QUESTION: 81

A corporate merger decision prompts the chief audit executive (CAE) to propose interm changes to the existing annual audit plan to account for emerging risks Which of the following Is the most appropriate action for the CAE to take regarding the changes made to the audit plan?

Present the revised audit plan directly to the board for approval
Communicate with the chief financial officer and present the revised audit plan to the CEO for approval.
Present the revised audit plan directly to the CEO for approval.
Communicate with the CEO and present the revised audit plan to the board for approval

Answer(s): D

Explanation:

Role of the CAE: The Chief Audit Executive (CAE) is responsible for developing a risk-based audit plan and ensuring it is aligned with the organization's goals and emerging risks. Significant changes to the audit plan must be communicated appropriately within the organization.
IIA Standards:
Standard 2020 Communication and Approval: The CAE must communicate the internal audit plan and resource requirements, including significant interim changes, to senior management and the board for review and approval.
Risk Assessment: Any changes to the audit plan due to emerging risks, such as a corporate merger, must be documented and approved at the highest levels to ensure comprehensive risk coverage.
Most Appropriate Action:
Communication with the CEO: The CAE should first discuss the revised audit plan with the CEO to ensure alignment with executive management's perspective on emerging risks. Board Approval: After discussing with the CEO, the CAE should present the revised audit plan to the board for formal approval, ensuring transparency and governance.

Reference:

Presenting the revised audit plan to the board after discussing with the CEO ensures that all relevant stakeholders are informed and that the revised plan is formally approved, maintaining alignment with IIA standards.

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QUESTION: 82

Evidence discovered during the course of an engagement suggests that multiple incidents of fraud have occurred. There do not appear to be sufficient controls in place to prevent reoccurrence.
Which of the following is the internal auditor's most appropriate next step?

Immediately notify management of the area under review and the other internal auditors involved in the engagement
Discuss the situation with the engagement supervisor to determine whether fraud investigation experts are required to investigate the matter properly.
Fully document in the workpapers the evidence that has been discovered and recommend appropriate controls to address the fraud
Provide the evidence that was discovered to local lav/ enforcement for possible prosecution of the suspected fraud

Answer(s): B

Explanation:

IIA Standards on Fraud:
Standard 2120 Risk Management: Internal auditors must evaluate the potential for the occurrence of fraud and how the organization manages fraud risk. Immediate Response: When evidence of fraud is discovered, the internal auditor must ensure that appropriate actions are taken promptly.

Next Steps for Internal Auditor:
Consult with Supervisor: The internal auditor should discuss the findings with the engagement supervisor. This ensures that the situation is assessed by a more experienced individual who can determine the next steps, including the need for specialized fraud investigation resources. Specialized Expertise: Determining whether fraud investigation experts are needed is crucial for handling the matter appropriately, as they possess the necessary skills to investigate complex fraud cases.
Documenting Evidence:
While documenting the evidence and recommending controls is important (Option C), the immediate step should involve consultation with the supervisor to decide on the investigation approach.
Notifying management directly (Option A) or law enforcement (Option D) should follow internal protocols and often occur after consultation with the supervisor and possibly higher-level approvals.

Reference:

Engaging the engagement supervisor ensures that the appropriate steps are taken to investigate the fraud properly, aligning with professional standards and ensuring a thorough investigation.

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QUESTION: 83

An investor has acquired an organization that has a dominant position in a mature, slow-growth industry and consistently creates positive financial income Which of the following terms would the investor most likely label this investment in her portfolio?

A star.
A cash cow.
A question mark.
A dog

Answer(s): B

Explanation:

Investment Portfolio Terms:
Cash Cow: A business unit with a dominant market position in a mature, slow-growth industry that generates consistent positive cash flow and profits. It requires little investment to maintain its market position and provides funds for other investments. Star: A business unit with a high market share in a fast-growing industry. It requires significant investment to maintain its position and support further growth. Question Mark: A business unit with a low market share in a high-growth industry. It requires substantial investment to increase market share.
Dog: A business unit with a low market share in a slow-growth industry, generating minimal profit or loss.
Characteristics of a Cash Cow:
Dominant Position: The acquired organization has a strong market position. Mature Industry: The industry is mature with slow growth. Positive Financial Income: Consistently generates positive cash flow and profits, requiring minimal investment.
Investment Strategy:
Portfolio Management: Investors typically use cash cows to fund other investments, maintaining a balanced portfolio that supports growth while providing stable returns.

Reference:

The term "cash cow" accurately describes an organization with a dominant position in a mature, slow-growth industry that consistently generates positive financial income, fitting the investor's description.

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QUESTION: 84

According to IIA guidance, which of the following activities are typically primary objectives of engagement supervision?

Enable training and development of staff, identify engagement objectives, and assign responsibilities to individual auditors.
Identify engagement objectives, assign responsibilities to individual auditors, and approve the engagement program.
Assign responsibilities to individual auditors, approve the engagement program, and enable training and development of staff.
Approve the engagement program, enable training and development of staff, and identify engagement objectives

Answer(s): C

Explanation:

Engagement Supervision Objectives:
Assign Responsibilities: Supervisors must clearly assign tasks and responsibilities to individual auditors to ensure clarity and accountability during the engagement. Approve Engagement Program: The supervisor is responsible for reviewing and approving the engagement program, ensuring that it aligns with the engagement objectives and internal audit standards.
Training and Development: Supervision also involves mentoring and developing audit staff, providing guidance and feedback to enhance their skills and performance.
IIA Standards:
Standard 2340 Engagement Supervision: Internal audit engagements must be properly supervised to ensure objectives are achieved, quality is maintained, and staff are developed.
Primary Objectives:
Clarity and Accountability: Assigning responsibilities ensures that each auditor knows their role and tasks.
Quality and Compliance: Approving the engagement program ensures that the audit plan is robust and compliant with standards.
Professional Development: Enabling training and development helps build a competent and skilled audit team.

Reference:

Effective engagement supervision involves assigning responsibilities, approving the engagement program, and facilitating training and development, ensuring a successful audit engagement and continuous staff improvement.

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QUESTION: 81

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QUESTION: 84

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