Free Practice Questions for IIA IIA-CIA-Part2 Exam

Entity-level controls provide the foundation for effective process controls. If these controls are poorly designed, they can undermine the effectiveness of process-level controls (COSO Framework, 2013). Internal auditors assess entity-level controls during risk assessments, as emphasized in CIA Part 2 (Section II). Option A is incorrect as auditors prioritize high-risk controls rather than all controls. Options C and D contradict best practices in engagement planning (Standard 2200), which encourage transparency and comprehensive evaluation of key risks.

According to IIA Standards, acceptable practices for testing conformance through a quality assurance review include conducting a self-assessment with independent validation (2) and arranging for reciprocal peer review with another CAE (4). These methods provide a cost-effective and practical approach to ensuring compliance with professional standards, especially for small internal audit activities. Using an external service provider (1) and arranging for a review by qualified employees outside of the IAA (3) are also valid, but self-assessment with independent validation and peer review are specifically highlighted for smaller IAAs. References: IIA Standard 1312 – External Assessments, IIA Practice Guide – Quality Assurance and Improvement Program

To test the theory that shutdowns are occurring due to outdated purchasing requirements that have not been updated for changes in production techniques, the auditor should compare the parts needed based on the most current production estimates and the revised materials requirements plan (MRP) with the purchase orders generated from the system. This comparison will help identify discrepancies between what is needed and what is being ordered, highlighting whether the system is failing to update purchasing requirements correctly. This method directly addresses the suspected cause of the shutdowns and provides clear evidence for or against the auditor’s theory.References:

Institute of Internal Auditors (IIA), International Standards for the Professional Practice of Internal Auditing (Standards), Standard 2310 – Identifying Information.

The most appropriate approach for internal audit activity to follow up on management action plans is to create a tracking system. This ensures that follow-up activities are systematically monitored and documented. Such a system can track the status of action plans, provide reminders for due dates, and record progress updates, thus ensuring that management's corrective actions are implemented and effective. Regular monitoring and tracking are essential to verify that issues identified in audits are addressed in a timely manner.

During the planning phase of a new engagement, an engagement supervisor is responsible for ensuring that the engagement is designed effectively to meet its objectives. One of the critical tasks involves approving the engagement work program. The work program outlines the detailed steps and procedures that the audit team will follow during the engagement. By approving this program, the supervisor ensures that it is comprehensive, aligned with the engagement objectives, and capable of addressing identified risks and controls effectively. This step is essential to ensure that the engagement is conducted systematically and covers all necessary areas.

A flowchart is primarily used to evaluate the design of controls by visually representing the sequence of operations, decision points, and control activities within a process. This helps the internal auditor identify weaknesses, redundancies, and gaps in internal controls.

Preparing for testing the effectiveness of controls (A) comes later in the audit process, after evaluating the design.

Planning for evaluating potential losses (B) focuses on risk assessment rather than control design.

Preparing a sampling plan (C) is a different step in the audit process, where the auditor determines the scope and sample size.

The chief audit executive (CAE) is accountable for ensuring that adequate support exists for the conclusions and opinions formed by the internal audit activity. When relying on the work of external auditors, the CAE must ensure that the work is sufficient and appropriate to support the internal audit conclusions. This involves reviewing the external auditors' work to confirm its relevance and reliability, and integrating it into the internal audit processes as necessary.

According to IIA guidance, an engagement work program is designed to test the effectiveness of process controls within an organizational process. This involves evaluating whether the controls are adequately designed and operating effectively to mitigate identified risks and achieve the process objectives. The work program outlines the specific procedures and steps auditors will take to gather evidence and assess the controls in place, ensuring that they address the relevant risks and comply with the organization's standards and policies.References:

IIA Standard 2240: Engagement Work Program

IIA Practice Guide: Internal Audit Quality Assurance

Probability-proportional-to-size (PPS) sampling is a technique used to reach conclusions regarding monetary amounts in a population. It is designed to handle variable sampling by focusing on monetary units, making it appropriate for testing account balances. On the other hand, attribute sampling is used to assess the rate of occurrence of a specific characteristic or attribute in a population, such as compliance with a control procedure, and does not focus on monetary amounts.

The statement that the risk management process supports internal audit by evaluating whether critical controls are adequate and effective is true. The risk management process provides a framework for identifying, assessing, and managing risks, and internal audit uses this information to evaluate the adequacy and effectiveness of controls in place to mitigate those risks. This support helps internal audit focus on areas of high risk and ensure that controls are functioning as intended.