MCQ questions ⁉️ on Independence of the Internal Audit Activity

 Solve this 15 MCQ mocktest,submit your answers

Independence of the Internal Audit Activity:

1- Independence permits internal auditors to render impartial and unbiased judgments. The best way to achieve independence is through

A. Supervision within the organization.

B. Organizational knowledge and skills.

C. Individual knowledge and skills.

D. A dual-reporting relationship.

 

2- Which of the following facts, by themselves, could contribute to a lack of independence of the internal

audit activity?

1. The CEO accused the new auditor of not operating “in the best interests of the

organization.”

2. The majority of audit committee members come from within the organization.

3. The internal audit activity’s charter has not been approved by the board.

A. 1 only.

B. 2 and 3 only.

C. 2 only.

D. 1, 2, and 3

 

3- Which action is not consistent with functional reporting?

A. The board should have the final authority to approve the internal audit risk assessment.

B. The board should approve the CAE’s performance evaluation.

C. Organizational independence is effectively achieved when the CAE reports functionally to the

board.

D. The CAE should meet with the board, with management present, to reinforce the independence

of the internal audit activity.

 

4- According to the International Professional Practices Framework, the independence of the internal

audit activity is achieved through

A. Staffing and supervision.

B. Organizational status and objectivity.

C. Continuing professional development and due professional care.

D. Human relations and communications.

 

5- The board is most likely to participate in approving

A. Staff promotions and salary increases.

B. Engagement communication observations, conclusions, and recommendations.

C. Appointment of the chief audit executive.

D. Engagement work programs.

 

6- The organizational level to which the internal audit activity reports

A. Requires only the board’s annual approval of the engagement work schedule, staffing plan, and

financial budget.

B. Is best when reporting is only made to the board of directors.

C. Must be sufficient to permit the accomplishment of the activity’s responsibilities.

D. Is guaranteed when the charter specifically defines the activity’s independence.

 

7- An external quality assessment team was evaluating the independence of an internal audit activity.

The internal audit activity performs engagements concerning all of the elements included in its scope.

Which of the following reporting responsibilities is most likely to threaten the internal audit activity’s

independence? Reporting to the

A. President.

B. Chief financial officer.

C. Executive vice president.

D. Audit committee.

8- In some cultures, and organizations, managers insist that an internal audit activity is not needed to

provide a critical assessment of the organization’s operations. This kind of management attitude will

most probably have an adverse effect on the internal audit activity’s

A. Operating budget variance.

B. Effectiveness.

C. Performance appraisals.

D. Policies and procedures.

 

9- The reporting structure that is most likely to allow the internal audit activity to accomplish its

responsibilities is to report administratively to the

A. Chief executive officer and functionally to the board of directors.

B. Board and functionally to the chief executive officer.

C. Chief executive officer and functionally to the external auditor.

D. Controller and functionally to the chief financial officer.

 

10- When evaluating the independence of an internal audit activity, a quality assurance review team

performing an external assessment considers several factors. Which of the following factors has

the least amount of influence when judging an internal audit activity’s independence?

A. Relationship between engagement records and engagement communications.

B. The extent of internal auditor training in communications skills.

C. Impartial and unbiased judgments.

D. Criteria used in making internal auditors’ assignments.

 

11- Which of the following describes the chief audit executive’s optimal reporting line to enhance the

independence of the internal audit activity?

A. Administrative reporting to the chief financial officer.

B. Administrative reporting to the board.

C. Functional and administrative reporting to the president of the organization.

D. Functional reporting to the audit committee.

 

12- A charter is being drafted for a newly formed internal audit activity. Which of the following best

describes an appropriate organizational position to be incorporated into the charter?

A. The chief audit executive is a member of the board.

B. The chief audit executive is a staff officer reporting to the chief financial officer.

C. The chief audit executive reports to an administrative vice president.

D. The chief audit executive reports to the chief executive officer but has access to the board.

 

13- A formal document (charter) approved by the board that defines the internal audit activity’s

purpose, authority, and responsibility enhances its

A. Proficiency.

B. Independence.

C. Relationship with management.

D. Exercise of due professional care.

 

14- To avoid being the apparent cause of conflict between an organization’s senior management

and the board, the chief audit executive should

A. Strengthen the independence of the internal audit activity through organizational position.

B. Discuss all reports to senior management with the board first.

C. Communicate all engagement results to both senior management and the board.

D. Request board approval of policies that include internal audit activity relationships with the

board.

15- An organization is in the process of establishing its new internal audit activity. The controller has

no previous experience with internal auditors. Due to this lack of experience, the controller advised

the applicants that the CAE will be reporting to the external auditors. However, the new chief audit

executive will have free access to the controller to report anything important. The controller will then

convey the CAE’s concerns to the board of directors. The internal audit activity will

A. Not be independent because the organization did not specify that the applicants must be certified

internal auditors.

