Question 1

When performing benchmarking during the planning phase of a performance audit, an internal auditor should:

Accepted Answer

Benchmarking involves comparing an organization's processes and performance metrics to industry bests or best practices from other organizations. Identifying comparative organizations is a key step in this process.

Question 2

A major difference between enterprise risk management and traditional risk management lies in the narrow focus of traditional risk management on:

Accepted Answer

The answer of A major difference between enterprise risk management...

Question 3

An internal audit activity's work schedule should always provide sufficient information to the audit committee to enable it to determine whether the proposed engagements:

Accepted Answer

The answer of An internal audit activity's work schedule should...

Question 4

A chief audit executive used risk assessment to prepare the audit work schedule. Which of the following would be the least appropriate reason to modify the schedule?

Accepted Answer

Requesting a postponement because an audit is too complicated is not a valid reason to modify the audit schedule, as audits are inherently complex and should be planned accordingly.

Question 5

When a risk assessment process has been used to construct an audit engagement schedule, which of the following should receive attention first?

Accepted Answer

Management's request for an investigation of possible lapping in receivables indicates a potential fraud risk, which should be prioritized in the audit engagement schedule.

Question 6

What role, if any, should the internal audit activity have in the process of following up on observations and recommendations made by the external auditors?

Accepted Answer

The internal audit activity should review the adequacy and effectiveness of management's follow-up actions to ensure that external audit recommendations are properly addressed and implemented.

Question 7

Which of the following statements regarding organizational governance is not correct?

Accepted Answer

Governance activities are typically accountable to stakeholders such as shareholders, board members, or the public, rather than directly to customers.

Question 8

All of the following would normally be involved in preparing for and carrying out the internal audit activity's annual plan except:

Accepted Answer

Establishing policies and procedures for workpapers and referencing is more related to the general administration of the internal audit function rather than the preparation and execution of the annual audit plan.

Question 9

When using a risk assessment model to develop audit plans, it is essential that the chief audit executive take into account the:

Accepted Answer

Recent or expected changes in management direction and objectives are crucial for risk assessment as they can significantly impact the organization's risk profile, thus influencing the audit plan.

Question 10

An internal quality assessment of the internal audit activity should provide the chief audit executive with.

Accepted Answer

Internal quality assessments are designed to evaluate the effectiveness and efficiency of the internal audit activity, providing recommendations for improvement to the chief audit executive.

Question 11

When an external auditor unknowingly fails to modify an opinion on financial statements that are materially misstated, this is an example of:

Accepted Answer

Audit risk is the risk that an auditor may unknowingly fail to appropriately modify their opinion on financial statements that are materially misstated.

Question 12

To ensure that due professional care has been taken during an audit engagement, an internal auditor should always:

Accepted Answer

Due professional care requires internal auditors to be alert to the possibility of noncompliance or irregularities throughout the audit engagement.

Question 13

A chief audit executive (CAE) is obtaining information required by a regulatory oversight body and discovers a situation that requires management to take immediate corrective action. What is the best course of action for the CAE to take?

Accepted Answer

The CAE should report the situation to management immediately to ensure that corrective action can be taken without delay, as it is crucial to address issues that require immediate attention.

Question 14

An organization's external auditor has prepared a list of risks and issues and has recommended to senior management that the internal audit activity focus on these items. Senior management has forwarded the list to the chief audit executive (CAE). The CAE should:

Accepted Answer

The CAE should consider the external auditor's recommendations for possible inclusion in the internal audit plan, as they may provide valuable insights into potential risks.

Question 15

In the annual audit of the financial statements of a company with high inherent risk and a very strong control system, the external auditor may be able to allow detection risk to rise because.

Accepted Answer

A strong control system allows the auditor to assess control risk at a lower level, which means detection risk can be allowed to rise while still maintaining an acceptable level of overall audit risk.

Question 16

A tax consultancy agency retains sensitive personal information regarding its clients. Which of the following is a violation of acceptable privacy practices?

Accepted Answer

Releasing client information solely with management's approval, without client consent, violates privacy practices as it disregards the client's control over their own information.

Question 17

Which of the following factors related to an organization's performance management system would not contribute to the organization's success?

Accepted Answer

When staff members solely own the performance management process, it may lead to a lack of alignment with organizational goals and reduced accountability from management, which can hinder the organization's success.

Question 18

The audit committee has asked the chief audit executive (CAE) to assist in the selection of a new external audit firm. Which of the following is an appropriate action by the CAE?

Accepted Answer

The CAE can assist by developing a formal set of criteria for the audit committee, which helps maintain objectivity and provides a structured approach for the selection process.

Question 19

When developing the annual audit plan and reviewing risk assessment priorities, a chief audit executive should always identify the:

Accepted Answer

The chief audit executive should identify the internal audit resources required to achieve the audit plan to ensure that the audit function can effectively cover the identified risks and priorities.

Question 20

The primary role of the internal audit activity in regard to an organization's ethical climate is to:

Accepted Answer

The internal audit activity is responsible for periodically assessing the ethical climate to ensure that the organization's ethical standards and practices are being upheld.

Exam 3: The Internal Audit Activity Role in Governance, Risk, and Control