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An internal auditor was gathering information regarding the receiving process and decided that a narrative memorandum was the best way to document the process. Which of the following explanations best supports the auditor's decision?
Comprehensive and Detailed Step-by-Step Explanation:
Narrative Memorandum: A narrative is most suitable for documenting simple processes that do not require detailed visuals or flowcharts for clarity. If the process can be effectively described in writing, a narrative is appropriate.
Other Options:
Option A: Comprehensive manuals do not necessarily eliminate the need for effective documentation of the process.
Option C: While efficiency is a factor, it does not explain the preference for a narrative memorandum.
Thus, the correct answer is B.
An internal auditor discovers a number of control concerns while reviewing the organization's online payment system and decides to interview key employees involved in the system's design and maintenance. Which of the following best describes the results of those interviews?
Comprehensive and Detailed Step-by-Step Explanation:
Types of Audit Evidence:
Testimonial Evidence: Information obtained through interviews, discussions, or statements from individuals.
Documentary Evidence: Written or recorded materials, such as policies, procedures, or reports.
Analytical Evidence: Evidence derived from analysis or comparisons of data.
Reasoning:
Option A is correct because interviews with employees provide testimonial evidence based on their knowledge, perspectives, or observations.
Option B refers to tangible documents or records, which are not the direct result of interviews.
Option C refers to data analysis, which is not applicable in this scenario.
Role of Testimonial Evidence:
Testimonial evidence is often used to corroborate documentary evidence or provide insights into processes and controls.
Which of the following activities would compromise the independence of the internal audit activity and therefore should not be performed by an internal auditor?
Comprehensive and Detailed Step-by-Step Explanation:
Reference to IIA Standards:
Standard 1110 - Organizational Independence: Internal audit must be independent of the activities it audits to maintain objectivity.
Standard 1130 - Impairment to Independence or Objectivity: Internal audit's independence is compromised if auditors take on roles that involve making decisions or implementing controls, as this may bias their findings.
Reasoning:
Option B is correct because setting the organization's risk appetite is a management decision and represents a strategic role that compromises the internal audit's independence.
Option A (championing the establishment of risk management) and Option C (coordinating risk management) do not directly impair independence, though care should be taken to avoid direct involvement in risk management decisions. These activities can be part of advisory services and not necessarily a threat to independence if appropriately managed.
Maintaining Independence:
Internal auditors should provide assurance on risk management but not take on roles that involve decision-making or implementing risk management processes.
An internal auditor is planning a business continuity audit engagement at a remote manufacturing plant. During planning interviews, the plant manager stated that the local Environmental, Health, and Safety (EHS) Department, which reports to the plant manager, had completed a similar review six months ago. The EHS review did not find any significant weaknesses. How should the internal auditor consider the EHS review results in the current audit engagement planning?
Comprehensive and Detailed Step-by-Step Explanation:
Reference to IIA Standards:
Standard 1220 - Due Professional Care: Internal auditors must consider the reliability of other assurance providers.
Standard 2050 - Coordination and Reliance: Internal auditors may rely on the work of other assurance providers if their objectivity, independence, and competency are assessed and deemed adequate.
Why Evaluate EHS Work:
The EHS review results can be useful if the review process was thorough, objective, and performed by competent individuals.
Dismissing their results without evaluation (Option A) could lead to inefficiencies or redundant work.
Canceling the engagement entirely (Option B) ignores the internal audit's responsibility for independent assurance.
Audit Planning Impact:
By leveraging the EHS review where appropriate, the internal auditor can focus resources on other areas not covered or on verifying key findings.
An internal auditor discovers that a vendor had submitted invoices and was paid for services not rendered. Which of the following controls is most appropriate to address this type of issue?
Comprehensive and Detailed Step-by-Step Explanation:
Reference to IIA Standards:
Standard 2130 - Control: Internal audit must assess whether controls ensure compliance and prevent fraud.
Reasoning:
Option A directly addresses the root cause: payment for unrendered services. Requiring acknowledgment of receipt ensures only valid invoices are paid.
Option B (observing invoice input) ensures data entry accuracy but does not address fraud.
Option C (verifying amounts) ensures correct payments for legitimate invoices but does not prevent unauthorized payments.
Best Practice:
Verifying acknowledgment of services before payment is a preventive control, reducing fraud risk.
