Which of the following is most likely to be considered an internal audit assurance service?
C
Explanation:
Comprehensive and Detailed Step-by-Step Explanation:
Reference to IIA Standards:
Definition of Assurance Services: Assurance services involve the objective examination of evidence to
provide an independent assessment of governance, risk management, and control processes.
Compliance engagements align with assurance services by verifying adherence to laws, regulations,
or internal policies.
Reasoning:
Option C qualifies as assurance because it involves assessing whether compliance requirements are
met.
Option A (process design) and Option B (facilitation) are advisory in nature and fall under consulting
services, not assurance.
Impact on the Organization:
Compliance assurance engagements provide critical oversight, helping organizations maintain
accountability and avoid regulatory penalties.
What is the purpose of establishing engagement objectives during the planning phase of an internal
audit?
A
Explanation:
Comprehensive and Detailed Step-by-Step Explanation:
Reference to IIA Standards:
Standard 2210 - Engagement Objectives: Internal auditors must establish objectives for each
engagement to align with the organization's goals and address identified risks.
Reasoning:
Option A is correct because engagement objectives focus on ensuring audit procedures target and
mitigate identified risks effectively.
Option B (common understanding) is important for team alignment but is secondary to risk-focused
objectives.
Option C (considering work of other assurance providers) is part of planning but not the primary
purpose of setting objectives.
Importance of Objectives:
Engagement objectives drive the audit’s focus, ensuring that procedures are purposeful and tailored
to mitigate relevant risks.
A newly hired internal auditor has been asked to examine the sales of a specific product over the last
four years. Which of the following analytical review techniques should the auditor employ?
B
Explanation:
Comprehensive and Detailed Step-by-Step Explanation:
Reference to Analytical Techniques:
Trend Analysis involves examining data over a period to identify patterns, shifts, or anomalies.
This technique is appropriate for longitudinal data like sales over four years.
Reasoning:
Option B (Trend analysis) is correct as it helps the auditor analyze sales performance over time and
identify patterns or deviations.
Option A (Ratio analysis) compares related metrics, such as profitability or liquidity, but does not
focus on changes over time.
Option C (External benchmarking) involves comparing performance to external standards or
competitors, not internal historical data.
Application in Audit:
Trend analysis allows the auditor to assess growth, seasonal patterns, or irregularities in sales data,
providing actionable insights.
Which of the following is an element of a well-formed audit recommendation?
B
Explanation:
Comprehensive and Detailed Step-by-Step Explanation:
Reference to Audit Recommendations:
According to the IIA Standards, a recommendation must be actionable, specific, and designed to
address the root cause of an identified issue.
Reasoning:
Option B is correct because effective recommendations focus on preventing recurrence by
addressing root causes or implementing control measures.
Option A (factual evidence) supports findings but does not constitute the recommendation itself.
Option C (factors allowing the condition) provides context for findings but does not include
actionable measures to resolve or prevent the issue.
Key Components of a Recommendation:
Recommendations should propose practical solutions to mitigate risks, improve processes, or
enhance controls.
Measures to prevent recurrence align with the goal of sustainable improvements.
Which of the following best describes a compliance audit engagement?
A
Explanation:
Comprehensive and Detailed Step-by-Step Explanation:
Reference to Compliance Auditing:
Definition: Compliance audits assess adherence to external laws, regulations, or internal policies and
procedures.
Standard 2130 - Control: Internal audit must evaluate the adequacy and effectiveness of controls to
ensure compliance with applicable laws and regulations.
Reasoning:
Option A is correct because assessing adherence to safety regulations is a compliance activity
focused on legal and regulatory conformity.
Option B (analyzing economic activity) relates more to financial auditing or accounting standards
compliance, not regulatory compliance.
Option C (reviewing an external service provider’s risk management process) aligns with a risk or
assurance engagement, not compliance.
Impact of Compliance Audits:
Ensuring adherence to legal requirements protects the organization from regulatory penalties and
enhances operational integrity.
Which of the following is a purpose of an embedded audit module?
A
Explanation:
Comprehensive and Detailed Step-by-Step Explanation:
Reference to Embedded Audit Modules:
Definition: Embedded audit modules are software components integrated into systems to monitor
transactions in real-time or at regular intervals.
They support continuous auditing by flagging anomalies or predefined conditions.
