Essay based MCQ. CIA Part 1

 Essaybased MCQ

Please read carefully and attempt question ⁉️

  A service company is currently experiencing a significant downsizing and process reengineering. Its board of directors has redefined the business goals and established initiatives using technology developed in house to meet these goals. As a result, a more decentralized approach has been adopted to run the business functions by empowering the business branch managers to make decisions and perform functions traditionally done at a higher level. The internal auditing staff is made up of the director, two managers, and five staff auditors, all with financial background. In the past, the primary focus of successful audit activities has been the service branches and the six regional division headquarters, which support the branches. These division headquarters are the primary targets for possible elimination. The support functions, such as human resources, accounting, and purchasing, will be brought into the national headquarters, and technology will be enhanced to enable and augment these operations. Up to this point, internal auditing has reported to the chief operating officer. Due to the significant changes, there has been some discussion as to changing this reporting relationship. What would be the best reporting relationship for internal auditing? 

A.Administrative and functional to the president. 

B.Administrative to the president, functional to the board. 

C.Administrative to the chief financial officer and functional to the president. 

D.Administrative and functional to the chief operating officer.

You can submit your answers to what's up 9773464206

Independence & Objectivity of Internal Auditors please refer... Case Study: Enron and Arthur Andersen

Independence & Objectivity of Internal Auditors  please refer...

 Case Study: Enron and Arthur Andersen

The Enron scandal serves as a stark reminder of the consequences that can arise when independence and objectivity are compromised. Arthur Andersen, the auditing firm responsible for Enron's financial statements, failed to maintain independence and objectivity, leading to catastrophic consequences for both the company and the auditing profession. The case highlighted the importance of stringent measures and ethical guidelines to prevent conflicts of interest and ensure the integrity of public company audits.

Ensuring independence and objectivity in public company audits is vital for upholding the accuracy and integrity of financial reporting. By implementing measures such as rotational policies, robust oversight, and restrictions on non-audit services, auditors can minimize the risk of bias and conflicts of interest. Effective communication and consultation further enhance the objectivity of auditors, enabling them to provide reliable and unbiased assessments.

This article ✍️ helpful for cia part 1 students.. please respond with your comments, queries...Sure i will help you.

Regards from Prof Mahaley Head Gmsisuccess Mumbai 

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Mocktest... Solve following questions ‼️ submit your answers.. Fill in the Gap...

 Mocktest... Solve following questions ‼️ submit your answers..

Fill in the Gap...

Question 1

Internal auditors should maintain their _______________________ by avoiding conflicts of interest and bias.

Answer: 

Question 2

The internal audit activity should be _______________________ from the activities being audited to ensure unbiased audit findings.

Answer: 

Question 3

Internal auditors should demonstrate their _______________________ by being honest, transparent, and ethical in their professional activities.

Answer: 

Question 4

The internal audit charter should clearly outline the internal audit activity's _______________________ and authority.

Answer: 

Question 5

Internal auditors should report to the _______________________ to ensure independence and objectivity.

Answer: 

Question 6

Internal auditors should avoid conflicts of interest by not auditing areas where they have a _______________________ interest.

Answer: 

Question 7

The internal audit activity should have a _______________________ program to ensure the quality of audit work.

Answer: 

Question 8

Internal auditors should maintain their _______________________ by staying up-to-date with professional standards and best practices.

Answer: 

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Guideline for attempting the CIA Part 1 exam confidently!

Guideline for attempting the CIA Part 1 exam confidently:

Pre-Exam Preparation

Before starting the exam, make sure you:

1. *Read the instructions carefully*: Understand the exam format, time limit, and any specific instructions.

2. *Plan your time*: Allocate time for each section and question based on their complexity and your familiarity with the topic.

3. *Stay calm and focused*: Take deep breaths, and try to relax.

First Hour Strategy (40+ MCQ)

During the first hour, focus on attempting simple and understandable questions first:

1. *Quickly scan the questions*: Identify questions that are straightforward and easy to understand.

2. *Attempt 40+ MCQ*: Focus on completing at least 40 simple questions within the first hour.

3. *Use the process of elimination*: Eliminate obviously incorrect options to increase your chances of selecting the correct answer.

4. *Mark questions for review*: If you're unsure about a question, mark it for review and come back to it later.

Second and Third Hour(starting )Strategy

After completing the simple questions, move on to more complex questions:

1. *Tackle moderate-level questions*: Attempt questions that require more analysis and critical thinking.

