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According to The IIA's Competency Framework, which competency is considered the mandatory minimum for internal auditors to possess when performing internal audit engagements?
According to The IIA's Competency Framework, the mandatory minimum competency for internal auditors is to evaluate the potential for fraud. This involves recognizing where fraud risks may exist and assessing the effectiveness of controls in mitigating those risks.
Option A: Recognizing red flags is important but is part of evaluating fraud risk.
Option B: Recommending controls is a further step, not the minimum requirement.
Option C: Applying forensic techniques is specialized and beyond the basic competency required.
IIA Competency Framework.
IIA Standard 1210.A2: Proficiency in fraud risk assessment.
An internal auditor assessed that the risk of steel theft at a plant is high. In response, the plant's management introduced a number of controls, including fences around the facility, a metal detector at the entrance, and monthly steel inventory counts. If the controls operate as intended, which of the following outcomes would the internal auditor hope to see?
In risk management, inherent risk refers to the exposure or amount of risk present without taking into account the controls. When controls are introduced, they reduce the inherent risk to a level known as residual risk, which is the remaining risk after controls are applied. The correct outcome for the scenario where controls are functioning as intended is that the residual risk is reduced to an acceptable level. It's important to note that rarely do controls completely eliminate risk, hence residual risk cannot typically be eliminated but only reduced to an acceptable threshold. Reference: IIA guidance on risk assessment terms and concepts.
Which of the following drivers of fraud is directly controllable by an organization?
The driver of fraud that is directly controllable by an organization is Opportunity. By designing and implementing strong internal controls, clearly defining roles and responsibilities, and conducting regular audits and reviews, an organization can significantly reduce the opportunities for fraud to occur within its environment. Reference: Fraud Triangle theory and IIA guidance on fraud risk management.
According to IIA guidance, which of the following actions best demonstrates due professional care by an internal auditor when she discovers a number of fraud-related red flags during an audit engagement?
When an internal auditor discovers fraud-related red flags during an audit engagement, the action that best demonstrates due professional care is to perform further testing to verify the existence of fraud. This approach ensures that any findings of fraud are based on thorough investigation and sufficient evidence, rather than premature conclusions. This procedure aligns with the IIA's guidance on due diligence and the thorough investigation of anomalies. Reference: IIA International Standards for the Professional Practice of Internal Auditing.
Topic 4, Exam Pool D
Which of the following is an example of an impairment to an internal auditor's independence?
The internal audit activity reporting functionally to the chief financial officer (CFO) can impair an internal auditor's independence. Functionally reporting to the CFO, who may be responsible for areas under audit, could create a conflict of interest and affect the auditor's ability to act independently. This arrangement can compromise the objectivity required for the internal audit function as outlined in the IIA standards. Reference: IIA Standard 1110 - Organizational Independence
