whether each loan is sufficiently collateralized, aged correctly, and categorized properly.

This method provides comprehensive coverage while maintaining efficiency and adhering to best practices.

Why Other Options Are Less Effective:

Option B: A block sample only includes loans over a certain dollar threshold, which introduces a selection bias and overlooks smaller loans, making the sample less representative.

Option C: A discovery sample limited to loan applications focuses on documentation compliance (e.g., collateral statements) but does not address loan aging or categorization.

Practical Implications:

Generalized audit software automates data analysis, reduces manual effort, and increases the reliability of audit conclusions.

By selecting a representative statistical sample stratified by population characteristics, auditors gain insights that are applicable to the entire population.

Comprehensive and Detailed Step-by-Step Explanation:

Reference to IIA Standards:

Standard 1220 - Due Professional Care: Internal auditors must consider the reliability of other assurance providers.

Standard 2050 - Coordination and Reliance: Internal auditors may rely on the work of other assurance providers if their objectivity, independence, and competency are assessed and deemed adequate.

Why Evaluate EHS Work:

The EHS review results can be useful if the review process was thorough, objective, and performed by competent individuals.

Dismissing their results without evaluation (Option A) could lead to inefficiencies or redundant work.

Canceling the engagement entirely (Option B) ignores the internal audit's responsibility for independent assurance.

Audit Planning Impact:

By leveraging the EHS review where appropriate, the internal auditor can focus resources on other areas not covered or on verifying key findings.

Comprehensive and Detailed Step-by-Step Explanation:

Reference to IIA Standards:

Standard 2130 - Governance: Internal audit must assess compliance with applicable laws, regulations, and industry standards.

Compliance Auditing: These engagements assess whether the organization adheres to specific rules and regulations.

Reasoning:

Option C involves newly imposed health and safety regulations, making compliance auditing critical to ensure the organization avoids penalties or operational disruptions.

Option A pertains to financial reporting, typically addressed in assurance or financial audits.

Option B involves a new service launch, which may require consulting or operational audits but not necessarily compliance-focused.

Comprehensive and Detailed Step-by-Step Explanation:

Reference to IIA Standards:

Standard 2330 - Documenting Information: Workpapers must be sufficient, reliable, relevant, and useful to support audit findings and conclusions.

Practice Advisory: Clear and complete documentation enhances understanding and ensures consistency in audit conclusions.

Characteristics of Quality Workpapers:

They should clearly articulate audit procedures, results, and conclusions in a way that another auditor or stakeholder can understand and rely on them.

While electronic and indexed workpapers (Option B) are desirable for organization, they are not defining characteristics of quality.