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An internal auditor tested whether purchase orders were supported by appropriately approved purchase requisitions She sampled a population of purchase documents and identified instances where purchase requisitions were missing However, she did not notice that n some cases purchase requisitions were approved by an unauthorized person Which of the following risks most appropriately describes this situation?
Nonsampling risk is the risk that the auditor may reach incorrect conclusions for reasons not related to the sampling process, such as failure to recognize exceptions or misinterpretation of audit results. In this case, the internal auditor did not notice that some purchase requisitions were approved by unauthorized persons, which is an oversight unrelated to the sample size or selection process. This is distinct from sampling risk, which is the risk that the sample selected does not represent the population. Reference:
The IIA's International Standards for the Professional Practice of Internal Auditing (Standards), Standard 2320 - Analysis and Evaluation.
The IIA's Practice Guide on Audit Sampling.
A large investment organization hired a chief risk officer (CRO) to be responsible for the organization's risk management processes. Which of the following people should prioritize risks to be used for the audit plan?
The chief audit executive (CAE) should prioritize risks to be used for the audit plan. Although the CAE is not accountable for managing risks, he is responsible for ensuring that the internal audit activity provides assurance on the effectiveness of the risk management processes. The CAE must understand the organization's risk landscape and determine which areas require audit attention based on their significance and potential impact. Reference: IIA Standard 2010 -- Planning, IIA Practice Guide -- Coordinating Risk Management and Assurance
When setting the scope for the identification and assessment of key risks and controls in a process, which of the following would be the least appropriate approach?
When setting the scope for identifying and assessing key risks and controls in a process, developing the scope of the audit based on a bottom-up perspective is the least appropriate approach. A bottom-up perspective typically focuses on individual controls and processes without necessarily aligning with the organization's critical business objectives and risk appetite. Effective risk assessment should begin with a top-down approach, identifying key business objectives and the associated risks, and then determining the necessary controls to manage these risks. Reference: IIA Practice Guide -- Auditing Key Risk Management, IIA Standard 2200 -- Engagement Planning
Which of the following statements is true regarding the use of internal control questionnaires (ICOs)?
Internal control questionnaires (ICQs) are used to gather information about the presence and effectiveness of controls within an organization. One of the limitations of ICQs is that the answers provided by respondents can be easily misinterpreted. This misinterpretation can occur due to unclear questions, differences in understanding terminology, or respondents not fully comprehending the context of the questions. Therefore, while ICQs are useful tools for identifying control issues, they require careful interpretation and often necessitate follow-up for clarification to ensure accurate understanding and assessment of the controls.
The Institute of Internal Auditors (IIA) Practice Guide: 'Internal Control Questionnaires'
IIA Standard 2310: Identifying Information
Which of the following is a disadvantage of using flowcharts during a risk assessment?
One disadvantage of using flowcharts during a risk assessment is that they may not capture serious risks that are not part of the linear process flow. Flowcharts are excellent tools for visualizing processes and identifying control points within a structured workflow. However, they might overlook risks that arise from non-linear interactions, external factors, or complex interdependencies that are not easily represented in a flowchart format. This limitation can result in an incomplete risk assessment if the auditor relies solely on flowcharts without considering other methods to identify all potential risks. Reference:
Institute of Internal Auditors (IIA), Practice Guide -- Auditing the Control Environment.
