IIA-CIA-Part2 Exam Practice Test Instant Access

Question 1

While reviewing the organization's financial year-end processes, an internal auditor discovered an erroneous journal entry. If the error is not addressed, it will result in a material misstatement of the financial records. The internal auditor needs an additional four weeks to complete the audit engagement. How should the auditor communicate this finding?

AThe auditor should issue an interim report to management prior to completion of the audit and issuance of the final report.

BThe auditor should include this item in the final audit report, marked with an asterisk, indicating that it is a high-risk item.

CThe auditor should discuss the finding with the appropriate accounting staff who can make the correction immediately, and if corrected before the engagement is concluded, the finding would not need to be included in the audit report.

DThe auditor is obligated to bypass management and immediately report the error directly to regulatory authorities.

Answer : C

The correct approach aligns with the International Standards for the Professional Practice of Internal Auditing (Standards), particularly Standard 2400: Communicating Results. The auditor must promptly discuss material errors to prevent ongoing misstatements. Immediate correction ensures timely remediation and reduces the risk of material misstatement persisting in the financial records. Additionally, if the error is resolved before the engagement concludes, it may not necessitate inclusion in the final report, as per the guidance on handling material findings (Practice Advisory 2410-1). This approach also demonstrates collaboration and alignment with management, fostering trust.

Question 2

Which of the following steps should an internal auditor complete when conducting a review of an electronic data interchange application provided by a third-party service?

Ensure encryption keys meet ISO standards.

Determine whether an independent review of the service provider's operation has been conducted.

Verify that the service provider's contracts include necessary clauses.

Verify that only public-switched data networks are used by the service provider.

A1 and 3.

B1 and 4.

C2 and 3.

D2 and 4.

Answer : C

When conducting a review of an electronic data interchange (EDI) application provided by a third-party service, it is essential to determine whether an independent review of the service provider's operation has been conducted and to verify that the service provider's contracts include necessary clauses. These steps ensure that the service provider operates securely and meets the organization's requirements for data protection and service reliability.

IIA Reference:

IIA Standard 2100: Nature of Work indicates that internal audit should evaluate the adequacy and effectiveness of controls, including those at third-party service providers. Verifying that an independent review has been conducted and ensuring that contracts contain the necessary clauses are critical steps in assessing these controls.

The Practice Guide on Third-Party Risk Management advises internal auditors to review the service provider's contractual agreements and independent audit reports to assess the adequacy of controls and compliance with standards.

Question 3

During audit engagement planning, an internal auditor is determining the best approach for leveraging computer-assisted audit techniques (CAATs). Which of the following approaches maximizes the use of CAATs and why?

ATracing, because it would enable the auditor to verify quickly that the record counts were properly included in the compilation.

BInspection, because it would enable the auditor to verify how management enters the data into the application for processing.

CTesting data, because it would enable the auditor to ensure that the application processes the transaction as described by management.

DReperformance, because it enables the auditor to verify that the application performed the calculation correctly.

Answer : D

Reperformance is a CAATs approach that involves independently executing the same procedures as the original process to verify the accuracy of the application's calculations. This approach maximizes the use of CAATs because it directly tests the functionality and reliability of the system by ensuring that the system processes transactions and calculations correctly, as intended by management.

IIA Reference:

IIA Standard 1220: Due Professional Care suggests that internal auditors should apply appropriate techniques, such as CAATs, to obtain sufficient evidence. Reperformance as a CAATs method is particularly effective in verifying the integrity of system calculations.

The Practice Guide on Using CAATs highlights that reperformance is one of the most powerful techniques for validating that a system operates as intended and that transactions are processed correctly.

Question 4

According to IIA guidance, which of the following is a limitation of a heat map?

AImpact cannot be represented on a heat map unless it is quantified in financial terms.

BImpact and likelihood at times cannot be differentiated as to which is more important.

CA heat map cannot be used unless a risk and control matrix has been developed.

DQualitative factors cannot be incorporated into a heat map.

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.

Question 5

Senior management is challenging regulatory fines that were assessed to the organization due to questionable business practices. Their actions and the fines could have an adverse effect on the organization's ability to continue business. How would the chief audit executive respond?

AAssume responsibility for quantifying and minimizing the residual risks to the organization.

BAssess the level of financial risks that may affect the organization's stability.

CInform the regulatory agency about senior management's action and seek guidance.

DProceed with a consulting engagement to benchmark similar organizations' business practices in the region.

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.

Question 6

An internal audit activity has to confirm the validity of the activities reported by a grantee that received a charitable contribution from the organization. Which of the following methods would best help meet this objective?

AVisiting the grantee to assess whether the execution of the project was in line with the defined grant scope.

BVerifying that the grantee's final report is in line with what was depicted in the initial budget request.

CReconciling general ledger accounts used by management of the area under review for reflecting expenses on charitable contributions.

DInterviewing employees of the corporate affairs department, which is responsible for charitable activities.

Answer : A

by a grantee that received a charitable contribution, the most effective method is to visit the grantee and directly assess whether the project execution aligns with the scope defined in the grant. This method provides firsthand evidence of the grantee's activities and ensures that the charitable contributions are used as intended.

Detailed Explanation:

IIA Standard 2310 -- Identifying Information:

This standard requires that internal auditors gather sufficient, reliable, relevant, and useful information to achieve the engagement objectives. Visiting the grantee allows auditors to observe and verify the actual execution of the project, which provides the most direct and reliable evidence.

Field Visits:

Conducting a site visit enables auditors to see the project in action, interview relevant personnel, and compare actual activities to what was promised in the grant proposal. This method helps ensure that the grantee is fulfilling its obligations and that the organization's charitable funds are being used effectively.

Direct Evidence:

Direct observation of the grantee's activities provides the highest level of assurance regarding the validity of the reported activities. This aligns with IIA's emphasis on obtaining the best available evidence to support audit findings.

Why Not Other Options?

Option B (Verifying final report vs. initial budget): This only compares reports, which might not accurately reflect the actual activities conducted by the grantee.

Option C (Reconciling general ledger accounts): This focuses on financial records, which may not provide sufficient detail about the actual activities conducted.

Option D (Interviewing corporate affairs employees): While informative, this method only provides secondhand information and does not directly verify the grantee's activities.

Conclusion: Option A is correct because visiting the grantee provides the most reliable and direct evidence that the activities are in line with the grant's defined scope, ensuring the validity of the grantee's reported activities.

Question 7

In addition to gathering information, which of the following is a primary objective of a client interview conducted during the planning stage of an audit engagement?

ATo obtain sufficient audit evidence.

BTo test the client's knowledge.

CTo agree on the auditor's scope of authority.

DTo establish rapport.

Answer : D

In addition to gathering information, a primary objective of a client interview during the planning stage of an audit engagement is to establish rapport with the client. Building rapport helps in fostering a cooperative relationship, ensuring that the client is open and forthcoming with information, which can significantly enhance the effectiveness of the audit.

IIA Reference:

IIA Standard 2201: Planning Considerations suggests that internal auditors should establish good communication and rapport with clients during the planning phase to facilitate the audit process.

The Practice Guide on Effective Interviewing Techniques emphasizes that establishing rapport during initial meetings is crucial for gaining the client's trust and cooperation throughout the audit.

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