IIA IIA-CIA-Part2 - Practice of Internal Auditing

Internal auditors can rely on the work of other assurance providers, including internal compliance teams, to expand their audit coverage efficiently. This practice is based on the principle of leveraging existing assurance functions within the organization to avoid duplication of efforts and to use resources more effectively. By relying on the work performed by compliance teams, internal auditors can ensure comprehensive coverage without necessarily increasing the direct audit hours. However, it is crucial that the internal auditors evaluate the competence and objectivity of the compliance teams and ensure that their work meets the required standards before relying on it.

by a grantee that received a charitable contribution, the most effective method is to visit the grantee and directly assess whether the project execution aligns with the scope defined in the grant. This method provides firsthand evidence of the grantee’s activities and ensures that the charitable contributions are used as intended.

IIA Standard 2310 – Identifying Information:

This standard requires that internal auditors gather sufficient, reliable, relevant, and useful information to achieve the engagement objectives. Visiting the grantee allows auditors to observe and verify the actual execution of the project, which provides the most direct and reliable evidence.

Field Visits:

Conducting a site visit enables auditors to see the project in action, interview relevant personnel, and compare actual activities to what was promised in the grant proposal. This method helps ensure that the grantee is fulfilling its obligations and that the organization’s charitable funds are being used effectively.

Direct Evidence:

Direct observation of the grantee’s activities provides the highest level of assurance regarding the validity of the reported activities. This aligns with IIA’s emphasis on obtaining the best available evidence to support audit findings.

Option B (Verifying final report vs. initial budget): This only compares reports, which might not accurately reflect the actual activities conducted by the grantee.

Option C (Reconciling general ledger accounts): This focuses on financial records, which may not provide sufficient detail about the actual activities conducted.

Option D (Interviewing corporate affairs employees): While informative, this method only provides secondhand information and does not directly verify the grantee’s activities.

Detailed Explanation:Why Not Other Options?Conclusion: Option A is correct because visiting the grantee provides the most reliable and direct evidence that the activities are in line with the grant’s defined scope, ensuring the validity of the grantee’s reported activities.

Establishing credibility, trust, and rapport is critical to the success of an effective interview. When interviewees trust the auditor and feel comfortable, they are more likely to provide honest and useful information. Building rapport also helps in reducing resistance and ensuring a smooth flow of communication during the interview.

IIA References:

IIA Standard 2420: Quality of Communications emphasizes the importance of clear, accurate, and constructive communication. Establishing trust and rapport during interviews contributes to the quality of information gathered, which in turn enhances the overall quality of audit communications.

The Practice Guide on Effective Interviewing Techniques discusses the importance of building rapport and trust to encourage openness and candidness from interviewees.

In this scenario, the most appropriate action for the internal auditor is to verify that the risk highlighted by the previous audit has indeed been addressed by the new IT system. This involves a detailed examination of the system documentation and possibly testing the controls within the new system. Once the auditor confirms that the new system adequately addresses the identified risk, they should report this finding to senior management and close the issue.

This approach ensures that the internal audit activity adheres to the IIA Standards regarding follow-up on audit findings, which requires auditors to ensure that agreed-upon actions have been implemented effectively.

IIA References:

IIA Standard 2500: Monitoring Progress mandates that the chief audit executive must establish and maintain a system to monitor the disposition of results communicated to management. This includes ensuring that the risks identified are appropriately addressed.

The Practice Advisory 2500.A1-1: Follow-up Process advises that follow-up is a critical part of the audit process, and it is essential to confirm that management actions address the risks identified during the audit.

Given these considerations, the correct answer is A. The auditor examines the system documentation of the new system to verify that the risk has been addressed in the new system, then reports to senior management the closure of the issue.

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

According to the theory of constraints, the performance of any system is constrained by a few bottlenecks or limiting factors. These bottlenecks directly impact the organization's profitability because they limit the system's output, leading to reduced efficiency and effectiveness. Addressing these bottlenecks can lead to significant improvements in throughput, which in turn enhances profitability.

IIA References:

The IIA’s Practice Guide on Risk Management emphasizes understanding how various constraints within processes affect overall performance, including profitability. Bottlenecks are crucial factors that can either limit or boost profitability depending on how they are managed.

Management action plans should include, at a minimum, an owner of the action plan. The owner is responsible for ensuring that the action plan is implemented and for overseeing the corrective measures. This accountability is crucial for effective follow-up and resolution of audit findings.

When the internal audit activity lacks the necessary resources to complete the audit plan, the most appropriate action for the CAE is to ensure that the audit plan is still executed effectively and efficiently. Outsourcing some of the audits to the organization’s external auditor, who is already familiar with the organization, can help mitigate resource constraints. This approach leverages the external auditor’s knowledge of the organization, ensuring continuity and quality in the audit process, while allowing the internal audit function to meet its obligations and deadlines.References:

IIA Standard 2030: Resource Management

IIA Practice Guide: Coordinating Internal Audit and External Audit

Audit criteria should be appropriate and specific to each audit assignment, considering the unique context and objectives of each engagement. Consistency across all audit assignments (Option A) is not always feasible or desirable, as it could lead to inappropriate assessments. Instead, criteria should be flexible to allow the identification of nonadherence, represent reasonable standards, and align with good management practices relevant to each specific audit.References:

IIA Standard 2201: Planning Considerations.

IIA Practice Guide on Audit Planning.

When dealing with the communication of audit results to external parties, the internal auditor must adhere to IIA standards regarding confidentiality, approval processes, and the appropriate handling of sensitive information.

IIA Standard 2440 – Disseminating Results:

This standard outlines that the chief audit executive (CAE) must approve the communication of engagement results to parties outside the organization. The CAE is responsible for ensuring that the distribution of audit findings is appropriate and does not compromise confidentiality or integrity.

Confidentiality and Authorization:

The internal auditor must protect the confidentiality of the information obtained during the audit. Sharing this information with external parties, such as an advertising agency, should only occur with proper authorization, typically from the CAE.

IIA Code of Ethics – Confidentiality:

The Code of Ethics requires auditors to respect the value and ownership of information they receive and to not disclose information without appropriate authority. In this case, if the audit client requests the report to be shared with an external party, the internal auditor must first obtain approval from the CAE to ensure this disclosure is appropriate.

Option B (May not communicate results): While confidentiality is crucial, the CAE can authorize the sharing of information with external parties if it is deemed appropriate.

Option C (Include instructions for limited distribution): While limiting further distribution is a good practice, the initial sharing still requires the CAE’s approval.

Option D (Verbal communication only): This restricts the auditor unnecessarily. The key is obtaining proper authorization, not limiting the form of communication.

Detailed Explanation:Why Not Other Options?Conclusion: Option A is correct as it ensures that the results can be communicated to the external party with the appropriate approval from the CAE, in line with IIA standards on dissemination and confidentiality.