IIA IIA-CIA-Part1 Practice Test - Questions Answers, Page 65

In a competitive retail environment where sales teams are incentivized to meet or exceed targets, there is a significant risk of data manipulation. Employees may falsify sales records, inflate numbers, or engage in other unethical behaviors to ensure they receive bonuses. This is a common issue in environments with high stakes and rewards tied to performance metrics, as the pressure to succeed can lead individuals to manipulate data to appear more successful than they actually are. Therefore, management should closely monitor data integrity and implement strong controls to detect and prevent such manipulation.

Reference: The IIA's International Standards for the Professional Practice of Internal Auditing (Standards), specifically Standard 2120 - Risk Management, and COSO's Internal Control - Integrated Framework.

An assurance engagement provides an independent assessment of governance, risk management, and control processes. In this case, including the effectiveness of oil price risk management in the annual audit plan as an assurance engagement would allow the internal audit activity to evaluate the controls and processes in place for managing this significant risk. Even though the financial risk committee regularly addresses market risks, an independent review by internal audit can provide additional assurance to stakeholders about the effectiveness of these risk management practices.

Reference: The IIA's International Standards for the Professional Practice of Internal Auditing (Standards), specifically Standard 2010 - Planning, and Standard 2130 - Control.

The most helpful metric to measure the success of an internal audit activity in providing risk-based assurance is the percentage of highly significant risks covered by the internal audit plan. This demonstrates that the internal audit function is focusing its resources on the most critical areas that could impact the organization's objectives, ensuring that significant risks are being addressed and managed appropriately. This alignment with the organization's risk profile is a key indicator of effective risk-based auditing.

Reference: The IIA's International Standards for the Professional Practice of Internal Auditing (Standards), specifically Standard 2010 - Planning, and Standard 2120 - Risk Management.

Effective third-party risk management involves conducting thorough due diligence before entering into a contract to ensure that the third party meets the organization's standards and requirements. Conducting due diligence only after contract signing is a significant red flag, as it indicates that the organization might be engaging with third parties without fully understanding the associated risks. This can lead to inadequate risk management and potential issues with compliance, performance, and security.

Reference: The IIA's International Standards for the Professional Practice of Internal Auditing (Standards), specifically Standard 2210 - Engagement Objectives, and COSO's Enterprise Risk Management - Integrating with Strategy and Performance.

By performing an audit engagement, the internal audit activity can systematically review and assess the current risk management practices in the electricity sales processes. This will provide senior management with a detailed understanding of the existing controls, processes, and any gaps or areas for improvement. An audit engagement offers a structured approach to identifying and evaluating risks and controls, which is essential for developing effective risk management strategies.

Reference: The IIA's International Standards for the Professional Practice of Internal Auditing (Standards), specifically Standard 2200 - Engagement Planning, and Standard 2210 - Engagement Objectives.

When an organization purchases a derivative contract in the stock market to limit the potential loss in the value of a security, it is transferring the risk to another party. In this case, the derivative contract (such as options or futures) serves as a hedge against potential losses, meaning the risk of loss is transferred to the counterparty of the derivative contract.

Reference:

Institute of Internal Auditors (IIA) standards and guidelines on risk management and control.

When there is a growing perception that employees generally evade their responsibilities, management is likely to respond by increasing supervision to ensure tasks are completed properly. This often results in employees being given less autonomy and being monitored more closely to prevent shirking of duties.

Reference:

Internal auditing best practices on human behavior and control environments.

Developing a risk and control model for an engagement should take into account the specific characteristics, processes, and risks of the organization being audited. Tailoring the model ensures that the controls are relevant and effective for the specific context of the organization, leading to a more accurate and useful audit outcome.

Reference:

IIA's International Professional Practices Framework (IPPF), particularly on risk-based auditing and control frameworks.

A detective control is designed to identify and correct errors or irregularities that have occurred. A compliance specialist conducting quarterly reviews fits this definition as it involves monitoring and detecting non-compliance issues after they have occurred, allowing for corrective actions to be taken.

Reference:

COSO Internal Control Framework and the IIA's guidance on types of controls.