Pass the IIA CIA IIA-CIA-Part2 Questions and answers with Dumpstech

When determining the level of staff and resources for an assurance engagement, the most relevant factor for the chief audit executive (CAE) is the availability of resources with the specific skill set required for that particular engagement. This is because assurance engagements often involve complex and specialized areas that necessitate specific expertise to effectively evaluate controls, risks, and processes.

IIA References:

IIA Standard 2230: Engagement Resource Allocation states that internal auditors must determine appropriate and sufficient resources to achieve engagement objectives based on an evaluation of the nature and complexity of each engagement, time constraints, and available resources. The emphasis is on ensuring that the team assigned to the engagement possesses the necessary skills and knowledge.

The Practice Advisory 2230-1 further suggests that the CAE should consider the complexity and risks associated with the engagement and ensure that the assigned team has the appropriate experience and technical skills.

Preparing a detailed audit program is a critical component of engagement planning. This program outlines the specific procedures and tests that the internal auditor will perform to evaluate the effectiveness of controls. It ensures that the audit is conducted systematically and thoroughly, addressing all relevant risks and objectives. A detailed audit program provides a clear roadmap for the audit, helping to ensure that all necessary areas are covered and that the audit's objectives are achieved.

The Institute of Internal Auditors (IIA) - Standards for the Professional Practice of Internal Auditing, Standard 2201 - Planning Considerations

The primary reasons for outsourcing internal audit activities typically include accessing a wider range of skills and competencies, complementing existing expertise for specific engagements, and strengthening core audit functions. Contingency planning, while beneficial, is not a primary reason for outsourcing internal audit activities as it pertains more to risk management strategies rather than the core objectives of outsourcing. References: = IIA’s Practice Advisory 1210.A1-1: Obtaining External Service Providers to Support or Complement the Internal Audit Activity.

Identify the Conflict of Interest: The internal auditor learns about a large loan made to another auditor's relative, which represents a conflict of interest.

Refer to Professional Standards: According to the Institute of Internal Auditors' (IIA) standards, an internal auditor must maintain objectivity and avoid conflicts of interest (IIA Standard 1100 – Independence and Objectivity).

Escalate the Issue: The appropriate course of action is to escalate this matter to the chief audit executive (CAE) and management, as they are responsible for determining the impact of the conflict and the appropriate response.

Decision Making: The CAE and management will assess whether the conflict of interest could impair the auditor's objectivity and decide whether the auditor should be removed from the engagement or if additional oversight is needed.

Documentation: It is important to document the conflict and the decision-making process in the audit documentation for transparency and accountability.

Per Standard 2340 – Engagement Supervision, engagement supervision includes reviewing and approving work programs, changes, and results to ensure objectives are met and quality is maintained. This activity is part of supervision (C), not reporting (A), monitoring (B), or risk assessment (D).

An operational audit is the most appropriate type of audit engagement to determine how an organization could be more profitable in the long term. Operational audits focus on the efficiency and effectiveness of an organization's operations, processes, and procedures. They assess whether resources are being used optimally to achieve business objectives and identify opportunities for cost savings, process improvements, and enhanced productivity. This type of audit is designed to provide insights and recommendations that can help an organization improve its profitability over the long term by streamlining operations and eliminating inefficiencies.

The Institute of Internal Auditors (IIA) Practice Guide: Operational Auditing: A Guide for Internal Auditors

IIA Standard 2110 - Governance

Comprehensive and Detailed Explanation:

Data privacy principles — particularly under GDPR and similar frameworks — emphasize data minimization, purpose limitation, and lawful processing. Once a customer closes an account and the statutory retention period ends, the organization should destroy personal information (A) to prevent misuse. Sharing data with affiliates (B) without explicit consent violates purpose limitation. Retaining data for convenience (C) is not legally justified. Using personal information for external research (D) is only valid if explicit consent was granted, but this is not described. Thus, the correct approach is Option A — delete data when it is no longer needed or legally required, ensuring compliance with privacy laws.

