IIA-CIA-Part2 Practice of Internal Auditing Exam Practice Test

Answer : C

Nonstatistical sampling allows auditors to use their professional judgment to determine the sample size and select the items to be tested. Unlike statistical sampling, which relies on probabilistic methods to determine the sample size and selection, nonstatistical sampling is more flexible and can be tailored to the specific circumstances of the audit engagement.

IIA Reference:

IIA Standard 2320: Analysis and Evaluation suggests that internal auditors should apply appropriate methods to analyze data and draw conclusions. Nonstatistical sampling allows for the application of professional judgment, which can be advantageous in certain audit situations where rigid statistical methods may not be practical or necessary.

The Practice Guide on Sampling discusses the differences between statistical and nonstatistical sampling, highlighting that nonstatistical sampling relies more on the auditor's judgment, which can be beneficial in certain contexts.

Given this, the correct answer is C. Nonstatistical sampling provides for the use of subjective judgment in determining the sample size.

Answer : B

A limitation of a heat map is that it can be challenging to differentiate between impact and likelihood as to which is more important. Heat maps visually represent risks based on their impact and likelihood, but they do not inherently provide a mechanism to weigh these factors against each other, which can make prioritizing risks difficult in some cases.

IIA Reference:

The IIA's Practice Guide on Risk Assessment discusses the use of heat maps in visualizing risks but also highlights their limitations, particularly in how impact and likelihood are presented. While heat maps are useful for a high-level overview, they may not provide the nuanced understanding needed for decision-making when both factors are critical.

Answer : B

When senior management is challenging regulatory fines that could adversely affect the organization's ability to continue business, the chief audit executive (CAE) should assess the level of financial risks that may affect the organization's stability. This approach allows the CAE to evaluate the potential impact of the fines on the organization's financial health and ensure that appropriate risk management strategies are in place.

IIA Reference:

IIA Standard 2120: Risk Management requires internal auditors to evaluate the effectiveness and contribute to the improvement of risk management processes. In this scenario, assessing the financial risks helps ensure that the organization is adequately prepared to address the consequences of the fines.

The Practice Guide on Risk Management suggests that when facing significant risks, such as regulatory fines, the internal audit activity should assess the potential impact on the organization's financial stability and provide insights for management to consider in their decision-making process.

Answer : D

When identifying specific processes to include in the scope of an assurance engagement, the most useful information for an internal auditor is recent area performance indicators against productivity metrics. This data helps the auditor identify areas with potential risks or inefficiencies that might warrant further examination.

Detailed Explanation:

IIA Standard 2200 -- Engagement Planning:

This standard requires auditors to develop a plan for each engagement, including objectives and scope, based on a thorough understanding of the area under review. Performance indicators provide valuable insights into areas that may not be meeting productivity or efficiency targets.

Use of Performance Indicators:

Performance indicators allow the auditor to identify processes that may be underperforming or where there may be significant variances from expected outcomes. This helps in focusing the audit on areas with the greatest potential for improvement or risk.

IIA Practice Advisory 2201-2:

The advisory suggests that auditors should consider using performance data, such as productivity metrics, to determine where to focus their audit efforts. This data-driven approach ensures that the audit is relevant and adds value.

Why Not Other Options?

Option A (Recognition awards): Awards do not provide insight into risks or underperformance that might require audit attention.

Option B (Timing of the last audit): While useful, the timing alone does not indicate current risks or issues.

Option C (Management's presentation): This may provide some insights, but it is often more narrative and less data-driven than performance indicators.

Conclusion: Option D is correct because recent performance indicators against productivity metrics provide the most relevant information for identifying processes to include in the scope of an assurance engagement, ensuring that the audit is focused on areas of significant risk or opportunity for improvement, in line with IIA standards.

Answer : D

The primary reason for audit supervision to include the approval of the engagement report is to ensure that the findings and conclusions presented in the report are substantiated by adequate and appropriate evidence. This is critical for maintaining the credibility and reliability of the audit function.