B. Not be independent because the CAE reports to the external auditors.

C. Be independent because the CAE has direct access to the board.

D. Not be independent because the controller has no experience with internal auditors.

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WHY IS INTEGRATED REPORTING IMPORTANT FOR SUSTAINABILITY?

Why Is Integrated Reporting Important For Sustainability?

It was soon realised that sustainable development goals which require long-term planning and a cooperative approach could not be achieved with the decisions and practices of the state only.
Accordingly, the notion of corporate sustainability, which was defined for sustainable development for macro-scale states, in parallel with micro-scale enterprises, states that social goals such as the protection of the environment, social justice, equality and economic development must be achieved, while accepting that companies need to grow and make profits.
Thus the goal of corporate sustainability is to create an awareness of carrying out business in harmony with the principles of sustainable development. It strives to make sure that establishments aim to create long-term stakeholder value and observe the interests of the system in which it operates rather than their own interests only. What is aimed at that point is to establish equilibrium between economic return and social and environmental impact; to make these components measurable and to integrate them into the operations and corporate management as well as to integrate the generated service or product into the whole life cycle. This is the hardest task of all because adopting such an approach will force establishments to reconsider some factors which they had previously defined as external and express them in numbers for the sake of corporate sustainability. This requires that some habits be given up and that a different and holistic point of view be adopted.
According to Mervyn King, Chairman of the International Integrated Reporting Council (IIRC) and Chairman Emeritus of the Global Reporting Initiative (GRI), the management should monitor and manage both financial and nonfinancial elements across the whole value chain (from design and supply chain to operation and from consumer purchases to the end of the product life-cycle) rather than focusing on financial performance only. The goal is to ensure that financial and nonfinancial data are integrated… The logic here is that neither corporate financial reports nor the increasingly popular sustainability reports present a comprehensive view of the establishment’s value and performance; unless these two come together, neither type of report will be complete.
Integrated reporting is a brief and to the point means of communication which directs an establishment’s strategies, corporate governance, performance and goals towards creating value in a way that will include its external environment in the short, medium and long term.

The integrated report, which brings together the financial and nonfinancial data is aimed at all stakeholders that play a part in the value creation chain of an organisation, which includes the employees, customers, suppliers, business partners, local communities, policy-makers and law and standard-makers.
An integrated report must not be thought of as an annual report that contains financial tables only and another one that combines environmental, social and corporate governance information. The key here is to bring together financial data with nonfinancial components that are seen as external components and to establish a relationship between these two through the integrated report. Achieving Sustainability through Integrated Reporting contains some example questions about the kind of information that an integrated report can contain: How much water does a company use per unit of production compared to its competitors? To what extent do energy-efficiency programs reduce carbon emissions and lower the costs of production? What is the impact of training programs on improved workforce productivity, lower turnover, and greater customer satisfaction? How do improvements in customer satisfaction lead to greater customer loyalty, a larger percentage of the customer’s spending, and higher revenue growth? How is better management of reputational risk through good corporate governance contributing to the value and robustness of the company’s brand?
The International Integrated Reporting Council (IIRC), which consists of law-makers, standard-makers, investors, companies, accounting professionals and NGOs, published its standards for integrated reporting in December 2013 in the belief that the next step in the future of corporate reporting will be creating value.

Some examples of integrated reporting practices in the world are as follows: in 2010 South Africa made it compulsory for all listed companies to prepare integrated reports, which was a first in the world. In 2008 Argentina introduced the obligation of companies with over 300 employees to publish annual sustainability reports. Denmark, Sweden and Norway also have sustainability report rules in place. France, on the other hand, expects all listed or large corporations to prepare annual reports within the framework of the rules of Grenelle II, and these annual reports must contain information about the social and environmental impact of the operations of such corporations.
following will play an important part in the future of integrated reporting:

It should be ensured that notions of social and environmental benefit are better understood by stakeholders, and particularly by consumers. Accordingly it should be ensured that the public gains an awareness of sustainable development;
The integrated reporting infrastructure should be turned into an approach which will naturally adopted by environmental, social and corporate governance in companies;
Integrated reporting should be spread across a wide range of companies from small and medium enterprises to start-up companies rather than being limited to listed or large companies;
Auditing standards must be set to ensure the accuracy of the information contained in the reports;
The relationship between the financial and nonfinancial data contained in the reports must be established efficiently and such connection should be made measurable and subject to standards;
Reward and punishment mechanisms should be set up;
The sustainability effect should be added to the results as (+) or (-) in the calculation of enterprise value and brand value.

courtesy:

İzel Levi Coşkun
Mazars