QUESTION: 49

Which of the following is the most important determinant of the objectives and scope of assurance engagements?
The organizational chart, business objectives, and policies and procedures of the area to be reviewed

The most recent risk assessment conducted by management of the area to be reviewed.
The requests of operational and senior management throughout the organization.
The preliminary risk assessment performed by internal auditors planning the engagement.

Answer(s): C

Explanation:

The primary determinant of the objectives and scope of assurance engagements is the preliminary risk assessment performed by internal auditors. This assessment identifies the key risks associated with the area under review and helps prioritize the audit efforts based on the significance and likelihood of these risks. This approach ensures that the engagement focuses on the most critical areas, thereby adding value to the organization.

Reference:

The International Standards for the Professional Practice of Internal Auditing (Standards) emphasize the importance of risk-based planning in determining the scope and objectives of audit engagements. Standard 2200 (Engagement Planning) and Standard 2210 (Engagement Objectives) provide guidance on this process.

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QUESTION: 50

An internal auditor is asked to determine why the production line for a large manufacturing organization has been experiencing shutdowns due to unavailable parts The auditor learns that production data used for generating automatic purchases via electronic interchange is collected on personal computers connected by a local area network (LAN) Purchases are made from authorized vendors based on both the production plans for the next month and an authorized materials requirements plan (MRP) that identifies the parts needed per unit of production. The auditor suspects the shutdowns are occurring because purchasing requirements have not been updated for changes in production techniques.
Which of the following audit procedures should be used to test the auditor's theory?

Compare purchase orders generated from test data Input into the LAN with purchase orders generated from production data for the most recent period.
Develop a report of excess inventory and compare the inventory with current production volume.
Compare the parts needed based on current production estimates and the MRP for the revised production techniques with the purchase orders generated from the system for the same period
Select a sample of production estimates and MRPs for several periods and trace them into the system to determine that input is accurate

Answer(s): C

Explanation:

To test the theory that shutdowns are due to outdated purchasing requirements, the auditor should compare the parts needed according to the revised production techniques with the purchase orders generated. This comparison will reveal whether the system has been updated to reflect changes in production techniques, thereby identifying any discrepancies causing the unavailability of parts.

Reference:

The practice of matching current production estimates with the materials requirements plan (MRP) aligns with standard audit procedures for validating the accuracy and relevance of system-generated purchase orders.

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QUESTION: 51

In an assurance engagement focused on the adequacy of organizationwide risk management practices, which of the following best describes a primary area of interest for the engagement?

The effectiveness of process-level and transaction-level controls.
Conflicts of interest within the organizational structure of the senior management.
The alignment of management decisions with the level of risk the organization is willing to accept.
The actions of upper management in response to the internal audit acth/lty's reporting

Answer(s): C

Explanation:

Understanding the Engagement Scope: The primary area of interest in an assurance engagement focused on the adequacy of organization-wide risk management practices is to ensure that risk management is effectively integrated into the organization's decision-making processes. This involves evaluating whether management decisions are aligned with the organization's risk appetite, which is the amount of risk the organization is willing to accept in pursuit of its objectives.
Key Considerations:
Effectiveness of Risk Management Framework: Ensuring that the risk management framework is robust and effectively implemented across the organization. Risk Appetite Alignment: Assessing if the decisions made by management are within the boundaries set by the organization's risk appetite statement.
Strategic Objectives: Evaluating if the risk management practices support the achievement of the organization's strategic objectives.
IIA Standards: According to the IIA's International Standards for the Professional Practice of Internal Auditing, internal auditors must evaluate the effectiveness and contribute to the improvement of risk management processes (Standard 2120 - Risk Management).

Reference:

The alignment of management decisions with the level of risk the organization is willing to accept ensures that the organization does not take on more risk than it is prepared to handle, thereby protecting its assets and ensuring long-term sustainability. Effective risk management practices help in identifying, assessing, and mitigating risks, which is crucial for the overall governance and operational effectiveness of the organization

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QUESTION: 52

Which of the following actions should the internal audit activity take during an audit engagement when examining the effectiveness of risk management processes?

Evaluate how the organization manages fraud risk.
Establish procedures for improving risk management processes.
Ensure risk responses are aligned with industry standards
Verify that organizational objectives are aligned with each departments objectives.

Answer(s): A

Explanation:

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.

Reference:

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.

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QUESTION: 49

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QUESTION: 50

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QUESTION: 51

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QUESTION: 52

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