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Which of the following conditions involving the chief audit executive (CAE) is most likely to impair the independence of the internal audit activity?
See the explanation below.
Comprehensive and Detailed Step-by-Step Explanation:
Reporting to the Controller: Independence is compromised when the CAE reports to an operational management role such as the controller, as this creates a conflict of interest and undermines objectivity. The IIA Standards recommend that the CAE report functionally to the board and administratively to the CEO to preserve independence.
Other Options:
Option A: Participating in executive management meetings does not impair independence and is encouraged to provide insights and recommendations.
Option B: Having access to records, personnel, and properties is necessary for effective auditing and does not impair independence.
Thus, the correct answer is C. The CAE reports directly to the controller for the organization, and the internal audit activity resides in the office of the comptroller.
Which of the following statements is true regarding root cause analysis?
See the explanation below.
Comprehensive and Detailed Step-by-Step Explanation:
Root Cause Analysis: This method identifies underlying causes of issues rather than just addressing symptoms, allowing internal auditors to recommend targeted improvements to controls and processes. By identifying multiple causes, auditors can propose tailored control enhancements to address each cause effectively.
Other Options:
Option A: While accurate, this is a general description of the benefits of internal auditing, not specific to root cause analysis.
Option B: Root cause analysis often requires subject matter expertise and careful analysis; it is not always simple or straightforward.
Thus, the correct answer is C. Root cause analysis enables internal auditors to reveal multiple causes and recommend control enhancements for each cause identified.
A senior internal auditor is using a risk and control matrix to facilitate an internal control assessment of the fixed asset accounting process. Which of the following activities would aid the auditor in determining inputs for the risk and control matrix?
See the explanation below.
Comprehensive and Detailed Step-by-Step Explanation:
Gathering Inputs for the Matrix: Interviews, walkthroughs, and questionnaires are primary tools for gathering detailed insights into risks, controls, and processes. These activities provide the information necessary to populate a risk and control matrix effectively.
Other Options:
Option A: Results from control testing provide insights into control effectiveness but are not primary sources for developing the matrix.
Option C: Cost-benefit analysis informs design decisions but does not directly provide matrix inputs.
Thus, the correct answer is B. Interviews with fixed asset management, control process walkthroughs, and internal control questionnaires.
An internal auditor wants to establish the reasonableness of the current period's total payroll costs for the finance department. She divides the actual monthly payroll cost by the number of employees to derive an average cost per employee. Which of the following comparisons to this average cost would be considered trend analysis?
See the explanation below.
Comprehensive and Detailed Step-by-Step Explanation:
Trend Analysis: This involves comparing data across different periods to identify patterns, fluctuations, or anomalies. Comparing the current average cost per employee to prior periods' data is a clear example of trend analysis.
Other Options:
Option A: The mean of actual salary amounts is a statistical calculation, not a trend analysis.
Option C: Comparing to another organization's budget is benchmarking, not trend analysis.
Thus, the correct answer is B. Similar data for the department from two prior periods.
During a travel expense audit engagement, the internal auditor discovered that the accounts payable staff spend a significant amount of time previewing expense reports before the reports are sent to managers for review and approval. The total of all expense reports during a year represents less than 1% of the organization's total budget. Which of the following best supports the auditor's recommendation to reduce the level of reviews?
See the explanation below.
Comprehensive and Detailed Step-by-Step Explanation:
Cost-Benefit Analysis: Controls should be cost-effective. Spending significant resources on a process that accounts for less than 1% of the budget indicates that the cost of the control (extensive reviews) outweighs the potential benefits.
Other Options:
Option A: While inherent risk is a factor, the primary justification here is the cost-benefit imbalance.
Option C: Duplication of effort is inefficient, but it does not directly address cost considerations.
Thus, the correct answer is B. The cost of the control outweighs the benefit.
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