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According to IIA guidance, which of the following statements about analytical procedures is true?
Analytical Procedures: These procedures involve evaluating financial information by studying plausible relationships among both financial and non-financial data. They help auditors form expectations about account balances or other financial data and then compare actual results to these expectations.
Purpose: To identify any unusual or unexpected results that might indicate potential misstatements.
IIA Guidance on Analytical Procedures:
Comparison Against Expectations: This is the core aspect of analytical procedures. Auditors develop expectations based on their knowledge of the business, industry trends, historical data, and other relevant factors.
Engagement Phases: Analytical procedures can be applied in various phases of an audit, not just after the planning phase.
Other Statements:
Begin After Planning: Analytical procedures are often used during planning to understand the business and during substantive testing and review phases.
Explainable Results: While they can provide insights, the primary purpose is not just to explain results but to identify discrepancies.
Computer-Assisted Techniques: Analytical procedures can be performed manually or with the help of software, but they are not solely defined as computer-assisted techniques.
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.
In which scenario might it be considered problematic for the chief audit executive (CAE) to provide assurance services over the payroll function?
Introduction:
The independence and objectivity of the internal audit function are paramount, especially when the CAE has had prior involvement in the area under review.
Scenario Analysis:
Option A: Previous consulting assignments may raise concerns but do not inherently impair independence if managed correctly.
Option B: A historical role in accounting functions is less problematic if sufficient time has passed and there is no ongoing influence.
Option C: Having been the payroll manager presents a direct conflict of interest, compromising the CAE's objectivity.
Option D: Reviews following consulting assignments are common practice and do not necessarily indicate a conflict.
Conclusion:
It is problematic for the CAE to provide assurance over payroll functions if they were previously the payroll manager, as this creates a clear conflict of interest and threatens audit objectivity.
IIA's International Standards for the Professional Practice of Internal Auditing, Standard 1130: Impairment to Independence or Objectivity.
A regional entertainment organization is in the process of developing a corporate social responsibility (CSR) policy. Management invites ideas from employees when developing the CSR policy Which of the following is the most appropriate idea to include?
CSR Policy Development: In developing a Corporate Social Responsibility (CSR) policy, it is important that the principles of CSR are communicated and understood throughout the organization.
Integration into Decision-Making: Management's responsibility includes ensuring that CSR principles are not only communicated but also integrated into the organization's decision-making processes at all levels. This ensures that CSR is part of the organizational culture and operational strategies.
Board's Role: While the board has a role in overseeing and ensuring that CSR objectives are established and risks are managed, the day-to-day responsibility for integrating CSR into business operations lies with management.
IIA Guidance: According to IIA guidance, internal auditors should evaluate the design, implementation, and effectiveness of the organization's ethics-related objectives, programs, and activities, which include CSR initiatives (Standard 2110 - Governance).
Reference:
Effective communication and integration of CSR principles ensure that the organization operates in a socially responsible manner, aligning its business practices with societal expectations and contributing to sustainable development.
During a payroll audit, the internal auditor discovered that several individuals who have the same position classification as the are earning a significantly higher salary. The auditor noted the names and amounts of each; and he planned to prepare a request to the chief audit executive for a salary Increase based on this Information. Which of the following IIA Code of Ethics principles was violated in this scenario?
When internal audit resources are limited, it is crucial to focus on the most critical aspects of the control environment. Preventive key controls are designed to prevent errors or irregularities from occurring, which are essential for maintaining a strong control environment. Given the mature control environment of the organization, prioritizing preventive key controls ensures that potential issues are addressed before they materialize, providing a proactive approach to risk management.
