Pass the IIA CIA Challenge Exam IIA-CHAL-QISA Questions and answers with ExamsMirror

The board manages several key processes to ensure adequate governance within an organization, one of which is the development, approval, and execution of the strategic plan. This process is critical because it defines the organization's direction, goals, and the actions required to achieve these goals.

Strategic Planning: The board plays a pivotal role in setting the organization's strategic direction, which includes establishing long-term goals and defining the means to achieve them.

Performance Measurement: While the board may establish and measure performance objectives for the internal audit activity, this is part of a broader governance framework.

Risk Management: The board also develops strategies to mitigate risks, ensuring that the organization can achieve its objectives effectively.

Thus, the most comprehensive governance-related process managed by the board involves strategic planning

When determining the level of staff and resources to dedicate to an assurance engagement, the most critical factor for the chief audit executive (CAE) is ensuring that the available resources possess the specific skill sets required for the engagement. This ensures that the internal audit team can effectively address the unique challenges and risks associated with the audit.

Skill Set Relevance: The CAE must match the skills and knowledge of the audit team to the specific requirements of the audit engagement. This includes technical expertise, industry knowledge, and any specialized skills needed for the audit.

Resource Allocation: Effective allocation involves not just the number of auditors but ensuring they have the right competencies to perform the audit tasks proficiently.

Impact on Audit Quality: Allocating resources with the appropriate skill set ensures the audit is thorough and of high quality, reducing the risk of overlooking critical issues.

References:

"Managing Internal Audit Activities," which discusses the importance of aligning audit resources with the necessary skills for specific engagements .

Inherent Risk: Inherent risk refers to the exposure to risk in its natural state, without considering any controls or mitigation measures. It is the risk that exists before any action is taken to manage it.

Example: In the scenario of a snow removal company, the significant reduction in annual snowfall represents an inherent risk as it is a natural condition that affects the company's operations.

Other Risk Types:

Residual Risk: This is the risk that remains after controls and mitigation strategies have been applied.

Net Risk: Similar to residual risk, it is the risk that remains after considering existing controls.

Accepted Risk: This is the risk that the organization knowingly accepts after evaluating its impact and likelihood.

Scenario Planning: The exercise of considering the impacts of reduced snowfall helps the company understand its inherent risks and prepare for potential adverse outcomes.

Promoting objectivity in internal auditing involves ensuring that auditors avoid conflicts of interest and maintain independence in both fact and appearance. Policies that clearly define and give examples of inappropriate business relationships help auditors understand and avoid situations that could impair their objectivity.

When internal audit resources are limited, it is crucial to focus on the most critical aspects of the control environment. Preventive key controls are designed to prevent errors or irregularities from occurring, which are essential for maintaining a strong control environment. Given the mature control environment of the organization, prioritizing preventive key controls ensures that potential issues are addressed before they materialize, providing a proactive approach to risk management.

According to Maslow's hierarchy of needs theory, self-fulfillment or self-actualization represents the highest level of human motivation, where an individual seeks to achieve personal growth, professional development, and realization of their potential. Offering an assignment to a subordinate to support their professional growth and future advancement aligns with this concept, as it helps the individual achieve a sense of self-fulfillment.

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.

Introduction:

The role of the internal audit activity within a risk and control framework is to provide independent assurance that management has established and is maintaining effective internal controls.

Responsibilities of Internal Audit:

Internal auditors evaluate and monitor the effectiveness of internal controls, ensuring they are designed and operating effectively to mitigate risks and achieve organizational objectives.

Options Analysis:

Option A: Internal audit does not constitute the first line of defense; this role is typically held by management.

Option B: While internal audit may provide recommendations, it does not direct the implementation of internal controls.

Option C: Verifying that management has met its responsibility for implementing effective controls aligns with the assurance role of internal audit.

Option D: Implementing the internal control framework is a management responsibility, not internal audit's.

Conclusion:

The best description of internal audit’s responsibility within a risk and control framework is to verify that management has met its responsibility for implementing effective controls.

To assist the board of directors in understanding the degree of ethics awareness within the organization, an organization-wide employee survey on ethical practices (option D) is the most effective action. Here's why:

Direct Insight from Employees: Surveys can capture the perspectives of a broad employee base, providing direct insights into the awareness and attitudes towards ethics within the organization.

Quantitative and Qualitative Data: A well-designed survey can gather both quantitative data (e.g., percentage of employees aware of the code of ethics) and qualitative data (e.g., specific instances of ethical dilemmas faced by employees).

Identifying Areas of Improvement: Surveys can identify specific areas where employees feel the organization is lacking in terms of ethical practices, which can guide targeted improvements.

Confidentiality and Anonymity: Surveys often ensure confidentiality and anonymity, encouraging more honest and comprehensive responses from employees, which might not be achievable through other means.

Comprehensive Scope: Compared to internal audits or training, surveys can provide a comprehensive overview of the entire organization’s ethical climate, from various departments and levels.

This approach aligns with the best practices in internal auditing and organizational assessments as outlined by the Institute of Internal Auditors (IIA) and other related guidance​​.

Risk Management Evaluation: During an audit engagement examining the effectiveness of risk management processes, the internal audit activity should focus on evaluating how the organization manages various types of risks, including fraud risk.

Fraud Risk Management: This involves assessing the organization’s mechanisms for identifying, assessing, and responding to fraud risks. It also includes reviewing the effectiveness of controls in place to prevent and detect fraudulent activities.

IIA Standards: Standard 2120 – Risk Management emphasizes that internal auditors must evaluate the potential for the occurrence of fraud and how the organization manages fraud risk.

Comprehensive Approach:

Risk Assessment: Ensuring that the organization conducts thorough risk assessments to identify potential fraud risks.

Control Environment: Evaluating the control environment to ensure it supports ethical behavior and reduces opportunities for fraud.

Fraud Prevention and Detection: Reviewing the policies and procedures in place to prevent and detect fraud, including whistleblower mechanisms and fraud response plans.

References:

Internal auditors play a crucial role in assessing the adequacy of fraud risk management, which is integral to the overall risk management process. By evaluating fraud risk management, auditors can provide assurance that the organization is effectively mitigating fraud risks​​​​.