IIA-CIA-Part1 Exam Dumps - IIA CIA Questions and Answers

Internal auditors may provide consulting services relating to operations for which they had previous responsibilities, provided they do not currently have any operational responsibilities that would impair their objectivity. This scenario is possible under IIA guidelines as long as any potential conflicts of interest are managed, and auditors maintain their independence regarding the areas they are auditing.

IIA's International Standards for the Professional Practice of Internal Auditing, specifically standards on objectivity and independence in consulting roles.

If the IT contractor previously worked under the bank's IT security manager and is now applying for an internal audit position at the bank, the chief audit executive should allow the hiring but restrict the contractor from working on IT security audits for one year. This measure prevents potential conflicts of interest and ensures that the contractor’s prior association with the IT security manager does not influence audit objectivity.

IIA Standards for Professional Practice of Internal Auditing, specifically those related to objectivity and conflicts of interest.

ISO 31000 outlines risk management principles and guidelines, including the consideration of external context in the risk management process. The external context refers to the environment in which the organization operates. This includes, but is not limited to, cultural, social, political, legal, regulatory, financial, technological, economic, and competitive environments, both international and national. Therefore, option C, "The regulatory and competitive environment," is part of the external context for risk management according to ISO 31000.

ISO 31000:2018, Risk management - Guidelines

To ensure that due professional care is applied, the chief audit executive should establish policies and procedures concerning the engagement process. This action sets a clear framework and standards for conducting audits, which guides auditors in meeting the necessary quality and ethical requirements. Establishing these policies is fundamental to ensuring that all engagements are performed with diligence and in accordance with professional standards.

IIA Standard 1300 - Quality Assurance and Improvement Program

According to the IIA's International Standards for the Professional Practice of Internal Auditing (Standards), when internal audit staff lacks the required knowledge or expertise to perform an engagement, the chief audit executive (CAE) should consider obtaining additional resources with the necessary expertise. This approach ensures that the assurance engagement can be conducted with the requisite level of competence and fulfills the standards' mandate for proficiency and due professional care (Standard 1210: Proficiency).

IIA Standard 1210: Proficiency.

Risk analysis involves assessing both the impact and likelihood of risks, and these should be assessed together. This combined assessment helps in understanding the full scope of potential risks and is crucial for effective risk management and prioritization.

IIA guidance and risk management frameworks like COSO and ISO 31000.QUESTION NO: 459

According to IIA guidance, which of the following statements is true with regard to the chief audit executive's (CAE's) responsibility for conducting a self-assessment of the internal audit activity?

1 The CAE should select an independent reviewer or review team to perform sufficient tests of the self-assessment to validate the results

2 The CAE should validate results by engaging experienced audit professionals from a separate internal audit activity outside of the organization to reperform all of the tests conducted for the assessment

3. The CAE should select independent, nonaudit professionals who are knowledgeable about the organization and the industry in which it operates to assist with performing the self-assessment

4. The CAE may consider performing a self-assessment with independent external validation in Iieu of performing a full external assessment

A. 1 and 2 only.

B. 1 and 4 only

C. 1, 2, and 3

D. 3 and 4

Answer: B

According to IIA guidance, the chief audit executive (CAE) may consider performing a self-assessment with independent external validation in lieu of performing a full external assessment. This is known as a self-assessment with independent validation (SAIV) and is acceptable as a part of the internal audit activity’s quality assurance and improvement program. Choosing an independent reviewer or review team to perform sufficient tests of the self-assessment to validate the results is also aligned with IIA standards for maintaining quality within the internal audit function.References: IIA Standard 1300: Quality Assurance and Improvement Program, which outlines requirements for ongoing and periodic reviews of the internal audit activity.

When evaluating whether management has selected appropriate risk responses, an internal auditor should consider the organization's risk appetite—the amount and type of risk that an organization is prepared to pursue, retain, or take. Risk appetite sets the boundaries within which risk responses should be formulated. Risk tolerance and capacity are related concepts, but risk appetite is a more direct measure of whether a particular risk response aligns with organizational goals and strategy.

Institute of Internal Auditors (IIA) - International Standards for the Professional Practice of Internal Auditing

To promote organizational independence for the internal audit activity, the audit committee should approve the annual budget and resource plan for the internal audit activity. This action ensures that the internal audit has sufficient resources to independently carry out its mandate without undue influence from management.

IIA guidance and standards concerning the role of the audit committee in supporting the independence and resources of the internal audit function.

In the context of an initial public offering (IPO), the best description of the risk involved is "inherent risk." Inherent risk refers to the exposure inherent in the company's operations or industry without considering the effectiveness of any risk management measures. An IPO's inherent risks include market volatility, investor sentiment, regulatory changes, and economic factors that could affect the offering's success.

Financial risk management literature and common usage in financial audits.

According to IIA guidance, the internal audit charter is a formal document that defines the internal audit activity's purpose, authority, and responsibility. It establishes the internal audit activity's position within the organization, including the nature of the chief audit executive’s functional reporting relationship with the board; authorizes access to records, personnel, and physical properties relevant to the performance of engagements; and defines the scope of internal audit activities. Final approval of the internal audit charter is done by the board, not just senior management. Furthermore, the charter might describe the expectations for communicating the results of the quality assurance and improvement program, which ensures that the internal audit activity continues to operate effectively and efficiently.

IIA Standard 1000: Purpose, Authority, and Responsibility; and Standard 1300: Quality Assurance and Improvement Program.

To achieve conformance with the Standards, a newly hired entry-level internal auditor must possess an understanding of fraud and fraud risk. This knowledge is essential as it enables the auditor to recognize potential indicators of fraud during their audit activities, thereby contributing to the organization’s broader fraud risk management efforts.

IIA standards which emphasize the importance of auditors understanding fraud risks as part of their professional competence requirements.

A significant threat to internal audit objectivity arises when the chief audit executive reports directly to the chief financial officer, especially if the CFO previously led the internal audit activity. This reporting relationship can undermine the independence necessary for objective audits, as the CFO might influence the scope or outcome of audit engagements to suit certain financial reporting outcomes or to cover previous decisions made while in charge of internal audit.

The IIA's International Standards for the Professional Practice of Internal Auditing on independence and objectivity.

Selling a nonstrategic business unit is an example of a risk avoidance strategy. By divesting from parts of the business that are not core to its strategic objectives or that may represent heightened risks, an organization effectively avoids the risks associated with maintaining those operations.

Risk management strategies and definitions as provided in risk management and internal audit literature, which categorize selling non-core units as avoidance since it eliminates specific risks.

The responsibility of the chief audit executive (CAE) to maintain organizational independence is fulfilled by developing and submitting an annual budget and resource plan to the board for approval. By doing so, the CAE ensures that the internal audit activity has the necessary resources to operate effectively without undue influence from management. This process upholds the independence and objectivity of the internal audit function, as it allows the board to oversee and approve the resources needed for the audit activity, thus preventing potential conflicts of interest and ensuring the audit function remains free from managerial interference.

The IIA’s International Standards for the Professional Practice of Internal Auditing (Standards) - Standard 1110: Organizational Independence.

The IIA’s Practice Guide on Maintaining Internal Audit Independence.

An indicator that an organization's risk management processes are effective is that organization-wide mechanisms exist to enable the identification and assessment of all significant risks. This approach ensures that risks are managed on an enterprise-wide basis, aligning risk management strategies with the organization's objectives and promoting a comprehensive understanding and management of risks throughout the entity. References: Institute of Internal Auditors (IIA) - International Professional Practices Framework (IPPF), Risk Management in Practice