IIA-CIA-Part1 Exam Dumps - Internal Audit Fundamentals

The most effective risk management strategy for a manufacturer experiencing regular fluctuations in the price of electrical power, which impacts the bottom line, would be to use a forward contract for bulk power purchases. This strategy allows the manufacturer to lock in power prices for a future period, thus reducing the risk associated with price volatility and providing more predictable cost planning.

Risk management strategies in operations and finance, as discussed in business management and internal auditing literature, which advocate using financial instruments like forward contracts to hedge against price fluctuations.

Expense reimbursement fraud typically involves the theft of assets through the submission of false or inflated expense reports, such as fictitious mileage, travel logs, or meal charges. This type of fraud is categorized under the broader concept of asset misappropriation, where employees use their position to steal from the organization through deceitful acts involving expense claims.

IIA Guidance on Types of Fraud

Assessing soft controls can help internal auditors in undertaking root-cause analysis because soft controls, such as corporate culture and employee behavior, often provide insights into the underlying causes of observed deficiencies. By evaluating these soft controls, auditors can identify why certain hard controls may be failing and what might be influencing employee actions and attitudes, thus facilitating a more effective audit.

The Institute of Internal Auditors (IIA) guidance on behavioral and cultural audits and risk management practices.

The Mission of Internal Audit emphasizes the provision of professional advisory and assurance services. This mission statement highlights that internal auditing is designed to add value and improve an organization's operations through a systematic and disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.

The IIA's Mission of Internal Audit, which clearly outlines the core purpose and focus of internal auditing activities.

When the internal audit activity is found to be in nonconformance with the Code of Ethics or the Standards, the chief audit executive should communicate this matter to the board at the time of the next external assessment. This ensures that the board is aware of the nonconformance and can take appropriate actions to address the issue, maintaining the integrity and accountability of the internal audit function.

IIA standards on governance, which require the chief audit executive to report significant issues related to nonconformance with professional standards and the Code of Ethics to the board and senior management.

When an internal auditor suspects fraudulent activity, such as erroneous payments to a fraudulent bank account, the appropriate course of action is to escalate the concern to the engagement supervisor (Option D). This step ensures that the issue is handled with the necessary urgency and oversight. According to the IIA Standards, particularly Standard 2060: Reporting to Senior Management and the Board, the CAE must communicate significant risk exposures and control issues, including fraud risks, to senior management and the board. Escalating the concern ensures the appropriate levels of the organization are aware and can take timely action.

IIA Standards, Standard 2060: Reporting to Senior Management and the Board

IIA Practice Guide: Internal Auditing and Fraud

The most likely reason the chief audit executive (CAE) decided to conduct a self-assessment with independent validation is that the internal audit activity is relatively small in size and is due for an external assessment. Self-assessment with independent validation (SAIV) is an alternative approach recognized by the IIA for smaller audit functions, where a full external assessment might be impractical or overly burdensome. This method maintains the quality assurance requirements within the constraints of the organization’s size and resources.

Institute of Internal Auditors (IIA) - International Professional Practices Framework (IPPF), Standard 1312 - External Assessments