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Question 719 - IIA-CIA-Part1 discussion

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A chief audit executive (CAE) is currently employed at a commercial bank where she was previously the chief compliance officer over three years ago. The current chief compliance officer abruptly resigned prior to the start of a mandatory anti-money laundering compliance audit. The board is contemplating a number of alternatives regarding the vacant post, bearing in mind that the bank has been struggling financially and is looking to contain costs. Which of the following alternatives, if taken by the board, would be most appropriate to satisfy the bank's objectives as well as preserve the internal audit activity's independence?

A.

Extend the CAE's responsibility to cover the compliance function and postpone the scheduled compliance audit to next year.

Answers
A.

Extend the CAE's responsibility to cover the compliance function and postpone the scheduled compliance audit to next year.

B.

Recruit a new chief compliance officer to fill the vacancy and have the CAE direct the new individual in the compliance officer role.

Answers
B.

Recruit a new chief compliance officer to fill the vacancy and have the CAE direct the new individual in the compliance officer role.

C.

Assign responsibility for the compliance function to the CAE and have an external auditor perform the scheduled compliance audit.

Answers
C.

Assign responsibility for the compliance function to the CAE and have an external auditor perform the scheduled compliance audit.

D.

Appoint the current CAE to head of the compliance function. No further action is required since the CAE was employed in the compliance function more than a year ago.

Answers
D.

Appoint the current CAE to head of the compliance function. No further action is required since the CAE was employed in the compliance function more than a year ago.

Suggested answer: B

Explanation:

The internal audit activity must be independent, and internal auditors must be objective in performing their work2.This means that they should not have any conflicts of interest or undue influence that could impair their judgment or credibility3.Therefore, the CAE should not assume any management responsibilities or roles that could compromise their independence or objectivity, such as the chief compliance officer4.Option B is the most appropriate alternative, as it preserves the separation of duties and accountability between the internal audit and compliance functions, while allowing the CAE to provide some guidance and oversight to the new chief compliance officer5.

The other options are not appropriate, as they would create potential impairments to the internal audit activity's independence or objectivity. Option A would create a self-review threat, as the CAE would have to audit their own work in the compliance function. Option C would create a familiarity threat, as the CAE would have a close relationship with the external auditor who would audit their work in the compliance function. Option D would create a role conflict, as the CAE would have to balance the conflicting objectives and expectations of the internal audit and compliance functions.

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asked 03/11/2024
Daniel Schiller
29 questions
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