Judgmental sampling, also known as non-statistical sampling, is a technique where the internal auditor uses their professional judgment to select a sample that they believe is most representative of the population. In this scenario, the internal auditors are choosing to review a sample of complaints from the last three months based on their professional judgment that these complaints are reflective of current marketing practices. This method is particularly useful when the auditor has specific knowledge about the population that allows them to make informed selections.

Institute of Internal Auditors (IIA) Standards: Performance Standards 2320: Analysis and Evaluation

Internal Audit Manual: Sampling Techniques and Methodologies

According to IIA guidance, the internal audit activity (IAA) can evaluate risk management processes without the need for safeguards. This activity aligns with the internal auditors' role in providing assurance on the effectiveness of the risk management process. Coaching management (Option A) and developing risk management strategies (Option B) involve direct participation in management functions, which could impair objectivity and require safeguards. Facilitating the identification and evaluation of risks (Option C) might also involve a degree of management participation that could compromise independence without proper safeguards. References: IIA Standard 2120 – Risk Management, IIA Practice Guide – Assessing the Adequacy of Risk Management Processes

The CAE should discuss the concerns with the finance manager and work together to agree on the engagement objectives. This collaborative approach ensures that the engagement objectives are aligned with the finance manager's needs and expectations, and it allows the CAE to provide relevant and tailored assistance regarding the new management system for managing receivables.

IIA Standards: 2010 - Planning

IIA Practice Guide: Consulting Services

The flowchart indicates that different individuals are responsible for various stages of the bank reconciliation process. The Treasury Accountant posts payments and performs reconciliations, while the Senior Treasury Accountant obtains and uploads bank statements, and the Treasury Supervisor approves/reviews the reconciliations. This segregation of duties ensures that no single individual has control over all aspects of the financial transaction process, which helps in preventing errors and fraud.

The Institute of Internal Auditors (IIA), International Standards for the Professional Practice of Internal Auditing (Standards)

"Auditing and Assurance Services" by Alvin A. Arens, Randal J. Elder, and Mark S. Beasley

In internal auditing, the "condition" of an observation refers to the specific state or situation that has been identified during the audit. It describes what is actually occurring and provides the factual basis for the observation. In this case, the statement "... the subsidiary did not submit required documentation for registration in the prior year." explicitly describes the observed deficiency, which is the failure to submit the necessary documentation. This condition highlights the exact issue that needs to be addressed by management.

IIA Practice Guide: "Audit Documentation"

IIA Standard 2410: "Criteria for Communicating"

Confirmation letters are generally considered the most reliable source of documentary evidence because they involve direct verification of information with an independent third party. This type of evidence is less prone to bias or manipulation compared to internal documents like policy statements or remittance advices.

IIA References:

IIA Standard 2310: Identifying Information requires that internal auditors gather sufficient, reliable, relevant, and useful information to support engagement results. Third-party confirmations, such as confirmation letters, are considered highly reliable because they come from independent sources.

The Practice Guide on Audit Evidence highlights that external confirmations provide strong evidence of the accuracy of the information being audited.

The statistical model indicates that daily sales have a direct relationship with the cost of ingredients used and an inverse relationship with rainy days.

Option A: On a rainy day, if total sales are greater than expected compared to the cost of ingredients used, it may indicate discrepancies that could be a sign of employee theft. For instance, if ingredients are used but not reflected in the sales, it suggests that items might be missing (stolen).

Option B: On a sunny day, lower-than-expected sales compared to the cost of ingredients could indicate wastage but not necessarily theft.

Option C and D: Both scenarios where total sales and the cost of ingredients are higher or lower than expected do not specifically point to theft without additional context​​.

Evaluating management's risk assessment and the internal audit activity’s risk assessment ensures that audit objectives align with organizational risks and priorities. This step is crucial for identifying high-risk areas and designing a focused audit approach.

Reviewing organizational structure, roles, and procedures (A) is important but does not directly establish engagement objectives.

Assessing process flow and control documents (C) is useful for control evaluation but not the primary planning step.

Reviewing meeting notes (D) may provide background information but is not the key step in establishing engagement objectives.