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

The focus of the effect section of the preliminary observations document should be on residual risk. Residual risk is the remaining risk after management has taken action to mitigate the inherent risk with controls and other risk responses. Documenting the effect in terms of residual risk helps in understanding the potential impact of the observed issues on the organization if not addressed.

IIA Standards: 2310 - Identifying Information

IIA Practice Guide: Communicating the Results of an Audit

The most critical situation for the chief audit executive (CAE) to report to the board is the disagreement with the business unit manager's initial decision to accept a particular risk, which was only addressed after discussion with senior management. This situation is critical because it involves a risk that was initially accepted without proper mitigation, which could have significant implications for the organization. Reporting this to the board ensures that they are aware of potential disagreements regarding risk acceptance and management's approach to risk mitigation.

IIA Standards: 2060 - Reporting to Senior Management and the Board

IIA Practice Guide: Reporting to the Board and Senior Management

According to the International Standards for the Professional Practice of Internal Auditing, the CAE must be kept informed of significant issues and deficiencies that are not addressed by management. Standard 2600 - Communicating the Acceptance of Risks requires the CAE to report any situation where management has accepted a level of risk that may be unacceptable to the organization. If the engagement supervisor learns that agreed-upon remedial actions have not been implemented, the CAE needs to be notified to determine further steps, ensuring that risks are managed appropriately and in alignment with the organization's risk tolerance. This response aligns with the internal audit function's responsibility to follow up on management's corrective actions.

The IIA's International Standards for the Professional Practice of Internal Auditing, Standard 2600 - Communicating the Acceptance of Risks.

ï‚· CSR Policy Development: In developing a Corporate Social Responsibility (CSR) policy, it is important that the principles of CSR are communicated and understood throughout the organization.

 Integration into Decision-Making: Management’s responsibility includes ensuring that CSR principles are not only communicated but also integrated into the organization's decision-making processes at all levels. This ensures that CSR is part of the organizational culture and operational strategies.

 Board’s Role: While the board has a role in overseeing and ensuring that CSR objectives are established and risks are managed, the day-to-day responsibility for integrating CSR into business operations lies with management.

 IIA Guidance: According to IIA guidance, internal auditors should evaluate the design, implementation, and effectiveness of the organization’s ethics-related objectives, programs, and activities, which include CSR initiatives (Standard 2110 - Governance).

ï‚· References:

Effective communication and integration of CSR principles ensure that the organization operates in a socially responsible manner, aligning its business practices with societal expectations and contributing to sustainable development​​​​.

ï‚· Definition of Management by Objectives (MBO): Management by Objectives is a performance management approach where managers and employees work together to identify, plan, organize, and communicate objectives. This method involves setting clear, measurable goals with defined timelines.

ï‚· Key Benefits:

Employee Motivation: MBO aligns individual goals with organizational objectives, fostering a sense of ownership and engagement among employees. By participating in goal-setting, employees are more motivated to achieve these objectives, as they see a direct link between their efforts and organizational success.

Performance Measurement: Clear objectives allow for effective performance measurement and provide a basis for performance appraisals and feedback.

ï‚· Comparison with Other Options:

Rapid Changes: Option A is incorrect because MBO is not necessarily best suited for environments with rapid changes, as it relies on predefined objectives that may quickly become outdated.

Mechanistic Organizations: Option B is incorrect because MBO is more effective in flexible, dynamic organizations rather than rigid, mechanistic ones.

Strategic vs. Operational Goals: Option D is incorrect because MBO does not inherently distinguish between strategic and operational goals; it focuses on achieving specific measurable objectives.

ï‚· References:

MBO helps in increasing employee motivation by involving them in the goal-setting process and aligning their objectives with the organization’s goals, which enhances engagement and performance​​​​.

According to IIA guidance, when the internal audit activity investigates potential ethics violations in a foreign subsidiary, communication of any internal ethics violations to external parties may occur, but only with appropriate safeguards. This ensures that sensitive information is protected and that the organization complies with both local and international legal requirements. Cross-cultural differences and local laws must be considered, but the primary focus is on maintaining appropriate safeguards during communication. References: IIA Practice Guide – Auditing Ethics Programs, IIA Standard 2440 – Disseminating Results

When interviewing a fraud suspect, it is important to gather both subjective and objective information (Option 1). Subjective information can include opinions or perspectives, which may provide insights into motivations or behaviors, while objective information consists of factual data. The interviewer typically begins with open-ended questions (Option 3) to allow the suspect to provide information freely and without leading them to specific answers. The primary objective is to gather information rather than to obtain a written confession (Option 2), and video recordings, while beneficial in certain cases, are not always used and thus not a standard requirement (Option 4). References:

The IIA’s Practice Guide on Conducting Internal Audits in Conformance with the International Standards for the Professional Practice of Internal Auditing (Standards).

The IIA’s Practice Guide on Fraud Auditing and Investigation.

A. The decision affects the test procedures performed:Correct. The choice between statistical and nonstatistical sampling affects the design of the sample selection, execution of audit procedures, and the nature of conclusions drawn. Statistical sampling involves probabilistic techniques that influence sample size and evaluation, whereas nonstatistical sampling relies on auditor judgment.

B. The auditor's response to errors detected will be influenced:While error response is critical, it is influenced more by the nature and materiality of the errors than by the sampling approach.

C. The competence of the evidence obtained is greater with statistical sampling:This is incorrect because the competence of evidence depends on the procedure itself, not the sampling method used. Both methods can yield competent evidence if applied correctly.

D. Nonstatistical sampling may be more cost effective:While this can sometimes be true, it is context-dependent and not universally applicable, so it is not the best answer.

CIA Exam Syllabus Reference:

Domain II: Risk Management and Control – Sampling Techniques and Audit Evidence.