2. *Use your knowledge and experience*: Apply your knowledge of internal auditing concepts, standards, and best practices to answer questions.

3. *Manage your time effectively*: Allocate time for each question based on its complexity and your familiarity with the topic.

Final 30 Minutes Strategy

During the final 30 minutes, focus on:

1. *Reviewing marked questions*: Go back to questions you marked for review and attempt to answer them.

2. *Checking your work*: Review your answers to ensure you've selected the correct option.

3. *Making educated guesses*: If you're unsure about a question, make an educated guess based on your knowledge and experience.

Additional Tips

1. *Stay focused and calm*: Take breaks if needed, and try to relax.

2. *Use the exam software effectively*: Familiarize yourself with the exam software and use its features to your advantage.

3. *Don't get stuck on a question*: Move on to the next question if you're unsure or stuck.

By following these guidelines and strategies, you'll be well-prepared to tackle the CIA Part 1 exam and achieve a high score.

Students... feel free 🆓 to discuss with me.. share your views, suggestion, queries here ✍️ in comment box.. Sure i will guide you respond you within shortest possible time.

Best wishes 🍀 

Prof Mahaley

Head Gmsisuccess Mumbai Tel 9773464206

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Interpreting MCQ questions in the Certified Internal Auditor (CIA) Part 1 exam can be challenging. Here are some tips to help you prepare and improve your ability to interpret MCQ questions:

 Interpreting MCQ questions in the Certified Internal Auditor (CIA) Part 1 exam can be challenging. Here are some tips to help you prepare and improve your ability to interpret MCQ questions:

Understand the Exam Format and Content

Familiarize yourself with the exam format, content, and question types. The CIA Part 1 exam consists of 125 MCQs(2.5 hours or 150 minutes), covering topics such as IPPF ,internal audit standards, IIA ethics, and internal control systems with COSO COBIT,Risk Management etc 

✍️ Develop Your Analytical and Logical Reasoning Skills .....Refer GMSI Article (How to interpret MCQ Questions ⁉️)

CIA exam questions often require analytical and logical reasoning skills. Practice breaking down complex questions into simpler components, identifying key words and phrases, and evaluating the relationships between different pieces of information.

✍️ Focus on Key Topics and Concepts

Identify the most critical topics and concepts in the CIA Part 1 exam, such as:

- Internal audit standards (e.g., IPPF, IIA Standards)

- Internal audit ethics (e.g., Code of Ethics, independence and Objectivity, Integrity,confidentiality)

- COSO and COBIT frameworks

- Internal control systems (e.g., control environment, risk assessment plus Accounting Information System etc) #Refer GMSI Article for AIS,Business acumen Corporate culture etc

Concentrate your studies on these areas, and make sure you understand the key concepts, principles, and relationships.

✍️ Practice with Sample Questions and Case Studies..Refer GMSI Pre Exam Test Series Basic & Challenging mocktest,Prof Mahaleys thorough performance evaluation report sure help you to know strong &weak areas topic subtopic and also MCQ Questions ⁉️ interpretation tactics & tricks..discussed during lecture.

Utilize sample questions, case studies, and practice exams to help you develop your analytical and logical reasoning skills. This will also help you become familiar with the exam format and question types.

Some recommended resources include:

- IIA Learning System

- CIA Exam Prep Courses (e.g., GMSI Audio visual recorded lecture with pdf notes)

- Practice exams and sample questions on the IIA website plus GMSI Pre Exam Test Series Basic & Challenging.

✍️ Improve Your Reading Comprehension and Speed

CIA exam questions often require you to read and understand complex information quickly. Practice improving your reading comprehension and speed by:

- Reading technical articles and books on internal auditing and related topics,also refer GMSI Article for CIA students 

- Taking practice exams and quizzes under timed conditions

- Using techniques such as skimming, scanning, and note-taking to improve your reading efficiency

✍️ Correlate Key Words and Phrases with Option Answers.. Read regularly GMSI Article & Attend GMSI live lecture in this regard..what & how to focus..

When reading MCQ questions, identify key words and phrases that can help you correlate with the option answers. Look for:

- Action verbs (e.g., "evaluate," "assess," "recommend" &  many)

- Technical terms and concepts (e.g., "COSO," "COBIT," "internal control" &  many)

- Descriptive phrases (e.g., "in accordance with," "consistent with," "in compliance with" & many)

Use these key words and phrases to help you eliminate incorrect options and select the correct answer.

