Which of the following would be the most effective fraud prevention control?

1. A. Email alert sent to management for checks issued over S100.000.
2. B. installation of a video surveillance system in a warehouse prone to inventory loss
3. C. New hire training to explain fraud and employee misconduct.
4. D. Daily report that Identifies unsuccessful system log-in attempts

Correct Answer: C
Training new hires on fraud and employee misconduct is a proactive measure that raises awareness and educates employees about the organization??s policies and the consequences of fraudulent behavior.
Such training helps create a culture of integrity and compliance, making employees less likely to engage in or tolerate fraud.
Continuous education and reinforcement of ethical behavior are essential components of an effective fraud prevention strategy

Which of the following statements best demonstrates application of due professional care during an assurance engagement?

1. A. The engagement detected irregularities and noncompliance instances.
2. B. The engagement supervisor had no significant comments in the supervisory review.
3. C. The audit procedures were systematically planned: executed, and documented.
4. D. The engagement objectives were designed to assist the engagement client

Correct Answer: C
✑ Introduction:
✑ Application of Due Professional Care:
✑ Options Analysis:
✑ Conclusion:
:
Internal Audit Standards and Practice Guides

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.

Which of the following is most likely to impair the organizational independence of the internal audit activity?

1. A. The chief audit executive (CAE) reports administratively to the chief financial officer
2. B. The CAE oversees the effectiveness of the organization??s risk management function.
3. C. The CAE reports functionally to the CEO.
4. D. The CAE managed the finance department for the past five years.

Correct Answer: D
✑ Impairment of Independence: The organizational independence of the internal audit activity can be impaired if the CAE has had significant roles in management, such as managing the finance department. This prior involvement may create a conflict of interest or perceived bias.
✑ IIA Standards on Independence: The IIA emphasizes the importance of independence and objectivity in internal auditing. Any prior management role, especially in the department being audited, can compromise the CAE's objectivity.
✑ Examples of Impairment:
: IIA Standard 1100 - Independence and Objectivity.

Which of the following best describes the risk contained in an initial public offering for a new stock?

1. A. Residual risk.
2. B. Net risk.
3. C. Inherent risk.
4. D. Underlying risk

Correct Answer: C
✑ Introduction:
✑ IPO Risks:
✑ Options Analysis:
✑ Conclusion:
:
Audit Standards and Securities Regulation Guidelines