While auditing an organization's credit approval process, an internal auditor learns that the organization has made a large loan to another auditors relative. Which course of action should the auditor take?
Identify the Conflict of Interest: The internal auditor learns about a large loan made to another auditor's relative, which represents a conflict of interest.
Refer to Professional Standards: According to the Institute of Internal Auditors' (IIA) standards, an internal auditor must maintain objectivity and avoid conflicts of interest (IIA Standard 1100 -- Independence and Objectivity).
Escalate the Issue: The appropriate course of action is to escalate this matter to the chief audit executive (CAE) and management, as they are responsible for determining the impact of the conflict and the appropriate response.
Decision Making: The CAE and management will assess whether the conflict of interest could impair the auditor's objectivity and decide whether the auditor should be removed from the engagement or if additional oversight is needed.
Documentation: It is important to document the conflict and the decision-making process in the audit documentation for transparency and accountability.
The IIA's International Standards for the Professional Practice of Internal Auditing, specifically Standard 1100 on Independence and Objectivity.
Which of the following best demonstrates that the internal audit activity is using due professional care?
Demonstrating due professional care involves using appropriate technology and data analysis techniques to enhance the audit's effectiveness and efficiency. These tools help auditors identify anomalies, trends, and potential areas of risk more accurately and timely, reflecting a higher standard of care in their audit activities.
'Auditing Standards and Guidelines,' which emphasize the importance of using advanced techniques in audit processes.
An organization's health-care insurance costs have been rising approximately 10 percent per year for several years Which of the following analytical review procedures would best evaluate the reasonableness of the increase in health-care costs?
Analytical review procedures involve evaluating financial information by studying plausible relationships among financial and non-financial data.
Government Index Comparison: Comparing the organization's increase in health-care costs with a relevant government index provides a benchmark to assess whether the cost increases are in line with broader economic trends.
Claims Review: While reviewing all claims could help identify specific overpayments, it is more labor-intensive and less effective for evaluating overall reasonableness.
Competitive Bids: Obtaining bids from other health-care administrators might control future costs but does not evaluate the reasonableness of past cost increases.
Industry Comparison: Comparing costs with those incurred by similar organizations could be useful but might not provide a standardized measure like a government index.
'Auditing and Assurance Services: An Integrated Approach,' which details the use of analytical procedures in evaluating financial data.
An organization does not have a formal risk management function. According to the Standards, which of the following are conditions where the internal audit activity may provide risk management consulting?
1. There is a clear strategy and timeline to migrate risk management responsibility back to management.
2. The internal audit activity has the final approval on any risk management decisions.
3. The internal audit activity gives objective assurance on all parts of the risk management framework for which it is responsible.
4. The nature of services provided to the organization is documented in the internal audit charter.
Conditions for Risk Management Consulting by Internal Audit:
Strategy and Timeline for Migration: The internal audit activity can provide risk management consulting if there is a clear strategy and timeline to transfer risk management responsibilities back to management. This ensures a temporary arrangement with a defined end goal.
Documentation in Internal Audit Charter: The nature of services provided, including risk management consulting, must be documented in the internal audit charter. This formalizes the internal audit activity's role and ensures transparency and alignment with organizational governance.
IIA Standards:
Standard 1130 -- Impairment to Independence or Objectivity: When internal auditors perform risk management roles, it must not impair their objectivity. Clear documentation and a transition strategy mitigate potential conflicts of interest.
Standard 2050 -- Coordination and Reliance: Internal auditors must coordinate with other assurance providers, ensuring roles are clear and documented.
Inappropriate Conditions:
Final Approval on Risk Management Decisions: The internal audit activity should not have final approval on risk management decisions, as this impairs independence and objectivity.
Objective Assurance on Own Work: Providing objective assurance on parts of the risk management framework for which the internal audit activity is responsible creates a conflict of interest.
Reference:
The conditions under which internal audit can provide risk management consulting must include a clear strategy for migrating responsibilities back to management and documentation in the internal audit charter to ensure transparency and avoid conflicts of interest.
A bicycle manufacturer incurs a combination of fixed and variable costs with the production of each bicycle. Which of the following statements is true regarding these costs?
Introduction:
Understanding cost behavior is crucial in managing production and financial performance in manufacturing.
Cost Characteristics:
Fixed costs remain constant in total but vary per unit with changes in production volume.
Variable costs vary directly with production volume but remain constant per unit.
Options Analysis:
Option A: Variable costs per unit remain constant regardless of production volume.
Option B: Fixed costs per unit decrease as production volume increases, not directly.
Option C: Total variable costs vary directly with production volume, not inversely.
Option D: Fixed costs per unit will decline as the number of units produced increases due to the spreading of fixed costs over a larger number of units.
Conclusion:
When production increases by 30%, the fixed cost per unit will decline as the same total fixed cost is allocated over a greater number of units.
Cost Accounting Standards and Practices .
