Within the internal audit process, which of the following is not a significant advantage of employing a control model?
A. It provides guidance on identifying control deficiencies for each internal audit engagement.
B. It recognizes the need to evaluate both hard and soft controls.
C. It assists internal auditors in assessing the achievement of management's objectives.
D. It validates the findings and recommendations of the internal audit.
During an audit of financial contracts, an internal auditor learns that a relative has a substantial loan with the organization. The auditor should:
A. Exclude the relative's information from the audited work and proceed with the audit engagement.
B. Proceed with the audit engagement but disclose in the engagement final communication that the relative is a customer.
C. Immediately withdraw from the audit engagement.
D. Notify management and the chief audit executive (CAE) and have the CAE determine whether the auditor should continue with the audit engagement.
During an audit engagement in an insurance company, an internal auditor discovered that senior management had purposely misclassified $200, 000 in assets on financial statements submitted to regulatory authorities in order to avoid significant statutory penalties. To remain in compliance with the IIA Code of Ethics, what would be the most appropriate action for the auditor to take?
A. Note the situation in the workpapers and inform the chief executive officer.
B. Send an informative memo to the external auditors.
C. Discuss the matter with audit management and ensure that the audit committee is informed.
D. Report the matter to regulatory authorities since senior management is implicated.
A company's chief audit executive determines that the internal audit staff does not have the requisite skills to conduct an audit of the financial derivatives area. Which of the following actions would be the least acceptable?
A. Notify the audit committee of the problem and consult with them regarding outsourcing the audit engagement to a qualified external auditing firm.
B. Determine the requisite knowledge needed and obtain the proper training for auditors if such training is available within the appropriate time framework outlined by the audit committee.
C. Notify the audit committee of the problem and assign the most competent auditors to perform the audit engagement.
D. Employ the skills of a financial derivatives expert to consult on the project, and supplement the consulting with a local seminar on financial derivatives.
An employee who recently transferred into the internal audit activity has been assigned to audit the accounts payable system. Which function, if previously performed by this employee, would represent a conflict of interest?
A. Monitoring the allowance for doubtful accounts.
B. Writing procedures for the handling of duplicate payments.
C. Signing timekeeping cards for subordinates.
D. Reviewing shipping documents for accuracy.
Which of the following reporting relationships results in the greatest impairment to the independence of the chief audit executive (CAE)?
A. The CAE reports administratively and functionally to the president.
B. The CAE reports administratively to the president and functionally to the board.
C. The CAE reports administratively to the chief financial officer and functionally to the president.
D. The CAE reports administratively to the audit committee and functionally to the chief operating officer.
Which of the following is least likely to enhance the independence of an internal audit activity?
A. The existence of a formal written charter for the internal audit activity.
B. Submission of an annual internal audit work plan to the audit committee.
C. A direct reporting relationship to the audit committee.
D. Adherence to the organization's position classification structure.
Which aspect of the audit function would be most impacted by a lack of coordination between an organization's internal and external auditors?
A. Responsiveness.
B. Timeliness.
C. Effectiveness.
D. Efficiency.
An organization's chief audit executive (CAE) has been asked to monitor and report on any violations of the organization's code of conduct. The CAE should:
A. Review and adjudicate all complaints.
B. Lead the committee responsible for the oversight of the code.
C. Develop specific procedures to ensure that the code is clearly communicated to all employees.
D. Participate in an advisory capacity on the committee that adjudicates any violations.
When planning an audit engagement, what should an internal auditor first consider when assessing the risk of fraud in the area to be audited?
A. Impact of and exposure to fraud.
B. Existence of evidence of fraud.
C. Organizational structure.
D. Management's risk appetite.
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