IIA IIA-CIA-Part1 Practice Test - Questions Answers, Page 71

Similar to Question 701, the IIA Standards emphasize that internal auditors must understand their organization's IT governance, risk, and control processes to be effective in their roles (Option D). The understanding of these elements is crucial in today's technology-driven business environments, as it enables auditors to assess and provide assurance on the effectiveness of the organization's IT-related controls and risk management processes.

Reference:

IIA Standards, Standard 1210.A3: Proficiency - Technology-based Audit Techniques

IIA's International Professional Practices Framework (IPPF)

When an internal auditor suspects that a tender was tailored for a specific bidder, the next appropriate action is to analyze the technical terms and conditions of the tender (Option D). This step involves a detailed examination of the tender documentation to identify any specific terms that may have been included to favor a particular bidder. Such an analysis can provide evidence of bias or manipulation. According to the IIA Standards, auditors must gather sufficient, reliable, and relevant evidence to support their findings (Standard 2310: Identifying Information).

Reference:

IIA Standards, Standard 2310: Identifying Information

IIA Practice Guide: Evaluating Third-party Risk Management

The role of internal control frameworks, such as COSO, is to provide guidance related to internal control design and implementation. They assist organizations in evaluating and benchmarking their business practices (Option B). These frameworks do not prescribe specific controls but offer principles and guidelines to help organizations design effective internal control systems tailored to their unique circumstances. This approach enables organizations to achieve their business objectives while managing risks effectively.

Reference:

COSO Internal Control - Integrated Framework

IIA Standards, Standard 2130: Control

According to the IIA Code of Ethics, the principle of competency requires internal auditors to apply the knowledge, skills, and experience needed in the performance of internal audit services. Specifically, the Code of Ethics mandates that internal auditors shall not perform any services for which they lack the necessary skills, unless they obtain appropriate assistance (Option C). This principle ensures that auditors provide professional and competent services, maintaining the quality and reliability of their work.

Reference:

IIA Code of Ethics: Competency

IIA Standards, Standard 1210: Proficiency and Due Professional Care

The principle of objectivity in the IIA Code of Ethics specifically requires internal auditors to disclose all material facts known to them that, if not disclosed, may distort the reporting of activities under review (Option D). This principle ensures that internal auditors remain unbiased and do not withhold information that could affect the conclusions of their audit reports, thus maintaining the integrity and transparency of the audit process.

Reference:

IIA Code of Ethics: Objectivity

IIA Standards, Standard 1120: Individual Objectivity

The independence of the internal audit activity can be threatened if the annual budget for the internal audit activity is approved by the chief financial officer (Option B). This situation creates a potential conflict of interest because the CFO has a significant influence over the internal audit activity's resources, which may impact its ability to operate independently and objectively. According to the IIA Standards, Standard 1110: Organizational Independence, the internal audit activity must be free from interference in determining the scope of internal auditing, performing work, and communicating results. Functional reporting to the board and administrative reporting to the CEO (Option A) supports independence, while outsourcing and providing consulting services (Options C and D) do not inherently threaten independence as long as proper safeguards are in place.

Reference:

IIA Standards, Standard 1110: Organizational Independence

IIA Practice Guide: Independence and Objectivity

Demonstrating due professional care involves assessing the cost of assurance in relation to the potential benefits (Option D). This approach ensures that internal audit resources are used efficiently and effectively, providing value to the organization. According to IIA Standards, Standard 1220: Due Professional Care, internal auditors must consider the extent of work needed to achieve the engagement's objectives and the relative complexity, materiality, or significance of matters to which assurance procedures are applied. Staffing audit engagements with qualified auditors (Option A), relying on prior work (Option B), and guaranteeing identification of all significant risks (Option C) do not fully encapsulate the essence of due professional care, which balances cost and benefit.

Reference:

IIA Standards, Standard 1220: Due Professional Care

IIA's International Professional Practices Framework (IPPF)

One of the roles of internal audit is to provide assurance on the effectiveness of risk management processes3.Internal audit can contribute to the organization's risk assessment process by reviewing how key risks are identified, measured, monitored, and reported by the first and second lines of defense4.Internal audit can also provide recommendations for improving the risk reporting process and ensuring that it aligns with the organization's objectives and risk appetite5.

Some additional information:

The first line of defense is the operational management, who owns and manages the risks. The second line of defense is the risk management and compliance functions, who oversee and support the risk management activities of the first line.The third line of defense is the internal audit function, who provides independent assurance on the effectiveness of risk management and internal control4.

Risk reporting is the process of communicating relevant and timely information about the organization's risks to the stakeholders, such as the board, senior management, regulators, and external auditors. Risk reporting helps to inform decision-making, enhance accountability, and promote a risk-aware culture.

The organization's risk appetite is the amount and type of risk that it is willing to accept in pursuit of its objectives. The risk appetite should be defined by the board and communicated to all levels of the organization. The risk appetite should guide the risk assessment, response, and reporting processes.

Ongoing monitoring is a continuous process of evaluating the performance and quality of the internal audit activity2.It includes regular management and supervisory activities, such as reviewing audit reports, tracking audit recommendations, and measuring key performance indicators3.One of the ways to monitor the performance of the internal audit activity is to acquire feedback from audit clients and other stakeholders, such as the board, senior management, regulators, and external auditors4.Feedback can help to assess the value, effectiveness, and satisfaction of the internal audit services5.

1: Checklist for Addressing Ongoing Monitoring and Auditing2: Internal Controls | Controller's Office3: Performance Standards - The Institute of Internal Auditors or The IIA4: Chapter 7 Audit Flashcards | Quizlet5: Applying the International Professional Practices Framework, 4th edition, by Urton Anderson and Andrew J. Dahle (2018), p. 113