✍️ Manage Your Time Effectively

During the exam, manage your time effectively by:

- Allocating time for each question based on its complexity and your familiarity with the topic

- Using a systematic approach to read and answer questions (e.g., read the question, identify key words and phrases, eliminate incorrect options, select the correct answer)

- Avoiding spending too much time on a single question; move on to the next question and come back to it later if necessary

I hope this helps you to build up 💯 exam preparation streregy for exam success.

In next article I will guide..how to cope with MCQ Questions ⁉️ easily during the exam.

Thanks students for responding.. please write ✍️ your comments, suggestion here or text me on 9773464206 or email ✉️ gmsisuccess1@gmail.com

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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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Mocktest on Internal Audit Activity, it's Independence Objectivity Confidentiality, scope limitations and Resource limitations

 Only for CIA Part 1 students

Mocktest on Internal Audit Activity, it's Independence Objectivity Confidentiality, scope limitations and Resource limitations.. please solve..Answers will be provided tommorrow morning

1. What is a scope limitation in internal auditing?

A) A limitation on the resources available to the auditor

B) A restriction on the scope of the audit

C) A limitation on the auditor's ability to test certain transactions

D) A restriction on the auditor's access to certain areas or systems

Answer: 

2. Which of the following is an example of a scope limitation?

A) Insufficient budget to conduct the audit

B) Limited access to certain procurement records

C) Inadequate technology to analyze complex financial transactions

D) Lack of expertise to test certain IT systems

Answer: 

3. What is a resource limitation in internal auditing?

A) A restriction on the scope of the audit

B) A limitation on the resources available to the auditor

C) A limitation on the auditor's ability to test certain transactions

D) A restriction on the auditor's access to certain areas or systems

Answer: 

4. Which of the following is an example of a resource limitation?

A) Limited access to certain procurement records

B) Insufficient budget to conduct the audit

C) Inadequate technology to analyze complex financial transactions

D) Lack of expertise to test certain IT systems

Answer: 

5. How can internal auditors manage scope limitations?

A) By increasing the audit budget

B) By using specialized software or technology

C) By negotiating with management to expand the scope of the audit

D) By using alternative audit procedures

Answer: 

6. How can internal auditors manage resource limitations?

A) By increasing the audit budget

B) By using specialized software or technology

C) By outsourcing certain audit tasks or procedures

D) By using alternative audit procedures

Answer

7. What is the primary purpose of maintaining independence in internal auditing?

A) To ensure compliance with laws and regulations

B) To provide assurance on the effectiveness of internal controls

C) To maintain objectivity and avoid conflicts of interest

D) To promote organizational efficiency and effectiveness

Answer: 

8. Which of the following is a threat to objectivity in internal auditing?

A) Reporting to the audit committee

B) Having a direct reporting line to the CEO

C) Participating in management decision-making processes

D) Providing consulting services to management

Answer: 

9. What is the primary purpose of maintaining confidentiality in internal auditing?

A) To protect sensitive information from unauthorized disclosure

B) To ensure compliance with laws and regulations

C) To provide assurance on the effectiveness of internal controls

D) To promote organizational efficiency and effectiveness

Answer: 

10. Which of the following is a characteristic of a professional approach in internal auditing?

A) Maintaining independence and objectivity

B) Providing consulting services to management

C) Participating in management decision-making processes

D) Focusing solely on compliance with laws and regulations

Answer: 

11. What is the primary benefit of adopting a professional approach in internal auditing?

A) To ensure compliance with laws and regulations

B) To provide assurance on the effectiveness of internal controls

C) To promote organizational efficiency and effectiveness

D) To enhance the credibility and reputation of the internal audit function

Answer: 

12. Which of the following is a potential consequence of failing to maintain independence and objectivity in internal auditing?

A) Loss of credibility and reputation

B) Inability to provide assurance on the effectiveness of internal controls

C) Failure to identify and report material weaknesses

D) All of the above

Answer: 

13. What is the primary purpose of establishing a code of ethics in internal auditing?

A) To ensure compliance with laws and regulations

B) To provide assurance on the effectiveness of internal controls

C) To promote organizational efficiency and effectiveness

D) To establish guidelines for professional behavior and conduct

Answer:

14. Which of the following is a characteristic of a code of ethics in internal auditing?

A) It is mandatory and enforceable

B) It is voluntary and non-binding

C) It applies only to internal auditors

D) It applies to all employees of the organization

Answer: 

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Pre Exam Test Series CIA Part 1 2 3

CIA Pre-Exam Test Series

Prepare for the Certified Internal Auditor (CIA) exam with our comprehensive test series. Our program helps you:

- Assess your exam readiness

- Identify strong and weak areas (topics, subtopics, concepts, terms, and question interpretation)

- Develop a study plan to improve your performance

- Boost your confidence to achieve a score of 82% or higher

Benefits of Our Test Series

- Comprehensive assessment of your knowledge and skills

- Personalized report card highlighting your strengths and weaknesses

- Guidance on when to book your exam (2024 or 2025)

- Improved chances of passing the CIA exam with a high score

Get Started Today!

