QUESTION: 57

When reviewing workpapers, engagement supervisors may ask for additional evidence or clarification via review notes. According to IIA guidance, which of the following statements is true regarding the engagement supervisors review notes?

The review notes may be cleared from the final documentation once the engagement supervisors concerns have been addressed
Management of the area under review must address the engagement supervisors review notes before the audit report can be finalized.
The chief audit executive must initial or sign the engagement supervisors review notes to provide evidence of appropriate engagement supervision.
Review notes provide documented proof that the engagement is supervised properly and must be retained for the quality assurance and improvement program

Answer(s): A

Explanation:

Introduction:
Review notes are comments or questions posed by engagement supervisors during the review of workpapers to ensure audit quality and completeness.
IIA Guidance on Review Notes:
According to the IIA, review notes serve as a tool for engagement supervisors to seek additional evidence or clarification.
Options Analysis:
Option A: This is correct as per IIA guidance, once concerns have been addressed, review notes can be cleared from the final documentation.
Option B: Management does not typically address review notes; these are internal audit processes. Option C: The CAE does not need to initial or sign the review notes, as the engagement supervisor's review is sufficient.
Option D: While review notes must be addressed, they do not necessarily need to be retained after being resolved.
Conclusion:
The correct procedure allows for review notes to be cleared once the engagement supervisor's concerns are addressed, streamlining the documentation process.

Reference:

IIA's International Professional Practices Framework (IPPF).

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QUESTION: 58

Internal auditors map a process by documenting the steps in the process, which provides a framework for understanding Which of the following is a reason to use narrative memoranda?

To create a detailed risk assessment
To identify individuals who perform key roles
To explain a simple process.
To document which outputs support other activities.

Answer(s): C

Explanation:

Step by Step Comprehensive Detailed Explanation with

Reference:

Introduction:
Internal auditors use process mapping to document and understand the steps involved in a process.
Purpose of Narrative Memoranda:
Narrative memoranda are written descriptions that outline the steps of a process, often used when the process is straightforward.
Options Analysis:
Option A: Detailed risk assessment is usually more comprehensive and may require flowcharts or other detailed diagrams.
Option B: Identifying individuals who perform key roles typically requires organization charts or responsibility matrices.
Option C: Narrative memoranda are best suited for explaining simple processes in a clear and concise manner.
Option D: Documenting outputs that support other activities might require more detailed mapping techniques.
Conclusion:
Narrative memoranda are effective for explaining simple processes, providing a straightforward and understandable framework.

Internal Audit Standards and Practice Guides.

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QUESTION: 59

In which scenario might it be considered problematic for the chief audit executive (CAE) to provide assurance services over the payroll function?

The CAE previously undertook a consulting assignment in that area to improve processes.
A couple of years ago, the CAE performed accounting functions for the payroll department.
Prior to becoming the CAE, the CAE was the payroll manager.
The assurance review was initiated following issues identified during a consulting assignment requested by management.

Answer(s): C

Explanation:

Introduction:
The independence and objectivity of the internal audit function are paramount, especially when the CAE has had prior involvement in the area under review.
Scenario Analysis:
Option A: Previous consulting assignments may raise concerns but do not inherently impair independence if managed correctly.
Option B: A historical role in accounting functions is less problematic if sufficient time has passed and there is no ongoing influence.

Option C: Having been the payroll manager presents a direct conflict of interest, compromising the CAE's objectivity.
Option D: Reviews following consulting assignments are common practice and do not necessarily indicate a conflict.
Conclusion:
It is problematic for the CAE to provide assurance over payroll functions if they were previously the payroll manager, as this creates a clear conflict of interest and threatens audit objectivity.

Reference:

IIA's International Standards for the Professional Practice of Internal Auditing, Standard 1130:
Impairment to Independence or Objectivity.

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QUESTION: 60

A rapidly expanding retail organization continues to be tightly controlled by its original small management team.
Which of the following is a potential risk in this vertically centralized organization?

Lack of coordination among different business units
Operational decisions are inconsistent with organizational goals.
Suboptimal decision-making.
Duplication of business activities.

Answer(s): C

Explanation:

Introduction:
In a vertically centralized organization, decision-making is concentrated among a small management team, potentially leading to various risks.
Risk Analysis:
Option A: Lack of coordination among business units is less likely in a centralized structure as decisions are made by a central authority.
Option B: Inconsistent operational decisions are less common as central management typically ensures alignment with organizational goals.
Option C: Centralized decision-making can lead to suboptimal decisions due to a lack of diverse perspectives and delayed responses to local issues.
Option D: Duplication of business activities is less relevant in a tightly controlled central structure.

Conclusion:
The primary risk in a vertically centralized organization is suboptimal decision-making, as the concentration of authority can result in a lack of responsiveness and consideration of all relevant factors.

Reference:

Organizational Structure and Internal Control Theory.

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QUESTION: 57

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QUESTION: 58

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QUESTION: 60

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