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IIA IIA-CHAL-QISA Exam Syllabus Topics:
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NEW QUESTION # 91
A chief audit executive (CAE) following up on action plans from previously completed audits identifies that management has determined that certain action plans are no longer necessary If the CAE disagrees with managements decision, which of the following is the most appropriate next step for the CAE to take?
- A. The CAE must discuss the matter with senior management
- B. The CAE must discuss the matter with legal counsel.
- C. The CAE must discuss the matter with the board
- D. The CAE must discuss the matter with key shareholders.
Answer: C
Explanation:
* Introduction:
* The chief audit executive (CAE) must ensure that audit recommendations are appropriately addressed and that any disagreements with management's decisions are resolved effectively.
* Escalation Process:
* If the CAE disagrees with management's decision to not implement certain action plans, it is important to escalate the issue to the board to ensure that risks are properly managed and that there is accountability.
* Options Analysis:
* Option A: Discussing with senior management is a preliminary step but may not resolve the issue if there is still disagreement.
* Option B: Discussing with key shareholders is not typically within the CAE's direct line of reporting and may not be appropriate.
* Option C: Legal counsel can provide advice, but the final decision on audit matters typically rests with the board.
* Option D: The most appropriate step is for the CAE to discuss the matter with the board, as they have the ultimate oversight responsibility and can ensure that management's decisions align with the organization's risk management and governance frameworks.
* Conclusion:
* The CAE should discuss the matter with the board to ensure that management's decision is aligned with the organization's risk management strategy and to address any unresolved issues.
NEW QUESTION # 92
The audit plan requires a review of the testing procedures used in pre-production of a large information system prior to its live launch. If the chief audit executive (CAE) is uncertain that the current audit team has all the required knowledge to conduct the engagement, which of the following would be the most appropriate course of action for the CAE to take to preserve independence?
- A. Request audit resources through the external auditor.
- B. Contract with the software vendor to provide an appropriate resource
- C. Make use of an external service provider.
- D. Ask for a knowledgeable resource from the IT department
Answer: C
Explanation:
If the chief audit executive (CAE) is uncertain that the current audit team has all the required knowledge to conduct the engagement, the most appropriate course of action is to use an external service provider. This helps preserve the independence and objectivity of the internal audit function.
* Expertise: External service providers bring specialized knowledge and expertise that may not be available within the internal team.
* Independence: Utilizing an external provider ensures that the audit maintains its independence and objectivity, avoiding any potential conflicts of interest.
* Quality: Ensures that the audit engagement is conducted with the highest standards, leveraging the external provider's experience and skills.
References:
* "Internal Audit and Assurance," which outlines the benefits and considerations of engaging external service providers for specialized audit tasks.
NEW QUESTION # 93
Which of the following would most likely form part of the engagement scope?
- A. Both random and judgmental samplings will be used during the engagement
- B. The probability of significant errors will be considered via risk assessment.
- C. Potential legislation on privacy topics will be employed as a compliance target O Wire transfers that exceeded $10,000 in the last 12 months will be analyzed.
Answer: A
Explanation:
Introduction:
The engagement scope outlines the boundaries of the audit activities, specifying the methods and techniques to be employed during the engagement.
Scope Definition:
The scope includes the areas to be reviewed, the nature and extent of testing, and the specific objectives and criteria to be used.
NEW QUESTION # 94
Which risk management activity should remain exclusively with management?
- A. Evaluating risk responses.
- B. Facilitating risk workshops.
- C. Reviewing risk registers.
- D. Determining risk acceptance decisions.
Answer: D
Explanation:
Risk acceptance is a management responsibility because management owns organizational risks.
NEW QUESTION # 95
With regard to project management, which of the following statements about project crashing is true?
- A. It is an optimization technique where activities are performed in parallel rather than sequentially
- B. It involves a revaluation of project requirements and/or scope.
- C. It leads to an increase in risk and often results in rework.
- D. It is a compression technique in which resources are added to the project
Answer: D
Explanation:
Project crashing is a schedule compression technique used in project management to shorten the project duration without changing the project scope. It involves adding additional resources to critical path activities to complete them faster. This method can lead to increased costs but aims to reduce the project timeline effectively. Crashing is often used when project deadlines are tight and time is more critical than budget.
NEW QUESTION # 96
While reviewing the workpapers and draft report from an audit engagement, the chief audit executive (CAE) found that an Important compensating control had not been considered adequately by the audit team when it reported a major control weakness Therefore, the CAE returned the documentation to the auditor in charge for correction Based on this Information, which of the following sections of the workpapers most likely would require changes?
1.Effect of the control weakness.
2.Cause of the control weakness
3.Conclusion on the control weakness.
4.Recommendation for the control weakness.
- A. 1, 2, and 3.
- B. 1.2. and 4
- C. 2, 3, and 4.
