Free Practice Questions for IIA IIA-CHAL-QISA Exam

Professional Responsibility:Internal auditors are expected to demonstrate their commitment to professional standards and ethics.

Code of Ethics:The IIA’s Code of Ethics outlines principles that internal auditors must follow, including integrity, objectivity, confidentiality, and competency.

Annual Declaration:Signing an annual declaration reinforces the auditor's commitment to these principles and ensures ongoing adherence to the professional standards.

Demonstration of Due Care:By signing this declaration, auditors formally acknowledge their responsibility to uphold ethical standards, which is a demonstration of due professional care.

References:

The IIA’s Code of Ethics.

The IIA’s International Standards for the Professional Practice of Internal Auditing.

The primary reason for audit supervision, including the approval of the engagement report, is to ensure that the findings presented in the report are substantiated by adequate and appropriate evidence. This step is crucial to maintain the credibility and reliability of the audit process and its outcomes.

Substantiation of Findings: Ensuring that findings are substantiated helps in providing a clear and defensible basis for the conclusions and recommendations made in the report.

Audit Quality: This step ensures the quality and integrity of the audit process, confirming that the evidence collected during the audit is sufficient and appropriate to support the findings.

Credibility: By substantiating findings, the report gains credibility, which is essential for the stakeholders who rely on the audit report for decision-making.

References:

"Internal Audit Standards and Procedures," which outlines the importance of evidence substantiation in audit reports .

To determine the additional cost that the company would incur to make a profit of $1.50 per unit for the new order, we need to calculate the relevant costs and desired profit margin:

Current Cost and Selling Price: The current cost to produce one unit is $26, with $10 being fixed costs and $16 being variable costs. The product is usually sold for $30.

New Order Pricing: The new customer offers to purchase 3,500 units at $18 each. The company needs to make a profit of $1.50 per unit on this order.

Calculation:

Desired selling price to achieve the profit = Cost per unit + Desired profit = $16 + $1.50 = $17.50

Offered price by the customer = $18.00

Additional cost allowed per unit = Offered price - Desired selling price = $18.00 - $17.50 = $0.50

Therefore, the additional cost the company can incur to make the required profit per unit is $2.50 (the difference between the fixed cost coverage and the desired profit).

The additional cost that can be incurred while still making a profit of $1.50 per unit is $2.50

Risk Assessment: Before developing audit engagement objectives, a thorough risk assessment should be conducted. This step helps identify and prioritize the areas of highest risk, ensuring that the audit focuses on the most critical issues.

Establishing Objectives: The results of the risk assessment guide the development of specific, relevant, and focused audit objectives. This ensures that the engagement addresses key risk areas and adds value to the organization.

Sequential Steps: Identification of controls, scope establishment, and review of resources are important steps but typically follow the initial risk assessment to ensure the audit is aligned with the organization's risk profile.

Testing Valuation:The valuation of trading securities requires comparing their carrying value with current market prices to ensure accuracy.

Market Quotations:Current market quotations provide the most reliable and up-to-date information on the fair value of securities.

Accounting Standards:This approach is consistent with accounting standards that require securities to be reported at fair value, reflecting any unrealized gains or losses.

Verification Process:Comparing the carrying value with market quotations helps verify that the securities are appropriately valued on the financial statements.

References:

International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) regarding fair value measurement.

If the chief audit executive (CAE) is uncertain that the current audit team has all the required knowledge to conduct the engagement, the most appropriate course of action is to use an external service provider. This helps preserve the independence and objectivity of the internal audit function.

Expertise: External service providers bring specialized knowledge and expertise that may not be available within the internal team.

Independence: Utilizing an external provider ensures that the audit maintains its independence and objectivity, avoiding any potential conflicts of interest.

Quality: Ensures that the audit engagement is conducted with the highest standards, leveraging the external provider's experience and skills.

References:

"Internal Audit and Assurance," which outlines the benefits and considerations of engaging external service providers for specialized audit tasks​​.

Introduction:

When duplicate payments are identified and corrected, the management’s response typically addresses the immediate impact or effect of the issue.

Types of Action Plans:

Condition-Based: Addresses the condition or the issue itself.

Cause-Based: Focuses on the underlying cause of the issue.

Root Cause-Based: Delves deeper to identify and address the fundamental reason for the issue.

Effect-Based: Focuses on addressing the consequences or the effects of the issue.

Options Analysis:

Option A: A condition-based action plan would involve identifying and rectifying the condition that led to the duplicate payments.

Option B: A cause-based action plan would address the immediate causes of the duplicate payments.

Option C: A root cause-based action plan would investigate and mitigate the fundamental reasons behind the duplicate payments.

Option D: An effect-based action plan addresses the consequences of the duplicate payments, such as recouping the funds, which is what management did in this scenario.

Conclusion:

Management’s action in recouping the duplicate payments is an effect-based action plan as it focuses on addressing the impact of the error.

Corporate Policy Statement: Having the president and the board issue a statement stressing the importance of accurate management reporting and the negative consequences of intentional misreporting can help set a tone at the top. This reinforces the significance of ethical behavior and compliance with reporting policies across the organization.

Introduction:

The chief audit executive (CAE) has a crucial role in reporting to the board on various aspects of the internal audit activity (IAA).

Importance of Reporting:

Periodic reports from the CAE to the board are essential for ensuring transparency and providing oversight on the IAA's performance and alignment with organizational objectives.

Options Analysis:

Option A: A complete, accurate, and comprehensive account of engagement observations and recommendations is generally part of the audit reports but not typically the subject of periodic reports from the CAE to the board.

Option B: Oversight of the coordination between the internal audit activity and independent outside auditors is important but does not comprehensively cover the CAE's reporting responsibilities.

Option C: The internal audit activity's purpose, authority, responsibility, and performance relative to plan encompass the core aspects of the IAA’s alignment with organizational goals, effectiveness, and efficiency, making it the most comprehensive subject of periodic reports.

Option D: Management's assertions regarding the system of internal controls are often part of audit findings but not the primary subject of CAE reports to the board.

Conclusion:

The CAE’s periodic reports to the board should cover the IAA’s purpose, authority, responsibility, and performance relative to the plan, ensuring that the board is well-informed about the internal audit's alignment with the organization’s objectives and its overall performance.

Contracts are typically drafted during the development phase of the contracting process. This phase follows the initiation and bidding phases and involves detailed negotiations and the preparation of formal agreements that outline the terms and conditions of the proposed business activity. This ensures that both parties have a clear understanding of their obligations and expectations before the contract is finalized and executed