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A chief audit executive (CAE) believes that senior management has accepted a level of residual risk that is unacceptable to the organization. According to the Standards, the CAE must first discuss the matter with the organization's

  1. Senior management.
  2. Audit committee.
  3. External auditors.
  4. Board.

Answer(s): A



A chief audit executive (CAE) has learned that a system currently being installed in the CAE's organization is identical to one that suffered a catastrophic failure in another organization. The CAE should

  1. Disregard the issue because there has been no audit work undertaken or any type of reliable information provided.
  2. Notify senior management and request that the installation be halted.
  3. Add the issue to the annual audit plan and schedule an engagement when time is available.
  4. Investigate the issue further even though there is no provision in the audit plan for this work.

Answer(s): D



Assessments of the independence of an organization's external auditors should

I). Be carried out only when the external auditor is appointed.
II). Be carried out when the external auditor is appointed and regularly thereafter.
III). Not include any participation by the internal audit activity.
IV). Include participation by the internal audit activity.

  1. I and III only.
  2. I and IV only.
  3. II and III only.
  4. II and IV only.

Answer(s): D



Which of the following is the most important limitation on the effectiveness of audit committees?

  1. Audit committees may be composed of independent directors; however, those directors may have close personal and professional friendships with management.
  2. Audit committee members are compensated by the organization and thus favor a stockholder view.
  3. Audit committees devote most of their efforts to external audit concerns and do not pay much attention to internal auditing and the overall control environment.
  4. Audit committee members do not normally have degrees in the accounting or auditing fields.

Answer(s): A






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