Which of the following best describes why an internal audit activity would consider sending written preliminary observations to the audit client?

1. A. Written observations allow for more interpretation.
2. B. Written observations help the internal auditors express the significance.
3. C. Written and verbal observations are equally effective.
4. D. Written observations limit premature agreement

Correct Answer: C
Audit workpapers are essential documents that provide evidence of the audit work performed and the conclusions reached.
✑ Option A: While review notes can be useful, they do not need to be retained if they
do not add value to the audit evidence.
✑ Option B: Audit workpaper documentation policies are typically established by the internal audit department, not reviewed or approved by the audit committee.
✑ Option C: Management should not review the workpapers for accuracy as this could compromise the independence of the audit.
✑ Option D: Preparing workpapers helps auditors document their work thoroughly, facilitating learning and professional development.

Which of the following actions should the internal audit activity take during an audit engagement when examining the effectiveness of risk management processes?

1. A. Evaluate how the organization manages fraud risk.
2. B. Establish procedures for improving risk management processes.
3. C. Ensure risk responses are aligned with industry standards
4. D. Verify that organizational objectives are aligned with each departments objectives.

Correct Answer: A
Risk Management Evaluation: During an audit engagement examining the effectiveness of risk management processes, the internal audit activity should focus on evaluating how the organization manages various types of risks, including fraud risk.
Fraud Risk Management: This involves assessing the organization??s mechanisms for identifying, assessing, and responding to fraud risks. It also includes reviewing the effectiveness of controls in place to prevent and detect fraudulent activities.
IIA Standards: Standard 2120 – Risk Management emphasizes that internal auditors must evaluate the potential for the occurrence of fraud and how the organization manages fraud risk.
Comprehensive Approach:
✑ Risk Assessment: Ensuring that the organization conducts thorough risk assessments to identify potential fraud risks.
✑ Control Environment: Evaluating the control environment to ensure it supports ethical behavior and reduces opportunities for fraud.
✑ Fraud Prevention and Detection: Reviewing the policies and procedures in place to prevent and detect fraud, including whistleblower mechanisms and fraud response plans.
References:
✑ Internal auditors play a crucial role in assessing the adequacy of fraud risk management, which is integral to the overall risk management process. By evaluating fraud risk management, auditors can provide assurance that the organization is effectively mitigating fraud risks.

While reviewing the workpapers and draft report from an audit engagement, the chief audit executive (CAE) found that an Important compensating control had not been considered adequately by the audit team when it reported a major control weakness Therefore, the CAE returned the documentation to the auditor in charge for correction Based on this Information, which of the following sections of the workpapers most likely would require changes?
* 1.Effect of the control weakness.
* 2.Cause of the control weakness
* 3.Conclusion on the control weakness.
* 4.Recommendation for the control weakness.

1. A. 1, 2, and 3.
2. B. 1.2. and 4
3. C. 1,3, and 4.
4. D. 2, 3, and 4.

Correct Answer: C
✑ Introduction:
✑ Impact on Workpapers:
✑ Options Analysis:
✑ Conclusion:
:
Internal Audit Standards and Practice Guides

Which of the following methods is most closely associated to year over year trends?

1. A. Horizontal analysts
2. B. Vertical analysis.
3. C. Common-size analysis.
4. D. Ratio analysis.

Correct Answer: A
✑ Introduction:
✑ Year-over-Year Trends:
✑ Options Analysis:
✑ Conclusion:
:
Financial Analysis and Reporting Guidelines

Which of the following offers the best explanation of why the auditor in charge would assign a junior auditor to complete a complex part of the audit engagement?

1. A. The senior auditors are unavailable, as they are currently working on other portions of the engagement
2. B. The auditor in charge believes that the junior auditor should obtain a specific type of experience.
3. C. The audit engagement has a tight deadline and the work must be completed timely.
4. D. The auditor in charge is unable to identify audit staff with all of the required skills needed to complete the engagement

Correct Answer: B
Assigning a junior auditor to complete a complex part of an audit engagement can be a strategic decision aimed at providing the junior auditor with valuable experience. This exposure to complex tasks helps in their professional development, building their skills and knowledge for future responsibilities. Although tight deadlines or the unavailability of senior auditors might be factors, the primary reason is often to enhance the junior auditor's competence and career growth.