Free Practice Questions for IIA IIA-CIA-Part2 Exam

When significant control issues are identified during a consulting engagement, it is the responsibility of the chief audit executive to ensure that these issues are communicated to senior management and the board. This ensures that the organization is aware of the risks and can take corrective action. Consulting engagements should not overshadow the priority of addressing critical control issues that may affect the organization's risk profile. References:

"International Standards for the Professional Practice of Internal Auditing" (IIA Standards)

"Internal Auditing: Assurance & Advisory Services" (The Institute of Internal Auditors)

Including the annual impact of the changed agreement on cash flows in the observation provides a clear quantification of the financial effect of the policy violation. This information is critical for understanding the significance of the issue and for decision-making regarding corrective actions. It shows the long-term implications of the unauthorized contract change, which is essential for management and the board to assess the severity of the non-compliance and its impact on the organization’s financial health.References:

The Institute of Internal Auditors (IIA) - Practice Guide: Formulating and Expressing Internal Audit Opinions

When the rate of deviations discovered in the sample equals the tolerable deviation rate, it means that the control is functioning at the level deemed acceptable by the auditor's predefined criteria. This does not necessarily imply that the control is flawless, but rather that its effectiveness meets the minimum standards set by the audit plan. Therefore, the internal auditor can conclude that the control is acceptably effective, but should also note the potential need for improvement.References:

The Institute of Internal Auditors (IIA) - Standards for the Professional Practice of Internal Auditing, Standard 2320 - Analysis and Evaluation

COSO Framework - Control Activities

Flowcharts are particularly effective for visualizing linear processes, as they clearly depict the sequence of steps, decision points, and flow of information. However, while they provide a useful representation of the process, they may not capture all risks, particularly those that are non-linear or involve complex interactions that are not easily represented in a flowchart format.

IIA References:

IIA Standard 2320: Analysis and Evaluation requires internal auditors to evaluate the design and implementation of processes. Flowcharts can help auditors visualize and understand process flows but may need to be supplemented with other tools (e.g., risk and control matrices) to capture the full range of risks.

The Practice Guide on Process Mapping indicates that flowcharts are valuable for mapping linear processes but should be used in conjunction with other tools when evaluating complex or non-linear processes.

Matching invoices to receiving reports ensures the organization only pays for goods it has actually received, addressing completeness and accuracy in financial transactions. This procedure aligns with the COSO Internal Control Framework's principles regarding transaction processing and control activities. It mitigates risks of paying for unordered or unreceived goods, a common source of errors and potential fraud in the accounts payable process. The IIA's CIA Part 2 syllabus emphasizes testing of key controls in financial systems, including those preventing overpayments (Section II: Audit Engagements).

The primary guideline for preparing audit engagement workpapers is that they should be understandable to another internal auditor who was not involved in the engagement. This ensures that workpapers are clear, complete, and sufficiently detailed so that another auditor can understand the work performed, the evidence gathered, and the conclusions reached without needing additional explanations.

IIA References:

IIA Standard 2330: Documenting Information requires internal auditors to document relevant information to support the conclusions and engagement results. The Practice Advisory 2330-1 emphasizes that workpapers should be understandable and provide a clear trail of the audit process and conclusions, facilitating peer review and quality assurance processes.

The IIA’s Practice Guide on Audit Documentation suggests that workpapers should be prepared with the understanding that another internal auditor, unfamiliar with the work, may need to review them for quality assurance or other purposes.

Integrated Test Facilities (ITF) are the most appropriate choice for simulating transactions for testing in an automated audit tool. ITF involves embedding fictitious transactions into the normal processing environment of the billing application without the knowledge of operational staff. This allows the internal auditor to assess transaction processing integrity, validation, and system calculations under real-time conditions.

Generalized audit software (GAS) is mainly used for data extraction and analysis but does not embed test transactions within live systems.

Utility software includes tools for system maintenance but is not designed for auditing transactions.

Audit expert systems provide decision-making support rather than transaction simulation.

The primary objective of an internal auditor during an exit conference is to ensure that the engagement conclusions are accurate and that the facts presented in the audit report are correct. This involves discussing the audit findings with the engagement client, clarifying any misunderstandings, and ensuring that the conclusions are based on accurate and complete information.

IIA References:

IIA Standard 2440: Disseminating Results emphasizes the importance of accurate and clear communication of audit results. The exit conference is a key part of this process, ensuring that any discrepancies or concerns are addressed before finalizing the report.

The Practice Guide on Conducting Exit Conferences highlights the importance of using the exit conference to verify that the auditor’s conclusions are well-founded and that the client understands and agrees with the findings.

According to the International Professional Practices Framework (IPPF), issuing an interim report is appropriate for keeping management informed of audit progress, especially when audit engagements extend over a long period of time, and for communicating any significant changes in the scope of the engagement. Interim reports serve as a means of maintaining transparency with management and ensuring that any adjustments to the audit plan are communicated promptly.

IIA References:

IIA Standard 2440: Disseminating Results allows for interim reporting when there is a need to communicate significant findings or changes in scope before the final report is issued. This ensures that management remains informed of critical issues that may impact the audit or the organization.

The Practice Guide on Communicating Interim Results suggests that interim reports are useful for providing updates during long engagements or when there are significant changes in the engagement's scope that management needs to be aware of.

Non-assurance engagements, such as consulting activities, involve providing advisory services that add value to management without the auditor expressing a formal opinion or providing assurance on the effectiveness of controls or processes.

IIA Definition of Non-Assurance (Consulting) Services:

Non-assurance services, as defined by the IIA, are advisory and related client service activities. These activities are intended to provide advice and insight into specific issues, such as potential risks in new initiatives, without the internal audit function expressing an assurance opinion.

Consulting Engagements:

In a consulting engagement, the internal audit activity provides information and recommendations to management, allowing them to make informed decisions. In this case, informing management about potential risks of moving the data warehouse to a cloud server is an advisory role, typical of a non-assurance engagement.

IIA Standard 2120 – Risk Management:

While this standard relates to risk management assurance, in a consulting role, the internal audit activity would inform management of risks, allowing them to manage these risks proactively.

Option A (Assessing effects of changes in maintenance strategy): This is more aligned with an assurance engagement where the auditor evaluates the impact of changes.

Option C (Ascertaining data center security compliance): This is an assurance activity focused on compliance.

Option D (Ensuring equipment downtime risks are managed): This implies an assurance role, as it involves verifying compliance with internal policy.

Detailed Explanation:Why Not Other Options?Conclusion: Option B is correct as it reflects a typical non-assurance engagement where the internal audit function provides advisory services on risk without providing formal assurance.