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According to IIA guidance, which of the following most appropriately justifies the CEO's decision that the internal audit activity shall be responsible for risk management and investigation at a multinational organization?
According to IIA guidance, any additional roles beyond traditional audit functions, such as being responsible for risk management and investigation, must be explicitly defined in the internal audit charter. This document, approved by senior management and the board, delineates the scope and responsibilities of the internal audit function, ensuring clarity and proper governance. Thus, if the internal audit charter stipulates such roles, it justifies the CEO's decision. Reference: IIA Standard 1000 - Purpose, Authority, and Responsibility
A significant number of employees expressed concerns of a hostile work environment within a large manufacturing plant, which is in contrast to the organization's stated culture of tolerance and open communication. Which of the following approaches would be most effective for an internal auditor to assess whether the organization supports a culture of tolerance and open communication?
The most effective approach for an internal auditor to assess whether the organization supports a culture of tolerance and open communication, particularly in the context of reported issues within a large manufacturing plant, is to evaluate organization policies and procedures for Reference related to encouraging tolerance and open communication. This method directly targets the formal expressions of the organization's values and rules, offering concrete evidence of stated commitments and practices. Reference: Auditing cultural aspects and workplace environment involves reviewing formal policies and procedures to ensure they align with stated values, as recommended in IIA guidance on assessing organizational culture.
Which competency is required of all staff internal auditors prior to the commencement of an IT audit?
Prior to the commencement of an IT audit, the ability to assess the potential for fraud risk and identifying common types of fraud associated with the engagement is a required competency for internal auditors. Understanding the specific fraud risks inherent in IT systems and processes is essential for effectively auditing these areas, particularly in detecting and preventing fraud. Reference: IIA's Competency Framework for Internal Auditors
Which of the following is a limitation of detective internal controls in fraud management?
Detective internal controls are a limitation in fraud management because they are not designed to prevent fraud but to identify fraud after it has occurred. Their primary purpose is to detect and provide feedback on incidents of fraud, thereby allowing corrective action to be taken. However, they do not stop the initial occurrence of fraudulent activities. Reference: IIA guidance on types of controls and their effectiveness in fraud prevention.
Which of the following could increase risks to the organization's control environment?
Incentive-based compensation structures can increase risks to the organization's control environment by potentially motivating undesirable behaviors such as taking undue risks or manipulating results to meet targets that trigger compensation rewards. This can undermine the integrity of controls and reporting within the organization. Reference: Governance and risk management literature, including studies and guidance on compensation structures and their impact on organizational behavior and risk.
