The board of directors of a global organization has found an increased number of reported cases of unethical practices since last year. To assist the board in gaining a better understanding of the degree of ethics awareness within the organization, which of the following actions should be undertaken?

1. A. Request the internal audit activity to perform an ethics-related assurance engagement.
2. B. Offer in-house ethics-related training seminars for employees to attend
3. C. Reaffirm the importance of the organization's code of ethics to all employees
4. D. Conduct an organization wide employee survey on ethical practices.

Correct Answer: D
To assist the board of directors in understanding the degree of ethics awareness within the organization, an organization-wide employee survey on ethical practices (option D) is the most effective action. Here's why:
✑ Direct Insight from Employees: Surveys can capture the perspectives of a broad
employee base, providing direct insights into the awareness and attitudes towards ethics within the organization.
✑ Quantitative and Qualitative Data: A well-designed survey can gather both
quantitative data (e.g., percentage of employees aware of the code of ethics) and qualitative data (e.g., specific instances of ethical dilemmas faced by employees).
✑ Identifying Areas of Improvement: Surveys can identify specific areas where
employees feel the organization is lacking in terms of ethical practices, which can guide targeted improvements.
✑ Confidentiality and Anonymity: Surveys often ensure confidentiality and anonymity,
encouraging more honest and comprehensive responses from employees, which might not be achievable through other means.
✑ Comprehensive Scope: Compared to internal audits or training, surveys can
provide a comprehensive overview of the entire organization??s ethical climate, from various departments and levels.
This approach aligns with the best practices in internal auditing and organizational
assessments as outlined by the Institute of Internal Auditors (IIA) and other related guidance.

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?

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

Correct Answer: B
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.
References:
✑ 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.

A newly appointed chief audit executive (CAE) started analyzing the organization's policies in an attempt to customize them to address internal audit specifics. Which of the following organizationwide practices is most likely to be acceptable to the CAE?

1. A. Internal auditors' performance evaluation is primarily based on both client satisfaction surveys and cost savings identified from the audits
2. B. Standard training for each employee, including internal auditors, is 10 hours per year.
3. C. To enhance efficiency, Internal auditors should not be rotated regularly among engagements
4. D. Hiring practices include requiring potential auditors to disclose any significant stock ownership in the organization.

Correct Answer: A
The statistical model indicates that daily sales have a direct relationship with the cost of ingredients used and an inverse relationship with rainy days.
✑ Option A: On a rainy day, if total sales are greater than expected compared to the
cost of ingredients used, it may indicate discrepancies that could be a sign of employee theft. For instance, if ingredients are used but not reflected in the sales, it suggests that items might be missing (stolen).
✑ Option B: On a sunny day, lower-than-expected sales compared to the cost of
ingredients could indicate wastage but not necessarily theft.
✑ Option C and D: Both scenarios where total sales and the cost of ingredients are higher or lower than expected do not specifically point to theft without additional context.

A bicycle manufacturer incurs a combination of fixed and variable costs with the production of each bicycle. Which of the following statements is true regarding these costs?

1. A. if the number of bicycles produced is increased by 15 percent, the variable cost per unit will increase proportionally
2. B. The fixed cost per unit will vary directly based on the number of bicycles produced during the production cycle.
3. C. The total variable cost will vary proportionally and inversely with the number of bicycles produced during a production run.
4. D. if the number of bicycles produced is increased by 30 percent, the fixed cost per unit will decline.

Correct Answer: D
✑ Introduction:
✑ Cost Characteristics:
✑ Options Analysis:
✑ Conclusion:
:
Cost Accounting Standards and Practices .

While conducting an engagement in the procurement department, the internal auditor noticed that the department head??s travel reports showed minor travel expenses, and there were no charges for hotels, meals, or transportation However, the auditor knew that the department head frequently traveled worldwide to meet with suppliers and visit their
production sites. Which of the following would be the most appropriate next step for the auditor?

1. A. The auditor should make a note of the issue for follow-up when employee travel expenses are audited.
2. B. The auditor should analyze trends and changes among the organization's suppliers over the past few years.
3. C. The auditor should investigate whether there are any special arrangements regarding senior management travel.
4. D. The auditor should analyze the list of destinations the department head visited to estimate typical costs

Correct Answer: C
✑ Identifying the Anomaly:The internal auditor has identified a discrepancy in the travel expenses of the department head, who frequently travels yet reports minimal expenses. This raises a red flag that needs further investigation.
✑ Understanding the Context:It is important to determine if there are legitimate reasons for the discrepancy, such as special arrangements made for senior management travel, which could explain the absence of typical travel expenses like hotels, meals, and transportation.
✑ Appropriate Next Step:Investigating whether there are any special arrangements for senior management travel (Option C) is the most logical next step. This helps in understanding the context and validating whether the discrepancy is justified or indicative of potential issues such as fraud or misreporting.
Reference:Internal auditing standards emphasize the need for auditors to understand the environment and context of the organization??s operations when anomalies are detected.
Other Options Considered:
Option A:Making a note for future follow-up is not proactive and delays addressing a potential issue.
Option B:Analyzing supplier trends, while useful, does not directly address the travel expense anomaly.
Option D:Estimating costs based on destinations can provide insights but does not explain potential legitimate arrangements made by the organization.
Conclusion:Investigating special arrangements regarding senior management travel (Option C) is the most appropriate step to understand the discrepancy and ensure there are no irregularities.