IIA-CHAL-QISA Exam Practice Test Instant Access

Question 1

According to IIA guidance, which of the following steps should precede the development of audit engagement objectives?

AIdentification of controls.

BScope establishment.

CRisk assessment.

DReview of resources.

Answer : C

Risk Assessment: Before developing audit engagement objectives, a thorough risk assessment should be conducted. This step helps identify and prioritize the areas of highest risk, ensuring that the audit focuses on the most critical issues.

Establishing Objectives: The results of the risk assessment guide the development of specific, relevant, and focused audit objectives. This ensures that the engagement addresses key risk areas and adds value to the organization.

Sequential Steps: Identification of controls, scope establishment, and review of resources are important steps but typically follow the initial risk assessment to ensure the audit is aligned with the organization's risk profile.

Question 2

An accounts payable clerk has recently transferred into the internal audit activity and has been assigned to an engagement related to accounts payable processes for which he was previously responsible Which of the following is the best action for the new internal auditor to take?

AIf it is an assurance engagement, accept the assignment because direct knowledge of the existing accounts payable processes will provide depth and add more value

BIf it is a consulting engagement, decline the assignment and ask to be reassigned, because in a consulting engagement the auditor must not assess operations for areas in which they were previously responsible.

Cif it is a consulting engagement, accept the assignment because direct knowledge of the existing accounts payable processes will provide depth and add more value

DIf it is an assurance engagement, accept the assignment because the chief audit executive had knowledge of the internal auditor's previous role when this engagement was assigned.

Answer : B

Conflict of Interest: For both assurance and consulting engagements, it is crucial to avoid conflicts of interest. An auditor assessing processes they were previously responsible for can compromise objectivity and independence.

IIA Standards: The IIA's Code of Ethics and standards emphasize maintaining objectivity and avoiding conflicts of interest. This is particularly important in consulting engagements where the auditor's recommendations could be influenced by prior roles.

Appropriate Action:

Assurance Engagements: For assurance engagements, prior knowledge might be beneficial but still raises concerns about independence. Declining the consulting engagement due to previous responsibilities ensures objectivity.

Question 3

Which of the following is true of matrix organizations?

AA unity-of-command concept requires employees to report technically, functionally, and administratively to the same manager.

BA combination of product and functional departments allows management to utilize personnel from various functions.

CAuthority, responsibility, and accountability of the units involved may vary based on the projects life, or the organization's culture.

Dit is best suited for firms with scattered locations or for multi-line, large-scale firms.

Answer : B

Matrix Organization Structure: In matrix organizations, employees report to both functional and product managers. This dual reporting structure allows the organization to efficiently use its personnel across different projects and functions.

Advantages of Matrix Structure:

Resource Utilization: Personnel from various functions can be utilized effectively across multiple projects, improving resource allocation and flexibility.

Coordination and Communication: This structure enhances coordination and communication across different functional areas and projects.

Unity-of-Command: Option A is incorrect because the unity-of-command principle is compromised in a matrix organization due to dual reporting lines.

Authority and Accountability: Option C is correct to some extent but does not capture the primary benefit of resource utilization.

Suitability: Option D refers to the best use cases for matrix structures, but option B provides a more comprehensive understanding of how matrix organizations function.

Question 4

Which of the following is most likely to impair the organizational independence of the internal audit activity?

AThe chief audit executive (CAE) reports administratively to the chief financial officer

BThe CAE oversees the effectiveness of the organization's risk management function.

CThe CAE reports functionally to the CEO.

DThe CAE managed the finance department for the past five years.

Answer : D

Impairment of Independence: The organizational independence of the internal audit activity can be impaired if the CAE has had significant roles in management, such as managing the finance department. This prior involvement may create a conflict of interest or perceived bias.

IIA Standards on Independence: The IIA emphasizes the importance of independence and objectivity in internal auditing. Any prior management role, especially in the department being audited, can compromise the CAE's objectivity.

Examples of Impairment:

Administrative Reporting: While reporting administratively to the CFO (option A) or functionally to the CEO (option C) does not inherently impair independence, managing the finance department previously (option D) creates a direct conflict.

Overseeing Risk Management: Overseeing the risk management function (option B) is part of the CAE's responsibilities and does not impair independence if handled properly.

Question 5

Which of the following statements is true regarding internal auditors and other assurance providers?

AAssurance providers who report to management and/or are part of management cannot provide control self-assessments services

BInternal auditors should always reperform and validate audit work completed by external assurance providers.

CInternal auditors may rely on the work of internal compliance teams to expand their coverage of the organization without increasing direct audit hours.

Dinternal auditors can rely on the work of other assurance providers only if the other assurance providers report directly to the board

Answer : C

Collaboration with Compliance Teams: Internal auditors often collaborate with internal compliance teams to leverage their work. This allows auditors to gain insights and expand their audit coverage efficiently.

IIA Standards: According to the Institute of Internal Auditors (IIA), internal auditors can rely on the work of other assurance providers, including internal compliance teams, as long as the auditors assess the adequacy and competency of the compliance team's work.

Efficiency in Audit Coverage: By relying on internal compliance teams, internal auditors can ensure comprehensive coverage of the organization without significantly increasing direct audit hours, thus enhancing efficiency.

Question 6

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.

A1, 2, and 3.

B1.2. and 4

C1,3, and 4.

D2, 3, and 4.

Answer : C

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.

Internal Audit Standards and Practice Guides

Question 7

Which of the following best describes the risk contained in an initial public offering for a new stock?

AResidual risk.

BNet risk.

CInherent risk.

DUnderlying risk

Answer : C

Introduction:

Inherent risk refers to the susceptibility of an assertion to a material misstatement, assuming no related controls.

IPO Risks:

Initial Public Offerings (IPOs) inherently carry a high level of risk due to the uncertainty and complexity involved in the process, the lack of historical data, and market volatility.

Options Analysis:

Option A: Residual risk is the risk remaining after controls are applied.

Option B: Net risk is not a standard term in audit risk assessments.

Option C: Inherent risk is the appropriate term for the risks associated with an IPO, which exist before considering any controls.

Option D: Underlying risk is not a standard audit term.

Conclusion:

The risk associated with an IPO for a new stock is best described as inherent risk due to the nature of the uncertainties involved.

Audit Standards and Securities Regulation Guidelines

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