Detailed Explanation:

IIA Standard 2340 -- Engagement Supervision:

This standard requires that engagements be properly supervised to ensure that objectives are achieved, audit work is performed according to appropriate standards, and that the results are supported by sufficient, reliable, and relevant evidence.

Substantiation of Findings:

Approval of the engagement report by the supervisor ensures that the findings and conclusions are not only accurate but also supported by documented evidence. This substantiation is essential for the report to be credible and for the audit to fulfill its purpose.

IIA Practice Advisory 2340-1:

The advisory emphasizes the role of supervisors in reviewing and approving the engagement report to ensure that all findings are well-founded and appropriately supported by the audit evidence.

Why Not Other Options?

Option A (Ensure objectives are met): While meeting objectives is important, the primary focus of report approval is to ensure that the findings are substantiated.

Option B (Ensure senior management support): Support from management is necessary, but it should be based on a report that is well-supported by evidence.

Option C (Ensure style and grammar): Style and grammar are secondary considerations; the primary focus should be on the accuracy and substantiation of findings.

Conclusion: Option D is correct because the primary reason for the supervisor's approval of the engagement report is to ensure that the findings are substantiated by evidence, ensuring the credibility and reliability of the audit report, in line with IIA standards.

Answer : B

The primary objectives of engagement supervision in internal auditing, according to IIA guidance, involve several key activities: identifying engagement objectives, assigning responsibilities to individual auditors, and approving the engagement program. These steps are essential to ensure that the audit is conducted effectively and that the objectives are met.

Detailed Explanation:

IIA Standard 2340 -- Engagement Supervision:

This standard outlines the responsibilities of those supervising audit engagements. Supervisors must ensure that the audit is properly planned, that objectives are clearly defined, that the right personnel are assigned, and that the engagement program is appropriate for achieving the objectives.

Key Activities in Supervision:

Identifying Engagement Objectives: This is the first step in ensuring that the audit addresses the most important risks and areas of concern. The supervisor must ensure that these objectives are clear and aligned with the organization's goals.

Assigning Responsibilities: Supervisors must ensure that tasks are allocated to auditors who have the appropriate skills and experience to carry them out effectively.

Approving the Engagement Program: The engagement program outlines the procedures and steps that will be taken to achieve the audit objectives. The supervisor's approval ensures that the program is comprehensive and aligned with the audit's goals.

IIA Practice Advisory 2340-1:

The advisory emphasizes the role of the auditor in charge in providing guidance, ensuring that objectives are met, and that the audit is conducted efficiently and effectively.

Why Not Other Options?

Option A (Enable training and development): While important, training and development are secondary objectives and not the primary focus of engagement supervision.

Option C (Training and development): Again, while important, these are supportive activities rather than the core focus of engagement supervision.

Option D (Training, development, and objectives): This option combines important activities but does not include assigning responsibilities, which is crucial in supervision.

Answer : C

According to IIA guidance, risk assessment is a critical step that precedes the development of audit engagement objectives. The risk assessment process helps internal auditors identify the key areas of risk within the organization, which then informs the setting of appropriate objectives for the audit engagement.

Detailed Explanation:

IIA Standard 2201 -- Planning Considerations:

This standard requires internal auditors to consider risk when planning an engagement. The risk assessment process identifies the areas of highest risk, which allows the auditor to focus on the most critical issues during the engagement.

Role of Risk Assessment:

By assessing risks, the auditor can determine which processes or controls are most likely to affect the achievement of the organization's objectives. This understanding is essential for setting the audit engagement's objectives, ensuring that they are aligned with the areas of greatest concern.

IIA Practice Advisory 2210.A1-1:

The advisory suggests that auditors should use the results of the risk assessment to establish the scope, objectives, and priorities of the engagement. Without this risk assessment, the audit objectives may not fully address the most significant risks.

Why Not Other Options?

Option A (Identification of controls): This typically occurs after the objectives are set, as controls are evaluated based on the identified risks.

Option B (Scope establishment): The scope is determined after the objectives are set, which are based on the risk assessment.

Option D (Review of resources): This step is related to the allocation of resources after the objectives and scope are defined.