- D. 1,3, and 4.
Answer: D
Explanation:
* Introduction:
* When a compensating control is not considered, it can affect various aspects of the audit findings and conclusions.
* Impact on Workpapers:
* Effect of the Control Weakness: The impact of the control weakness needs to be reassessed considering the compensating control.
* Conclusion on the Control Weakness: The overall conclusion about the severity of the control weakness may change.
* Recommendation for the Control Weakness: Recommendations may need to be adjusted based on the new assessment.
* Options Analysis:
* Option A: Includes the effect, cause, and conclusion, but the cause might not change if it remains relevant regardless of compensating controls.
* Option B: Includes the effect, cause, and recommendation, but the cause might not change.
* Option C: The effect, conclusion, and recommendation would likely need adjustments.
* Option D: Includes cause, conclusion, and recommendation, but the cause might remain unchanged.
* Conclusion:
* The sections of the workpapers that most likely require changes are the effect of the control weakness, the conclusion on the control weakness, and the recommendation for the control weakness.
NEW QUESTION # 97
An organization invests excess short-term cash in trading securities Which of the following actions should an internal auditor take to test the valuation of those securities'*
- A. Use the equity method to recalculate the investment carrying value
- B. Compare the carrying value with current market quotations
- C. Confirm the securities held by the broker.
- D. Perform a calculation of premium or discount amortization.
Answer: B
Explanation:
Testing Valuation: The valuation of trading securities requires comparing their carrying value with current market prices to ensure accuracy.
Market Quotations: Current market quotations provide the most reliable and up-to-date information on the fair value of securities.
Accounting Standards: This approach is consistent with accounting standards that require securities to be reported at fair value, reflecting any unrealized gains or losses.
Verification Process: Comparing the carrying value with market quotations helps verify that the securities are appropriately valued on the financial statements.
NEW QUESTION # 98
Which of the following should be included in a company's year-end inventory valuation?
- A. Goods purchased by the company, free on board destination, that have not yet been received.
- B. Goods on consignment, which the company is trying to sell for its customers.
- C. Company goods that were sold during the year, free on board shipping point, that have been shipped but not yet received by the customer
- D. Company goods for sale on consignment at a consignment shop
Answer: D
Explanation:
Year-end inventory valuation should include all goods owned by the company, regardless of their location.
This includes goods for sale on consignment at a consignment shop, as these items remain the property of the company until sold. Goods sold FOB shipping point and goods purchased FOB destination that have not yet been received are not included, as ownership has transferred or not yet been acquired respectively. Goods on consignment that the company is trying to sell for others are also excluded because the company does not own them
NEW QUESTION # 99
Which of the following is the most appropriate way to ensure that a newly formed internal audit activity remains free from undue influence by management?
- A. Adopt written policies and procedures for the internal audit activity, approved by the board.
- B. Establish the internal audit activity's position within the organization in an audit charter
- C. Appoint the chief audit executive as a member of the board.
- D. Ensure the chief audit executive reports administratively to the audit committee.
Answer: B
Explanation:
The internal audit charter is a formal document that defines the internal audit activity's purpose, authority, and responsibility.
Establishing the internal audit activity's position within the organization in an audit charter ensures independence and objectivity by clearly stating the internal audit's role and its reporting lines.
The charter should be approved by the board and senior management to reinforce its authority and protect the internal audit activity from undue influence by management
NEW QUESTION # 100
A risk has a high likelihood and low impact.
Which response is MOST appropriate?
- A. Escalate to the board.
- B. Evaluate whether treatment is cost-effective.
- C. Transfer immediately.
- D. Automatically avoid the risk.
Answer: B
Explanation:
Risk response decisions should consider both impact and cost-benefit factors.
NEW QUESTION # 101
A bank uses customer departmentalization to categorize its departments. Which of the following groups best exemplifies this method of categorization?
- A. Mortgages, credit cards, and savings.
- B. South, southwest and east.
- C. Teller, manager, and IT specialist
- D. Community, institutional, and agricultural banking
Answer: D
Explanation:
Customer Departmentalization: This method categorizes departments based on the type of customers they serve. It aligns services and strategies with the specific needs and characteristics of different customer groups.
Examples of Customer Departmentalization:
Community Banking: Focuses on services tailored for local communities, often involving personal banking services.
Institutional Banking: Caters to large organizations, offering specialized financial products and services.
Agricultural Banking: Provides financial services to farmers and agricultural businesses, addressing their unique needs.
NEW QUESTION # 102
According to IIA guidance, which of the following actions by the chief audit executive would best ensure that internal auditors demonstrate due professional care?
- A. Developing policies and procedures for the internal audit activity
- B. Undertaking all engagements that management requests of the internal audit activity.
