The internal audit activity is asked to review the effectiveness of controls around the
disposal of chemical waste. However, the internal auditors on staff lack the necessary skills to conduct this review Which of the following would be the most appropriate approach?

1. A. An internal auditor who recently attended a three-day workshop on chemical waste disposal, and therefore has the most knowledge on the topic, should lead the engagement.
2. B. A team of available internal auditors should be assembled and should consult with an external nonaudit expert on chemical waste disposal to plan and conduct the engagement.
3. C. A team of the most knowledgeable auditors could be assembled and use the engagement work program from the previous year to gather additional insight regarding recommended audit procedures
4. D. A nonaudit employee from the chemical disposal area may share his expertise with the audit team, provided the internal audit manager conducts a detailed review of all engagement work performed.

Correct Answer: B
✑ Skill Gap Identification:Internal auditors lack the necessary expertise in chemical waste disposal.
✑ Consulting Experts:Engaging an external nonaudit expert ensures that the internal audit team receives the necessary technical knowledge to conduct an effective review.
✑ Team Assembly:By assembling a team of internal auditors and consulting an external expert, the organization leverages both internal audit capabilities and external technical expertise.
✑ Ensuring Competence:This approach ensures that the internal audit activity complies with the IIA Standards, specifically Standard 1210 – Proficiency, which requires internal auditors to possess the knowledge, skills, and other competencies needed to perform their responsibilities.
References:
✑ IIA Standard 1210 – Proficiency .

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

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

Correct Answer: C
✑ Introduction:
✑ Scenario Analysis:
✑ Conclusion:
:
IIA??s International Standards for the Professional Practice of Internal Auditing, Standard 1130: Impairment to Independence or Objectivity.

During a payroll audit, the internal auditor discovered that several individuals who have the same position classification as the are earning a significantly higher salary. The auditor noted the names and amounts of each; and he planned to prepare a request to the chief audit executive for a salary Increase based on this Information. Which of the following IIA Code of Ethics principles was violated in this scenario?

1. A. Competency.
2. B. Objectivity.
3. C. integrity
4. D. Confidentiality

Correct Answer: B
When internal audit resources are limited, it is crucial to focus on the most critical aspects of the control environment. Preventive key controls are designed to prevent errors or irregularities from occurring, which are essential for maintaining a strong control environment. Given the mature control environment of the organization, prioritizing preventive key controls ensures that potential issues are addressed before they materialize, providing a proactive approach to risk management.
Reference: IIA Practice Guide "Assessing the Adequacy of Internal Controls"

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

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

Correct Answer: D
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.

What is the primary reason that audit supervision includes approval of the engagement report?

1. A. To ensure the objectives of the area under review are met
2. B. To ensure senior management supports the reports conclusions
3. C. To ensure report style and grammar are appropriate.
4. D. To ensure report findings are substantiated

Correct Answer: D
The primary reason for audit supervision, including the approval of the engagement report, is to ensure that the findings presented in the report are substantiated by adequate and appropriate evidence. This step is crucial to maintain the credibility and reliability of the audit process and its outcomes.
✑ Substantiation of Findings: Ensuring that findings are substantiated helps in
providing a clear and defensible basis for the conclusions and recommendations made in the report.
✑ Audit Quality: This step ensures the quality and integrity of the audit process,
confirming that the evidence collected during the audit is sufficient and appropriate to support the findings.
✑ Credibility: By substantiating findings, the report gains credibility, which is essential
for the stakeholders who rely on the audit report for decision-making.
References:
✑ "Internal Audit Standards and Procedures," which outlines the importance of evidence substantiation in audit reports .