Text your availability to 9773464206 or click the link below to access our free test series:

https://g.page/GMSI-Training-Centre?gm

Don't miss this opportunity to assess your CIA exam readiness and improve your chances of success!

CIA and US CMA Exam Stretegy.. how to Crack MCQ Questions ⁉️

 Stretegy to crack 400+ scale in part 1 and part 2

1.Be familiar with concepts of all topic, subtopic,even terms, phrases.

2.Don't wait for revision..once you understand topics,parellelly solve MCQ, your tutors mocktest,even essay based questions‼️ 

3.During lecture, ✍️ important terms, sentence, logical step.. don't stuck in textbook..move ahead..

4.Ask question ⁉️ queries, discuss with teachers,follow students who  respond quickly:refer their solution..

5.Solve questions from students support guide of IMA,that you will get,once you register with IMA..

6.Your confidence & exam competency build up mainly during online offline lecture, during which question answers sessions conducted..participates that.. don't miss 

7.Try to finish mocktest, before time slot allotted by teacher 

8.Memorize important types of questions, with their logical steps.. mainly variance analysis, budgetary control,joint cost,overhead allocation etc

9.Solve simulated 3hours comprehensive mocktest, before booking exam..at least 3..get your performance report.. know your possibility of wrong steps,wrong assumption,wrong application etc 

10.In main exam also..if you are confident & aggressive then..you can solve mcq in three steps..a.solve first question ⁉️ which easily click.. approx 30+questions ‼️ in first hour..next b moderately difficult 35+ in 2nd hour c.difficult , challenge or lengthy question ⁉️ in 3rd hour 

Students..Start your study with positive approach..

Best wishes..

Prof Mahaley 

Head 

Gmsisuccess 

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CIA Part 1 & CMA Part 2 students:Essaybased Question ⁉️ Ethical Dilema

 Today's essay based questions ‼️ Topic..How to tackle Ethical issues/Dilemma in a organization

_Purchase Department_

1. Case Study:

Rahul, a purchase manager at a manufacturing company, is responsible for procuring raw materials. One day, he receives a bribe offer from a supplier in exchange for awarding them a contract. What should Rahul do?

A) Accept the bribe and award the contract

B) Reject the bribe and award the contract to another supplier

C) Report the incident to his supervisor

D) Ignore the incident and continue with the procurement process

Answer: 

1. Case Study:

A purchase department employee, Rohan, discovers that a supplier has been overcharging the company for raw materials. However, the supplier has been providing Rohan with personal gifts and favors. What should Rohan do?

A) Ignore the overcharging and continue accepting gifts and favors

B) Report the overcharging to his supervisor and return the gifts and favors

C) Confront the supplier and demand a refund

D) Resign from the company to avoid conflict

Answer

_Payroll Department_

1. Case Study:

A payroll department employee, Priya, discovers that an employee has been misrepresenting their work hours to receive extra pay. What should Priya do?

A) Ignore the issue and continue processing the employee's payroll

B) Report the issue to her supervisor and recommend disciplinary action

C) Confront the employee and demand repayment of the excess amount

D) Resign from the company to avoid conflict

Answer: 

1. Case Study:

A payroll department employee, Raj, is responsible for processing employee salaries. However, he discovers that the company is not paying its employees the minimum wage required by law. What should Raj do?

A) Ignore the issue and continue processing employee salaries

B) Report the issue to his supervisor and recommend corrective action

C) Confront the management and demand immediate correction

D) Resign from the company to avoid conflict

Answer:

_Human Resource Department_

1. Case Study:

A human resource department employee, Ramesh, discovers that an employee has been harassed by a colleague. However, the employee is hesitant to report the incident due to fear of retaliation. What should Ramesh do?

A) Ignore the issue and advise the employee to resolve it on their own

B) Report the issue to his supervisor and recommend disciplinary action against the harasser

C) Counsel the employee and provide support, but do not report the incident

D) Resign from the company to avoid conflict

Answer: 

1. Case Study:

A human resource department employee, Suresh, discovers that an employee has been misrepresenting their qualifications and experience on their resume. What should Suresh do?

