QUESTION: 17

During the course of an audit, an internal auditor discovers that a valuable employee in the research department has been patenting new developments in the employee's name that are unrelated to the basic business of the organization.

The organization does not have a policy addressing this specific issue, but does have a general policy that all important new discoveries by employees are the property of the organization.

Division management views the employee's actions as extra incentive to retain the employee. A decision to include the employee's action in the engagement final communication would be:
1. A violation of the IIA Code of Ethics.
2. A violation of the reporting requirements in the Standards.
3. Justified and necessary, according to the IIA Code of Ethics and Standards.

1 only
2 only
3 only
1 and 2 only

Answer(s): C

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QUESTION: 18

A staff auditor, nearly finished with an audit engagement, discovers that the director of marketing has a gambling habit. The gambling issue is not directly related to the existing engagement, and there is pressure to complete the current engagement. The auditor notes the problem and forwards the information to the chief audit executive, but performs no further follow-up.
Which of the following statements is true about the auditor's actions?

They are in violation of the IIA Code of Ethics because the auditor withheld meaningful information.
They are in violation of the Standards because the auditor did not properly follow up on a red flag that might indicate the existence of fraud.
They are in violation of neither the IIA Code of Ethics nor the Standards.
They are not in violation of the Standards but are in violation of the IIA Code of Ethics.

Answer(s): C

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QUESTION: 19

Which of the following scenarios would represent the greatest threat to the authority of the internal audit activity (IAA)?

A change was implemented requiring the IAA to report administratively to the organization's chief legal counsel rather than the board.
Responsibility for risk management processes were removed from the IAA and placed under a newly created chief risk officer.
The IAA was denied access to expenditure and budget requirement reports because the reports were considered to be financial administrative matters.
An internal auditor was informed by the chief financial officer that client survey results would be unfavorable unless the auditor changed a finding in the report.

Answer(s): C

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QUESTION: 20

Which of the following activities best reflects the scope and status of the internal audit activity as defined in the internal audit policy statement?

The internal auditor reviews the physical access to merchandise during an inventory count.
The audit manager conducts an internal quality assessment of the internal audit activity’s adherence to the Standards.
The audit manager refrains from assigning an auditor who was a former payroll clerk to conduct a payroll audit.
The board approves the annual performance evaluation of the chief audit executive.

Answer(s): A

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QUESTION: 17

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QUESTION: 20