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Chapter 2: The International Professional Practices Framework: Authoritative Guidance For The Internal Audit Profession

Terms in this set (10)

1. A primary purpose of the Standards is to:
a. Promote coordination of internal and external audit efforts.
b. Establish a basis for evaluating internal audit performance.
c. Develop consistency in internal audit practices.
d. Provide a codification of existing practices.
1. B is the best answer. The introduction to the Standards states that the purpose of the Standards is to provide the basis for measurement of internal audit performance. The Standards are not designed primarily to promote coordination between external and internal audit, although they do require the chief audit executive (CAE) to share information and coordinate activities with other internal and external providers of relevant assurance and consulting services (Standard 2050). The Standards also do not codify existing practice. Instead, they describe internal audit practice as it should be. The Standards do not attempt to establish consistency in internal audit practices but do describe what is necessary to be effective.
2. Which of the following are "mandatory guidance" in The IIA's IPPF?
I. Practice Advisories.
II. The Code of Ethics.
III. The Definition of Internal Auditing.
IV. The Standards.
a. I, II, and IV.
b. II and IV.
c. II, III, and IV.
d. I, II, III, and IV.
C is the best answer. The Code, Definition, and Standards are mandatory; the Practice Advisories are not.
3. An internal auditor provides income tax services during the tax season. For which of the following activities would the auditor most likely be considered in violation of The IIA's Code of Ethics?
a. Preparing, for a fee, a division manager's personal tax returns.
b. Appearing on a local radio show to discuss retirement planning and tax issues.
c. Receiving a stipend for teaching an evening tax class at the local junior college.
d. Working on weekends for a friend who has a small CPA firm.
A is the best answer. Preparation of a divisional manager's tax return for a fee would be considered a conflict of interest for an internal auditor and thus impair objectivity (rule 2.1). The other activities are permitted under the Code.
4. An internal auditor is auditing a division in which the division's CFO is a close personal friend. The auditor learns that the friend is to be replaced after a series of critical contract negotiations with the Department of Defense. The auditor relays this information to the friend. Which principle of The IIA's Code of Ethics has been violated?
a. Integrity.
b. Objectivity.
c. Confidentiality.
d. Privacy.
C is the best answer. This situation would not be a prudent use of the information acquired in the course of the internal auditor's duties or work and could be detrimental to the legitimate and ethical objectives of the company, thus impairing confidentiality (rule 3.1). The situation does not apply to the principles of integrity or objectivity. Privacy is not one of the principles of the Code.
5. The IIA's Standards require internal auditors to exercise due professional care while conducting assurance engagements. Which of the following is not something an internal auditor is required to consider in determining what constitutes the exercise of due care in an assurance engagement of treasury operations?
a. The audit committee has requested assurance on the treasury function's compliance with a new policy on use of financial instruments.
b. Treasury management has not instituted any risk management policies.
c. The independent outside auditors have requested to see the engagement report and working papers.
d. The treasury function just completed implementation of a new real-time investment tracking system.
C is the best answer. Due care does not vary because the independent outside auditor is going to look at the workpapers. The factors in the other choices would all be part of what needs to be considered to determine due care (see 1220.A1).
6. In which of the following situations does the internal auditor potentially lack objectivity?
a. A payroll accounting employee assists an internal auditor in verifying the physical inventory of small motors.
b. An internal auditor discusses a significant issue with the vice president to whom the auditee reports prior to drafting the audit report.
c. An internal auditor recommends standards of control and performance measures for a contract with a service organization for the processing of payroll and employee benefits.
d. A former purchasing assistant performs a review of internal controls over purchasing four months after being transferred to the internal audit department.
D is the best answer. Standard 1130.A1 states that objectivity is presumed to be impaired if an internal auditor provides assurance services for an activity for which the auditor was responsible within the previous year. The actions depicted in the other choices do not impair the internal auditor's objectivity.
7. Which of the following is/ are components of the Standards?
I. Statements.
II. Interpretations.
III. Glossary.

a. I only.
b. I and II.
c. I and III.
d. I, II, and III.
D is the best answer. Each of the three items listed is a component of the Standards.
8. According to the Standards, which of the following must the internal audit manager think about when considering appropriate due care while planning an assurance engagement?
a. The opportunity to cross train internal audit staff.
b. The cost of assurance in relationship to potential benefits.
c. Job openings in the area that may be of interest to internal auditors assigned to the engagement.
d. The potential to deliver consulting services to the auditee.
B is the best answer. Standard 1220.A1 states that "Internal auditors must exercise due professional care by considering the:
• Extent of work needed to achieve the engagement's objectives;
• Relative complexity, materiality, or significance of matters to which assurance procedures are applied;
• Adequacy and effectiveness of governance, risk management, and control processes;
• Probability of significant errors, fraud, or noncompliance; and
• Cost of assurance in relation to potential benefits."
9. Which of the following types of IPPF guidance require( s) an exposure to the various IIA national institutes prior to its issuance?

I. A new Practice Advisory.
II. A new Standard.
III. A new Position Paper.
IV. A new definition in the Standards Glossary.

a. III only.
b. II and IV.
c. II, III, and IV.
d. I, II, III, and IV.
A is the best answer. A new Position Paper requires a 30-day exposure period to local IIA institutes. A new Practice Advisory requires no exposure period. A new standard requires a 90-day public exposure period. A new definition in the Standards glossary is considered part of the Standards and requires a 90-day exposure period.
10. Which of the following are required of the internal audit function per the Standards?
a. Evaluate annually the effectiveness of the audit committee.
b. Issue annually an overall opinion on the adequacy of the organization's system of internal controls.
c. Obtain an annual representation from management acknowledging management's responsibility for the design and implementation of internal controls to prevent illegal acts.
d. Assess whether the information technology governance of the organization sustains and supports the organization's strategies and objectives.
D is the best answer. Standard 2110.A2 states that "The internal audit activity must assess whether the information technology governance of the organization sustains and supports the organization's strategies and objectives."
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