Reasoning:
Option A is correct because embedded audit modules facilitate continuous monitoring by evaluating
transactions as they occur.
Option B relates to detecting unauthorized program code, a task better suited to software integrity
checks or penetration testing.
Option C (verifying account balances) is a manual or batch review task unrelated to embedded audit
modules.
Benefits of Embedded Audit Modules:
Real-time insights into compliance, fraud detection, and operational inefficiencies.
Enhance audit efficiency and effectiveness in high-transaction environments.
Which of the following best describes the purpose of a detailed engagement risk assessment?
C
Explanation:
Comprehensive and Detailed Step-by-Step Explanation:
Reference to Engagement Risk Assessment:
Definition: Engagement risk assessment evaluates specific risks relevant to the engagement and
identifies controls or mitigations.
Standard 2210.A1: Internal auditors must consider significant risks to objectives, focusing on their
likelihood and impact.
Reasoning:
Option C is correct because it aligns with assessing significant risks and ensuring they are mitigated
to acceptable levels.
Option A (ensuring all risks are addressed) is impractical since auditors prioritize significant risks
within resource constraints.
Option B focuses on prioritizing risks but does not encompass the broader purpose of addressing
their impact or mitigation.
Importance of Risk Assessment:
It ensures that the audit focuses on high-impact risks, aligning resources with the organization’s risk
management framework.
Duties in a purchasing system are segregated and performed by different people. One person orders
the goods, another person receives the goods, and another pays for the goods. This is an example of
which of the following controls?
A
Explanation:
Comprehensive and Detailed Step-by-Step Explanation:
Reference to Internal Controls:
Preventive controls are designed to prevent errors, fraud, or irregularities before they occur by
ensuring that processes and activities are performed correctly from the start.
Standard 2130 - Control: Internal auditors assess the design and effectiveness of controls to prevent
risks from materializing.
Reasoning:
Option A is correct because segregation of duties (ordering, receiving, and paying) is a preventive
control, as it prevents a single person from having the authority to initiate, authorize, and complete a
transaction, reducing the risk of fraud or errors.
Option B (Directive) would focus on guiding behavior, such as setting policies or expectations.
Option C (Detective) refers to controls that identify and detect errors after they occur, such as audits
or reviews.
Impact of Segregation of Duties:
By ensuring duties are segregated, organizations minimize the risk of fraudulent activities and errors,
thus acting as a preventive measure.
Which of the following activities would compromise the independence of the internal audit activity
and therefore should not be performed by an internal auditor?
B
Explanation:
Comprehensive and Detailed Step-by-Step Explanation:
Reference to IIA Standards:
Standard 1110 - Organizational Independence: Internal audit must be independent of the activities it
audits to maintain objectivity.
Standard 1130 - Impairment to Independence or Objectivity: Internal audit’s independence is
compromised if auditors take on roles that involve making decisions or implementing controls, as
this may bias their findings.
Reasoning:
Option B is correct because setting the organization’s risk appetite is a management decision and
represents a strategic role that compromises the internal audit's independence.
Option A (championing the establishment of risk management) and Option C (coordinating risk
management) do not directly impair independence, though care should be taken to avoid direct
involvement in risk management decisions. These activities can be part of advisory services and not
necessarily a threat to independence if appropriately managed.
Maintaining Independence:
Internal auditors should provide assurance on risk management but not take on roles that involve
decision-making or implementing risk management processes.
What is the primary objective for testing controls?
A
Explanation:
Comprehensive and Detailed Step-by-Step Explanation:
Reference to IIA Standards:
Standard 2130 - Control: Internal auditors must assess whether internal controls are designed and
operating effectively to mitigate identified risks.
Standard 2200 - Engagement Planning: The objective of testing controls is to evaluate their
effectiveness in achieving the desired outcomes.
Reasoning:
Option A is correct because the main goal of testing controls is to determine whether they are
functioning effectively to manage the identified risks and achieve control objectives.
Option B (understanding whether a control is in place) focuses on control design but not its
operational effectiveness.
Option C (identifying patterns of errors) is related to detecting irregularities, not directly testing the
control's effectiveness.
Effectiveness of Controls:
Internal audit testing focuses on evaluating the effectiveness and operational efficiency of controls to
ensure they reduce risks to an acceptable level.