A) Ignore the issue and continue employing the individual

B) Report the issue to his supervisor and recommend disciplinary action

C) Confront the employee and demand correction of their resume

D) Resign from the company to avoid conflict

Answer:

_Production Department_

1. Case Study:

A production department employee, Kumar, discovers that a machine is not functioning properly and is producing defective products. However, the production manager is pressuring him to meet the production targets and ignore the issue. What should Kumar do?

A) Ignore the issue and continue producing products

B) Report the issue to his supervisor and recommend corrective action

C) Confront the production manager and refuse to continue producing defective products

D) Resign from the company to avoid conflict

Answer:

1. Case Study:

A production department employee, Ravi, discovers that a colleague is not following safety protocols and is putting themselves and others at risk. What should Ravi do?

A) Ignore the issue and continue working

B) Report the issue to his supervisor and recommend corrective action

C) Confront the colleague and demand that they follow safety protocols

D) Resign from the company to avoid conflict

Answer: 

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_Senior Management Level_

1. Case Study:

The CEO of a company, Mr. Sharma, is considering a proposal to acquire a rival company. However, he has a personal relationship with the CEO of the rival company and stands to gain financially from the acquisition. What should Mr. Sharma do?

A) Approve the acquisition proposal without disclosing his personal relationship

B) Recuse himself from the decision-making process due to conflict of interest

C) Disclose his personal relationship to the board of directors and seek their approval

D) Reject the acquisition proposal due to potential conflict of interest

Answer:

1. Case Study:

The CFO of a company, Ms. Rao, discovers that the company's financial statements contain material errors that could mislead investors. However, the CEO is pressuring her to release the financial statements without correcting the errors. What should Ms. Rao do?

A) Release the financial statements without correcting the errors

B) Refuse to release the financial statements until the errors are corrected

C) Report the issue to the audit committee and seek their guidance

D) Resign from the company to avoid conflict

Answer: 

_Board of Directors_

1. Case Study:

The board of directors of a company is considering a proposal to pay a large bonus to the CEO, despite the company's poor financial performance. What should the board do?

A) Approve the bonus payment without questioning the CEO's performance

B) Reject the bonus payment due to the company's poor financial performance

C) Request additional information about the CEO's performance and the company's financial situation before making a decision

D) Delegate the decision to the compensation committee

Answer:

1. Case Study:

The board of directors of a company discovers that the CEO has been engaging in insider trading. What should the board do?

A) Terminate the CEO's employment contract immediately

B) Conduct an investigation into the CEO's activities before taking any action

C) Request the CEO to resign voluntarily

D) Take no action and allow the CEO to continue serving

Answer:

_Audit Committee_

1. Case Study:

The audit committee of a company discovers that the company's financial statements contain material errors that could mislead investors. What should the audit committee do?

A) Request the management to correct the errors and reissue the financial statements

B) Conduct an investigation into the causes of the errors

C) Report the issue to the board of directors and seek their guidance

D) Take no action and allow the financial statements to remain unchanged

Answer: 

1. Case Study:

The audit committee of a company receives a whistleblower complaint alleging that the company's management has been engaging in fraudulent activities. What should the audit committee do?

A) Conduct an investigation into the allegations immediately

B) Report the issue to the board of directors and seek their guidance

C) Request the management to investigate the allegations and report back to the audit committee

D) Take no action and dismiss the whistleblower complaint as unfounded

Answer: 

Please solve & submit your answers

gmsisuccess1@gmail.com

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CIA Part 1: MCQ test: Independence Objectivity & Internal Audit Charter

 Today's MCQ mocktest. basic.. please solve, submit your answers

_Internal Audit Charter_

1. What is the primary purpose of an internal audit charter?

A) To establish the internal audit function's responsibilities and authority

B) To define the scope of internal audit activities

C) To identify the internal audit function's stakeholders

D) To outline the internal audit function's reporting requirements

Answer: 

1. Which of the following should be included in an internal audit charter?

A) Audit procedures and techniques

B) Audit scope and objectives

C) Auditor's qualifications and experience

D) Management's responsibilities and expectations

Answer: 

_Independence and Objectivity of Internal Auditor_

1. What is the primary requirement for internal auditors to maintain their independence?

A) Reporting directly to the board of directors

B) Having no operational responsibilities

C) Being free from management's influence

D) Having unlimited audit budget

Answer: 

