A chief audit executive (CAE) for a specialty retailer is asked by management to review the controls in place to manage their electronic funds transfer process. The internal audit activity has no experience with similar engagements. What is the most appropriate course of action for the CAE to take?
A. Plan the engagement and begin fieldwork using existing staff.
B. Attempt to discourage management from the request.
C. Hire an outside consulting firm to assist with the engagement.
D. Defer the audit until current staff can be appropriately trained.
Which of the following situations allows for the most objectivity on the part of an internal auditor?
A. Assessing testing procedures in a new computer system.
B. Performing a risk assessment of a new financial instrument.
C. Drawing conclusions from a sample of financial transactions.
D. Comparing current environmental activities against legislation.
The audit process used by the internal audit activity of a large wholesale clothing company does not include an engagement letter or project approval document. The most serious consequence of this deficiency in the process is that the:
A. Audit schedule may not be optimal from the engagement client's perspective.
B. Audit objectives may not be understood by management of the area being audited.
C. Audit resources may not be sufficient.
D. Audit plan priority may have changed.
During an audit of financial contracts, an 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.
Which of the following statements is correct regarding risk analysis?
A. The extent to which management judgments are required in an area could serve as a risk factor in assisting the auditor in making a comparative risk analysis.
B. The highest risk assessment should always be assigned to the area with the largest potential loss.
C. The highest risk assessment should always be assigned to the area with the highest probability of occurrence.
D. Risk analysis must be reduced to quantitative terms in order to provide meaningful comparisons across an organization.
During an audit engagement, an internal auditor finds that management is not complying with previous commitments made to the external auditors. However, the auditor determines management's actions to be justified due to significant changes in the business. The best course of action for the auditor to take would be to:
A. Proceed with the audit engagement and assess the changes actually implemented by management.
B. Inform the external auditors and seek their guidance.
C. Inform the external auditors and remove the associated work from the internal audit scope.
D. Compare the recommended changes against the changes made by management and advise management which action to take.
The chairperson of an organization's audit committee has obtained a risk management report that identifies significant industry concerns that impact the organization. The chairperson has asked the chief audit executive (CAE) to review these concerns and advise if they are relevant to the organization. How should the CAE respond?
A. Accept the engagement but communicate only with the audit committee to protect the confidentiality of the request.
B. Decline the engagement because it is outside of the scope of the internal audit charter.
C. Decline the engagement because it impairs the internal audit activity's independence.
D. Accept the engagement but inform senior management of the request.
Due to urgent requests from management, a busy internal audit activity finds that it can no longer meet all of its commitments contained in the annual audit plan. The best course of action for the chief audit executive to take would be to:
A. Continue with the plan and seek opportunities to adjust priorities and reallocate resources.
B. Advise senior management and request that they reconsider these additional requests using more rigorous risk assessment and prioritization factors.
C. Advise the board and senior management and request a reassessment of the plan.
D. Advise the board immediately and seek their support for additional resources to meet the needs of the plan.
Which of the following would be most relevant regarding the internal control environment?
A. Assessing controls over computerized applications.
B. Documenting the organizational structure.
C. Comparing and validating internal performance with external benchmarking.
D. Maintaining and reviewing detailed financial records.
The primary objective of risk-based auditing is to assess the:
A. Economy of controls.
B. Compliance with controls.
C. Adequacy of controls.
D. Efficiency of controls.
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