IIA IIA-CIA-Part2 Practice Test - Questions Answers, Page 7

Preliminary communication with HR management is essential to ensure a smooth audit process. According to IIA guidance, the auditor in charge (AIC) should notify HR management before the planning stage begins to facilitate cooperation and alignment. Additionally, scheduling formal status meetings at the start of the engagement helps in setting expectations, clarifying the scope, and ensuring ongoing communication throughout the audit process. These steps foster transparency and collaboration.

Reference:

IIA Standards - 2200: Engagement Planning

IIA Practice Advisory - 2200-1: Engagement Planning

According to the International Standards for the Professional Practice of Internal Auditing, the final audit report should be distributed to those responsible for the functions being audited (audit client management) and to those who oversee or are accountable for the audit function (executive management). Additionally, the chief audit executive (CAE) can approve distribution to other relevant stakeholders as necessary. This ensures that all relevant parties are informed and can take appropriate action based on the audit findings.

Reference:

IIA Standards - 2410: Criteria for Communicating

IIA Practice Guide - Communication with the Board

For compliance engagements, particularly those related to critical processes such as cash disbursements, it is important to distribute the final audit report to individuals with oversight and decision-making responsibilities. The accounts payable manager oversees the process, the chief financial officer (CFO) has overall financial oversight, and the audit committee provides governance and oversight of the audit function. This ensures that the report is reviewed by those with the authority to implement changes and address any issues identified.

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IIA Standards - 2440: Disseminating Results

IIA Practice Advisory - 2440-1: Disseminating Results

In the context of internal auditing, activities that pose immediate and significant risks to health, safety, the environment, or that conceal inappropriate activities within an organization are of high importance and typically require formal communication to the chief audit executive (CAE). These activities could have severe legal, financial, and reputational consequences for the organization. While acts that favor one party to the detriment of another are concerning and may indicate ethical or procedural issues, they are generally considered less critical compared to the other options, as they do not necessarily imply immediate and severe risks to individuals or the organization as a whole.

Reference:

The Institute of Internal Auditors (IIA) International Standards for the Professional Practice of Internal Auditing (Standards), specifically Standard 2060: Reporting to Senior Management and the Board.

IIA Practice Guide on Communicating Unacceptable Risk.

To ensure that recommendations for enhancing internal controls have been effectively implemented, the internal auditor should conduct appropriate testing to verify management responses. This involves re-performing procedures, reviewing documentation, and possibly observing operations to confirm that the corrective actions have been adequately executed and are effective. Simply seeking a management assurance declaration (Option B) or observing corrective measures (Option A) may not provide sufficient evidence of proper implementation. Following up during the next scheduled audit (Option C) may delay the verification process, potentially allowing risks to persist.

Reference:

IIA Standard 2500: Monitoring Progress.

IIA Practice Guide on Follow-up Processes in Internal Auditing.

Improper segregation of duties is a fundamental control weakness that significantly increases the risk of fraud. When one individual has control over multiple stages of a financial transaction or operational process, it creates opportunities for fraudulent activities to occur and remain undetected. While incentives and bonus programs (Option B), employee concerns (Option C), and lack of an ethics policy (Option D) are also important indicators of potential fraud risk, they do not present as direct and immediate a vulnerability as improper segregation of duties.

Reference:

IIA Practice Guide on Fraud Prevention and Detection in an Automated World.

IIA Standard 2120: Risk Management.

Strengthening password policies and ensuring unique passwords are used within a specified period are key measures in preventing unauthorized access and reducing the risk of fraud. Password management is a critical aspect of IT security and can significantly mitigate the risk of cyber fraud. The other recommendations (Options B, C, and D) address operational issues but do not directly impact fraud prevention as effectively as enhancing password security does.

Reference:

IIA Standard 2110: Governance.

IIA Practice Guide on IT Controls and Cybersecurity.

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.

Reference:

IIA Standards - 1110: Organizational Independence

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

The IIA Standards emphasize that the chief audit executive (CAE) should develop the internal audit plan based on a thorough assessment of risks facing the organization. This risk-based approach ensures that the most significant and relevant areas are prioritized. While input from senior management and regulatory requirements are also important, the primary driver should be the most recent and comprehensive risk assessment.

Reference:

IIA Standards - 2010: Planning

IIA Practice Guide - Developing the Risk-based Internal Audit Plan