1. Which of the following can compromise an internal auditor's objectivity?

A) Having a close relationship with management

B) Having a financial interest in the company

C) Having a family member working in the company

D) All of the above

Answer: 

_Definition of Internal Auditing as per IIA_

1. According to the IIA, what is internal auditing?

A) An independent, objective assurance and consulting activity designed to add value and improve an organization's operations

B) A management function responsible for ensuring compliance with laws and regulations

C) A financial function responsible for preparing financial statements

D) A operational function responsible for managing day-to-day activities

Answer: 

1. Which of the following is NOT a key characteristic of internal auditing as per the IIA?

A) Independence

B) Objectivity

C) Assurance

D) Management

Answer: 

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Internal audit failure leads to corporate governance failure

Toshiba - a case of internal audit failure:

Toshiba, a 140-year-old pillar of Japan Inc, is caught up in the country's biggest accounting scandal since 2011. In 2011, Olympus Corp was embroiled in a scandal. In July 2015, Toshiba Corp president Hisao Tanaka and his two predecessors quit after investigators found that the company inflated earnings by at least $1.2 billion during the period 2009-2014. Toshiba is one of the early adopters of the corporate governance reforms initiated in Japan. The corporate governance structure met corporate governance standards. Time and again cases of corporate governance failures have provided evidence that good corporate governance structure does not necessarily lead to good corporate governance. Organisation culture is a critical determinant of the quality of corporate governance.

Some of the observations of the independent investigation committee of the company on internal audit demand discussion and debate.

The investigation committee observes, "According to the division of duties rules of Toshiba, the corporate audit division is in charge of auditing the corporate divisions, the companies, branch companies, and affiliated companies. However, in reality the corporate audit division mainly provided consultation services for the 'management' being carried out at each of the companies, etc (as part of the business operations audit), and it rarely conducted any services from the perspective of an accounting audit into whether or not an accounting treatment was appropriate."

The observations of the committee give the impression that the fault of the internal audit in Toshiba was that it focused on consultation service rather than assurance service. Should internal audit avoid providing consultation service? I do not think so. It was not the fault of the internal audit that it provided consultation service. The fault was that it did not pay attention to accounting audit.

In Toshiba, the top management used to set targets that are unachievable. There was excessive pressure from the top management to achieve those targets.

The variable pay is a significant portion of the total pay. The compensation of executive officers comprises a base compensation based on title and a role compensation based on work content. Forty per cent to 45 per cent of the role compensation is based on performance of the overall company or business department. 'Challenge' to achieve unachievable targets and performance-based pay provide enough motivation to manage earnings. Therefore, accounting audit should have been a focus area for internal audit.

Internal audit can function independently only if the audit committee is capable, independent and effective, and the internal auditor reports to the audit committee.

In Toshiba, the audit committee was neither capable nor independent. The three external members of the audit committee had no knowledge of finance and accounting. An ex-Chief Financial Officer (CFO), who was the CFO during the timeframe when accounting irregularities occurred, was the only whole time member of the audit committee. Therefore, the internal audit was not independent of the management. Earnings management had the tacit approval of the top management. Therefore, it is not surprising that accounting audit was excluded from the scope of internal audit. It is incorrect to infer that the accounting audit did not receive the attention of the internal audit because its focus was on providing consultation service.

Contemporary literature defines internal audit as 'assurance and consulting service'. The issue is of balancing between consultation service and assurance service. Problem arises when the internal auditor forgets that the internal audit is primarily an assurance function. The consultation service flows from the assurance service. Although, the primary objective of operation audit is to obtain assurance that the internal control that is installed to achieve operation objectives is adequate and operating effectively, the auditees look to the internal auditor for suggestions and consultancy. Such consultation service is a by-product of the assurance service. Auditees should not be denied the benefits of internal auditor's understanding of the industry and the business, and the challenges before the auditees in achieving operation objectives. Exclusion of consultation service from the scope of internal audit would result in sub-optimal utilisation of internal audit resources.

Organisation culture also determines the effectiveness of internal audit. The investigation committee observes, "A corporate culture existed at Toshiba whereby employees could not act contrary to the intent of their superiors". In such a culture an upright internal auditor cannot survive, particularly if he is not independent of the management. Perhaps, it is the reason that the internal audit in Toshiba had chosen the easy path of focusing on 'consultation service' only without reporting internal control weaknesses.

Internal auditor is the 'eyes and ears' and 'go-to man' of the audit committee. Therefore, internal audit failure leads to corporate governance failure.

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