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Notes of Internal Audit Part 3

The document discusses several scenarios related to corporate governance, internal controls, and compliance management. It provides multiple choice questions after short passages of text and explains whether each answer choice is correct or incorrect. The key points summarized are: - Micromanaging is not a proper role for a board of directors, unlike having integrity, being honest, and providing oversight. - Internal controls are closed systems with feedback mechanisms, unlike open, stand-alone, or ad hoc systems. - A chief audit executive reporting directly to an audit committee contributes most to independence, in accordance with internal auditing standards. - Data evidence costs are noncompliance costs rather than compliance costs like data collection, analysis, and reporting.

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60 views4 pages

Notes of Internal Audit Part 3

The document discusses several scenarios related to corporate governance, internal controls, and compliance management. It provides multiple choice questions after short passages of text and explains whether each answer choice is correct or incorrect. The key points summarized are: - Micromanaging is not a proper role for a board of directors, unlike having integrity, being honest, and providing oversight. - Internal controls are closed systems with feedback mechanisms, unlike open, stand-alone, or ad hoc systems. - A chief audit executive reporting directly to an audit committee contributes most to independence, in accordance with internal auditing standards. - Data evidence costs are noncompliance costs rather than compliance costs like data collection, analysis, and reporting.

Uploaded by

some_one372
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Which of the following is not a proper role or function expected of the board of directors

of a corporation?
Having
integrity.
Being honest.
Micromanaging.
Oversight.

Incorrect. Having integrity is essential to members of the board of directors.


Incorrect. Being honest is essential to members of the board of directors.
Correct. A board of directors that micromanages gets involved in each and
every detail of how the chief executive and company officers are handling
day-to-day activities. This is not the proper role or function (IIA Standard
2110—Governance).
Incorrect. Having oversight is essential to members of the board of directors.

Internal controls are:


Open systems.
Closed systems.
Stand-alone
systems.
Ad hoc systems.

Incorrect. Open systems do not have feedback mechanisms.


Correct. Closed systems are much stronger than open systems due because
closed systems have a feedback mechanism. In a feedback mechanism,
actual outputs are fed back to the input end for comparison with the desired
output. Hence, internal controls are closed systems.
Incorrect. Stand-alone systems do not have feedback mechanisms.
Incorrect. Ad hoc systems do not have feedback mechanisms.

A medium-size publicly owned corporation operating in Country X has grown to a size


that the directors of the corporation believe warrants the establishment of an internal
auditing department. Country X has legislated internal auditing requirements for
government-owned companies. The company changed the corporate by-laws to reflect
the establishment of the internal auditing department. The directors decided that the
chief audit executive (CAE) must be a Certified Internal Auditor (CIA) and will report
directly to the newly established audit committee of the board of directors.

Which of the items discussed above will contribute the most to the new CAE's
independence?

The establishment of the internal auditing department is documented in corporate by-


laws.
Legislated internal auditing requirements in Country X.
The fact that the CAE will report to the audit committee of the board of directors.
The fact that the CAE is to be a Certified Internal Auditor (CIA).

Incorrect. The IIA Standards state that independence is achieved through


organizational status and objectivity, which are more directly related to the
reporting level of the director.
Incorrect. The IIA Standards state that independence is achieved through
organizational status and objectivity. Independence is not ensured by
regulations.
Correct. IIA Standard 1110 – Organizational Independence states that
independence is achieved through organizational status and objectivity. The
auditor is reporting to the highest level possible.
Incorrect. The IIA Standards state that independence is achieved through
organizational status and objectivity. A CIA designation will ensure a better
auditor but does not guarantee independence.
Regarding compliance management, compliance costs are not:
Data collection
costs.
Data analysis costs.
Data reporting
costs.
Data evidence
costs.

Incorrect. Data collection costs are compliance costs.


Incorrect. Data analysis costs are compliance costs.
Incorrect. Data reporting costs are compliance costs.
Correct. Data evidence costs are noncompliance costs, meaning
organizations show the data to regulatory authorities as a proof of evidence
when regulators criticize the organizations for noncompliance with laws, rules,
and regulations.

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