IIA IIA-CIA-Part2 Practice Test - Questions Answers, Page 34

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.

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

IIA Practice Guide: Assessing the Risk Management Process

Judgmental sampling, also known as non-statistical sampling, is a technique where the internal auditor uses their professional judgment to select a sample that they believe is most representative of the population. In this scenario, the internal auditors are choosing to review a sample of complaints from the last three months based on their professional judgment that these complaints are reflective of current marketing practices. This method is particularly useful when the auditor has specific knowledge about the population that allows them to make informed selections.

Institute of Internal Auditors (IIA) Standards: Performance Standards 2320: Analysis and Evaluation

Internal Audit Manual: Sampling Techniques and Methodologies

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.

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

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

When estimating the impact of an inherent risk, internal auditors should consider both financial and nonfinancial factors. Financial factors include direct monetary impacts, while nonfinancial factors may include reputational damage, operational disruptions, and compliance issues. Considering a broad range of factors provides a comprehensive understanding of the potential impact of the risk, which is essential for effective risk assessment and management.

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

COSO Enterprise Risk Management (ERM) Framework: Risk Assessment and Risk Response Components

When developing the objectives for an assurance engagement in a newly acquired subsidiary, the most critical items to consider are the organizational strategy, objectives, risks, control framework, and the expectations of stakeholders regarding the audit. This holistic approach ensures that the internal audit aligns with the broader goals and risk management processes of the organization, providing a comprehensive evaluation of the subsidiary's operations within the context of the entire entity. Organizational Strategy and Objectives: Understanding the overarching goals and strategic direction of the organization helps to align the audit objectives with business priorities and ensures that the subsidiary's operations are evaluated in the context of their contribution to these goals. Risks: Identifying and assessing the risks associated with the subsidiary is essential for focusing audit efforts on areas that could significantly impact the organization. This involves understanding both inherent and residual risks. Control Framework: Evaluating the existing control framework within the subsidiary helps determine the adequacy and effectiveness of controls in mitigating identified risks. Stakeholder Expectations: Considering what stakeholders expect from the audit helps in shaping objectives that address key concerns and provide valuable insights, fostering greater acceptance and implementation of audit recommendations. This comprehensive approach ensures the audit is relevant, targeted, and capable of adding significant value to the organization by addressing key risk areas and strategic objectives.

The Institute of Internal Auditors (IIA) Standards

IIA Practice Guide: Formulating and Expressing Internal Audit Opinions

Given the situation where a system error prevents the engagement supervisor from adding her electronic signature to the workpapers, the most appropriate response to provide evidence of supervisory review is to print, sign, and date each workpaper after the review is complete, and then scan the document into the database as evidence of review. This ensures that there is a clear and traceable record of the supervisory review process, which is crucial for maintaining the integrity and reliability of the audit documentation. Printed Documentation: Printing the workpapers provides a physical copy that can be signed and dated, serving as a tangible record of the review. Signature and Date: The supervisor's signature and date indicate the completion of the review process and provide accountability. Scanning into Database: Scanning the signed documents back into the electronic workpaper database ensures that the evidence of review is stored in the system of record, maintaining consistency and accessibility. This method upholds the standards of documentation and supervisory review, ensuring compliance with internal audit policies and procedures.

Root cause-based recommendations are most likely to propose long-term solutions. These recommendations address the underlying causes of issues rather than just the symptoms. By identifying and addressing the root causes, the solutions implemented are more likely to be effective in preventing the recurrence of the same or similar issues in the future. Root Cause Analysis: This involves a thorough investigation to identify the fundamental reasons for the occurrence of a problem. It goes beyond immediate symptoms to understand the deeper issues. Long-term Solutions: Recommendations based on root cause analysis focus on eliminating the underlying causes, leading to sustainable improvements and reducing the likelihood of repeat issues. Systemic Improvements: Addressing root causes often leads to changes in processes, controls, or organizational practices, resulting in broader and more lasting benefits. By focusing on the root cause, the recommendations provide more robust and enduring solutions, contributing to the overall improvement and resilience of the organization.

Administering control questionnaires to individuals with primary responsibilities in the process can yield valuable information about processes and controls. However, one significant drawback is that the information gathered may be limited regarding the actual functionality of the controls. This approach relies on the respondents' knowledge and perceptions, which may not accurately reflect the effectiveness of the controls in practice. Moreover, respondents might not fully understand the auditor's intentions or may provide biased or incomplete information, thereby limiting the depth of insights into how controls function in real-world scenarios.

Reference: IIA Standard 2201: Planning Considerations IIA Practice Guide: Assessing the Adequacy of Risk Management Processes

Vouching is a manual audit procedure where the auditor tests the validity of transactions or records by tracing them backward from the final records to the original source documents. This technique helps verify the authenticity and accuracy of the entries in the accounting records by ensuring that each entry is supported by proper documentation. For example, an auditor might start from an entry in the general ledger and trace it back to the original invoice or receipt to ensure its validity.

Reference: IIA Global Technology Audit Guide (GTAG) on Understanding and Auditing Big Data IIA Standard 2310: Identifying Information