CIA Part I, unit one quiz

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1. To avoid being the apparent cause of conflict between an organization’s senior management and the
board, the chief audit executive should

A. Communicate all engagement results to both senior management and the board.

B. Strengthen the independence of the internal audit activity through organizational position.

C. Discuss all reports to senior management with the board first.

D. Request board approval of policies that include internal audit activity relationships with the board.

2. A medium-sized publicly owned organization operating in Country X has grown to a size that the
governing authority believes warrants the establishment of an internal audit activity. Country X has
legislated internal audit requirements for government-owned organizations. The organization changed
the bylaws to reflect the establishment of the internal audit activity. The governing authority decided
that the chief audit executive (CAE) must be a certified internal auditor and will report directly to the
newly established audit committee. Which of the items discussed above will contribute the most to the
new CAE’s independence?

A. The establishment of the internal audit activity is documented in the bylaws.

B. Country X has legislated internal auditing requirements.

C. The CAE will report to the audit committee.

D. The CAE is to be a certified internal auditor.

3. An external quality assessment team was evaluating the independence of an internal audit activity.
The internal audit activity performs engagements concerning all of the elements included in its scope.
Which of the following reporting responsibilities is most likely to threaten the internal audit activity’s
independence? Reporting to the

A. President.

B. Chief financial officer.

C. Executive vice president.

D. Audit committee.
CIA Part I, unit one quiz

4. A charter is being drafted for a newly formed internal audit activity. Which of the following best
describes an appropriate organizational position to be incorporated into the charter?

A. The chief audit executive reports to the chief executive officer but has access to the board.

B. The chief audit executive is a member of the board.

C. The chief audit executive is a staff officer reporting to the chief financial officer.

D. The chief audit executive reports to an administrative vice president.

5. Prior to implementation, management has requested the internal audit activity to perform an
engagement to recommend procedures and policies for improving management control over the
telephone marketing operations of a major division. The chief audit executive should

A. Not accept the engagement because recommending controls would impair future objectivity
regarding this operation.

B. Not accept the engagement because internal audit activities are presumed to have expertise
regarding accounting controls, not marketing controls.

C. Accept the engagement, but indicate to management that, because recommending controls impairs
independence, future engagements in the area will be impaired.

D. Accept the engagement because objectivity will not be impaired.

6. Which of the following statements about conflict of interest is false?

A. A conflict of interest could impair an individual’s ability to perform his or her duties and
responsibilities objectively.

B. A conflict of interest is a situation in which an internal auditor has a competing professional or

personal interest.

C. A conflict of interest only exists when the internal auditor displays unethical behavior or engages in
improper acts.

D. A conflict of interest can create an appearance of impropriety that can undermine confidence in the
internal auditor.
CIA Part I, unit one quiz

7. In which of the following situations does an internal auditor potentially lack objectivity?

A. An internal auditor reviews the procedures for a new electronic data interchange (EDI) connection to
a major customer before it is implemented.

B. A former purchasing assistant performs a review of internal controls over purchasing 4 months after
being transferred to the internal auditing department.

C. An internal auditor recommends standards of control and performance measures for a contract with
a service organization for the processing of payroll and employee benefits.

D. A payroll accounting employee assists an internal auditor in verifying the physical inventory of small
motors.

8. During the course of an engagement, an internal auditor makes a preliminary determination that a
major division has been inappropriately capitalizing research and development expense. The
engagement is not yet completed, and the internal auditor has not documented the problem or
determined that it really is a problem. However, the internal auditor is informed that the chief audit
executive has received the following communication from the president of the organization: “The
controller of Division B informs me that you have discovered a questionable account classification
dealing with research and development expense. We are aware of the issue. You are directed to
discontinue any further investigation of this matter until informed by me to proceed. Under the
confidentiality standard of your profession, I also direct you not to communicate with the outside
auditors regarding this issue.” Which of the following is an appropriate action for the CAE to take
regarding the questionable item?

A. Immediately report the communication to The IIA and ask for an ethical interpretation and guidance.

B. Inform the president that this scope limitation will need to be reported to the board.

C. Continue to investigate the area until all the facts are determined and document all the relevant facts
in the engagement records.

D. Immediately notify the external auditors of the problem to avoid aiding and abetting a potential crime
by the organization.

9. An internal auditor who had been supervisor of the accounts payable section should not perform an
assurance review of that section

A. Because a reasonable period of time in which to establish independence cannot be determined.

B. Until at least 1 year has elapsed.

C. Until after the next annual review by the external auditors.

CIA Part I, unit one quiz
D. Until it is clear that the new supervisor has assumed the responsibilities.

10. A treasury department employee transferred to the internal audit activity of the same organization
last month. The chief financial officer of the organization has suggested that, because of the employee’s
significant knowledge in this area, it would be a good idea for the employee to immediately begin an
engagement to evaluate the treasury department. In this circumstance, the employee should

A. Accept the engagement and begin work immediately.

B. Discuss the need for such an engagement with the employee’s former superior, the CFO.

C. Suggest that the engagement be performed by another member of the internal audit staff.

D. Offer to prepare an engagement work program but suggest that interviews with the employee’s
former co-workers be conducted by other members of the internal audit staff.

11. Independence is freedom from conditions that threaten the ability of the internal audit activity to
carry out internal audit responsibilities in an unbiased manner. Which policy best promotes
independence?

A. Requiring internal auditors to report to the chief audit executive any conflicts of interest or bias.

B. Preventing the internal audit activity from recommending standards of control for systems that it
evaluates.

C. Allowing engagements concerning sensitive operations to be outsourced.

D. Preventing personnel transfers from operating activities to the internal audit activity.

12. A formal document (charter) approved by the board that defines the internal audit activity’s
purpose, authority, and responsibility enhances its

A. Exercise of due professional care.

B. Proficiency.

C. Relationship with management.

D. Independence.
CIA Part I, unit one quiz

13. The internal auditors must be able to distinguish carefully between a scope limitation and other
limitations. Which of the following is not considered a scope limitation?

A. The divisional management of an engagement client has indicated that the division is in the process
of converting a major computer system and has indicated that the information systems portion of the
planned engagement will have to be postponed until next year.

B. The board reviews the engagement work schedule for the year and deletes an engagement that the
chief audit executive thought was important to conduct.

C. The engagement client has indicated that certain customers cannot be contacted because the
organization is in the process of negotiating a long-term contract with the customers and they do not
want to upset the customers.

D. None of the answers are correct.

14. The internal audit activity encounters a scope limitation from senior management that will affect the
activity’s ability to meet its goals and objectives for a potential engagement client. The nature of the
scope limitation needs to be

A. Noted in the engagement working papers, but the engagement should be carried out as scheduled
and the scope limitation worked around, if possible.

B. Communicated to the external auditors, so they can investigate the area in more detail.

C. Communicated, preferably in writing, to the board.

D. Communicated to management stating that the limitation will not be accepted because it would
impair the internal audit activity’s independence.

15. An internal auditor assigned to audit a vendor’s compliance with product quality standards is the
brother of the vendor’s controller. The auditor should

A. Accept the assignment but avoid contact with the controller during fieldwork.

B. Accept the assignment but disclose the relationship in the engagement final communication.

C. Notify the vendor of the potential conflict of interest.

D. Notify the chief audit executive of the potential conflict of interest.

CIA Part I, unit one quiz