- C. Ensuring the internal audit activity reports functionally to the board of directors
- D. Ensuring the internal audit activity is not found fallible during audit engagements.
Answer: A
Explanation:
Professional Care: Ensuring that internal auditors demonstrate due professional care involves establishing clear policies and procedures that guide their activities.
Guidance and Standards: These policies and procedures help ensure that the internal audit activity adheres to professional standards and best practices.
Standard Compliance: According to the IIA's Performance Standard 2040 ?Policies and Procedures, the CAE must establish policies and procedures to guide the internal audit activity.
Quality Assurance: Properly developed policies and procedures contribute to the overall quality and effectiveness of the internal audit activity, ensuring that engagements are conducted with due professional care.
NEW QUESTION # 103
Which of the following activities would an internal auditor perform as a consulting engagement for an organization?
- A. Assessing whether the organization's corporate social responsibility program is meeting its yearly goals to reduce carbon emissions.
- B. Advising new internal auditors working for the organization on how to develop strategies on planning audits for the upcoming fiscal year
- C. Communicating with senior management to better understand how new purchasing controls will minimize payment processing time
- D. Briefing the organization's department managers on how to implement risk management processes into their daily operations.
Answer: D
Explanation:
Consulting Engagements: Consulting engagements are advisory in nature and are intended to add value and improve an organization's governance, risk management, and control processes.
Role of Internal Auditor: In a consulting role, an internal auditor provides advice, facilitates risk management, and helps enhance the efficiency and effectiveness of operations.
Briefing Managers: By briefing department managers on how to implement risk management processes into their daily operations, the internal auditor is providing valuable advice that can help improve the organization's risk management framework.
IIA Standards: The IIA's standards emphasize that consulting activities should aim at improving governance, risk management, and control processes without taking on management responsibilities.
NEW QUESTION # 104
Which of the following must be in existence as a precondition to developing an effective system of internal controls?
- A. A risk assessment process.
- B. A monitoring process
- C. A strategic objective-setting process.
- D. An information and communication process
Answer: A
Explanation:
* Risk Assessment Process: A risk assessment process is essential for identifying, analyzing, and managing risks that could prevent the achievement of objectives. It is a critical component in developing an effective system of internal controls.
* Importance: Without a risk assessment, organizations cannot effectively design controls that address relevant risks.
* COSO Framework: The Committee of Sponsoring Organizations (COSO) Internal Control Framework outlines risk assessment as a fundamental part of internal control systems.
* Components: The framework includes risk assessment, control activities, information and communication, monitoring activities, and the control environment.
* Other Preconditions:
* Monitoring Process: Important for evaluating the effectiveness of internal controls but not the initial step.
* Strategic Objective-Setting Process: Critical for overall organizational success but does not directly develop internal controls.
* Information and Communication Process: Supports internal controls by ensuring relevant information is communicated but follows the identification of risks.
NEW QUESTION # 105
An internal auditor is asked to determine why the production line for a large manufacturing organization has been experiencing shutdowns due to unavailable parts The auditor learns that production data used for generating automatic purchases via electronic interchange is collected on personal computers connected by a local area network (LAN) Purchases are made from authorized vendors based on both the production plans for the next month and an authorized materials requirements plan (MRP) that identifies the parts needed per unit of production. The auditor suspects the shutdowns are occurring because purchasing requirements have not been updated for changes in production techniques. Which of the following audit procedures should be used to test the auditor's theory?
- A. Select a sample of production estimates and MRPs for several periods and trace them into the system to determine that input is accurate
- B. Compare the parts needed based on current production estimates and the MRP for the revised production techniques with the purchase orders generated from the system for the same period
- C. Develop a report of excess inventory and compare the inventory with current production volume.
- D. Compare purchase orders generated from test data Input into the LAN with purchase orders generated from production data for the most recent period.
Answer: B
Explanation:
To test the theory that shutdowns are due to outdated purchasing requirements, the auditor should compare the parts needed according to the revised production techniques with the purchase orders generated. This comparison will reveal whether the system has been updated to reflect changes in production techniques, thereby identifying any discrepancies causing the unavailability of parts.
NEW QUESTION # 106
When is an organic organizational structure likely to be more successful than a mechanistic organizational structure?
- A. When an organization is subjected to strong political and social pressures
- B. When an organization is infrequently affected by technological advances
- C. When a manufacturing organization has stable demand for its products.
- D. When a manufacturer has reliable resources and suppliers.
Answer: A
Explanation:
An organic organizational structure is more flexible and adaptive compared to a mechanistic structure. It is characterized by less formalization, decentralized decision-making, and a greater reliance on lateral communication. This type of structure is beneficial in environments that are dynamic and uncertain, such as when an organization faces strong political and social pressures. The flexibility of an organic structure allows the organization to respond more effectively to external changes and pressures.
NEW QUESTION # 107
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