QUESTION: 9

According to IIA guidance, which of the following statements is true regarding due professional care?

Internal auditors must exercise due professional care to ensure that all significant risks will be identified.
Internal auditors must apply the care and skill expected of a reasonably prudent and competent internal auditor.
Due professional care requires the internal auditor to conduct extensive examinations and verifications to ensure fraud does not exist.
Due professional care is displayed during a consulting engagement when the internal auditor focuses on potential benefits of the engagement rather than the cost

Answer(s): B

Explanation:

Due professional care is a critical concept in internal auditing, ensuring that auditors conduct their work with the necessary diligence and competence.
Definition and Standards: According to the IIA's International Standards for the Professional Practice of Internal Auditing (Standards), specifically Standard 1220 Due Professional Care, internal auditors must apply the care and skill expected of a reasonably prudent and competent internal auditor.

Reference:

Standard 1220 emphasizes that internal auditors must consider the extent of work needed to achieve the engagement's objectives and the cost of assurance in relation to potential benefits.
Expectation of Competence: The standard requires auditors to use their professional judgment and to exercise the level of skill and care that a reasonably prudent internal auditor would use in similar circumstances.
Practical Example: This includes evaluating the nature and complexity of the engagement, the adequacy and effectiveness of risk management, and control processes relevant to the engagement. Comprehensive, Not Excessive: While due professional care involves being thorough, it does not mandate exhaustive procedures such as those implied in options A and C. Clarification: Option A overstates the requirement by implying that all significant risks must be identified, which is not always feasible.
Clarification: Option C misinterprets due professional care by suggesting that extensive examinations and verifications to ensure fraud does not exist are always necessary, which is beyond the typical scope of many audits.
Cost vs. Benefit in Consulting: Option D refers to consulting engagements and the consideration of benefits over cost, which is a part of due professional care but does not capture the comprehensive expectation of care and skill.
Clarification: Due professional care in consulting engagements is about balancing benefits and costs but also involves ensuring quality and thoroughness appropriate to the engagement's objectives. Conclusion: The correct answer is B, as it accurately reflects the IIA's guidance that internal auditors must apply the care and skill expected of a reasonably prudent and competent internal auditor.

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QUESTION: 10

According to the IIA Code of Ethics, which of the following is required with regard to communicating results?

The internal auditor should present material information to appropriate personnel within the organization without revealing confidential matters that could be detrimental to the organization
The internal auditor should disclose all material information obtained by the date of the final engagement communication.
The internal auditor should obtain all material information within the established time and budget parameters.
The internal auditor should reveal material facts that could potentially distort the reporting of activities under review

Answer(s): D

Explanation:

The IIA Code of Ethics sets forth principles and expectations for ethical behavior in internal auditing,

particularly regarding the communication of results.
Integrity and Transparency: According to the IIA Code of Ethics, internal auditors are expected to exhibit integrity and transparency in their reporting, ensuring that material facts are disclosed accurately to avoid misrepresentation.

Reference:

IIA Code of Ethics, Principle 4 Integrity, which emphasizes the need for internal auditors to disclose all material facts known to them that, if not disclosed, could distort the reporting of activities under review.
Revealing Material Facts: The principle of integrity mandates that internal auditors must reveal material facts necessary to avoid any misrepresentation of the activities being reviewed. This ensures that stakeholders receive a truthful and complete picture of the audit findings. Practical Example: If an auditor discovers significant control weaknesses that could impact financial reporting, these must be disclosed in the audit report to provide a true representation of the entity's control environment.
Confidentiality and Appropriateness: While confidentiality is important, it does not supersede the need to report material facts that are essential for accurate reporting. Confidential matters that are not material or do not distort the reporting can be withheld to protect sensitive information. Clarification: Option A incorrectly suggests that all confidential matters can be withheld even if they are material and could distort reporting, which contradicts the principle of integrity. Comprehensive Disclosure: The requirement to disclose all material information by the date of the final engagement communication (Option B) and obtaining all material information within established parameters (Option C) are important but secondary to the fundamental ethical obligation to ensure accurate and truthful reporting.
Clarification: These options focus on procedural aspects rather than the core ethical obligation of integrity and accurate reporting.
Conclusion: The correct answer is D, as it aligns with the IIA Code of Ethics requirement that internal auditors should reveal material facts that could potentially distort the reporting of activities under review, ensuring transparency and integrity in their communications.

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QUESTION: 11

Which of the following is the most appropriate way to ensure that a newly formed internal audit activity remains free from undue influence by management?

Appoint the chief audit executive as a member of the board.
Adopt written policies and procedures for the internal audit activity, approved by the board.
Ensure the chief audit executive reports administratively to the audit committee.
Establish the internal audit activity's position within the organization in an audit charter

Answer(s): D

Explanation:

The internal audit charter is a formal document that defines the internal audit activity's purpose, authority, and responsibility.
Establishing the internal audit activity's position within the organization in an audit charter ensures independence and objectivity by clearly stating the internal audit's role and its reporting lines. The charter should be approved by the board and senior management to reinforce its authority and protect the internal audit activity from undue influence by management

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QUESTION: 12

The internal audit activity plans to assess the effectiveness of management's self-assessment activities regarding the risk management process.
Which of the following procedures would be most appropriate to accomplish this objective?

Review corporate policies and board minutes for examples of risk discussions.
Conduct interviews with line and senior management on current practices.
Research and review relevant industry information concerning key risks.
Observe and test control and monitoring procedures and related reporting.

Answer(s): D

Explanation:

To assess the effectiveness of management's self-assessment activities regarding the risk management process, internal auditors should directly observe and test the control and monitoring procedures.
This hands-on approach allows auditors to verify the implementation and functionality of risk management controls and the accuracy of related reporting. Direct observation and testing provide the most reliable evidence of the effectiveness of these procedures

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