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Section A
🧠CIA Part 1 – Professional Ethics & Internal Audit Fundamentals
1. Objectivity
Q1.
An internal auditor accepted tickets to a sports event from a department manager whose area she is scheduled to audit next month. What principle has most likely been compromised?
A. Integrity
B. Objectivity
✅ Answer: B. Objectivity
Explanation:
Accepting gifts from auditees creates a potential conflict of interest, impairing the auditor’s objectivity even if there is no direct bias in audit work.
2. Integrity
Q2.
Which of the following best demonstrates integrity in internal auditing?
A. Reporting significant observations truthfully even when pressured by senior management.
B. Avoiding audits of areas where personal expertise is limited.
C. Maintaining confidentiality of sensitive audit information.
D. Disclosing all audit findings directly to external regulators.
✅ Answer: A.
Explanation:
Integrity means being honest, candid, and courageous in reporting facts, even when inconvenient or politically difficult.
3. Confidentiality
Q3.
An internal auditor unintentionally discloses client data in a training presentation. Which IIA Code of Ethics principle is most directly violated?
A. Integrity
B. Objectivity
C. Confidentiality
D. Proficiency
✅ Answer: C. Confidentiality
Explanation:
Confidentiality requires internal auditors to protect information acquired during duties and not use it for personal or external advantage.
4. Proficiency
Q4.
An auditor with accounting experience but no IT training is assigned to review a complex cybersecurity control environment. According to the Standards, what should the auditor do?
A. Proceed and learn during the engagement.
B. Decline the assignment due to lack of independence.
C. Request assistance or supervision from a qualified IT auditor.
D. Report to the audit committee about the lack of resources.
✅ Answer: C.
Explanation:
Auditors must possess the knowledge, skills, and competencies needed (Standard 1210). Seeking expert help ensures proficiency and audit quality.
5. Independence
Q5.
The CAE reports administratively to the CFO and functionally to the audit committee. Independence is:
A. Fully impaired.
B. Partially impaired due to administrative reporting.
C. Adequate if the audit committee approves the audit plan and budget.
D. Inadequate because independence must be absolute.
✅ Answer: C.
Explanation:
Functional reporting to the board/audit committee safeguards independence, even if administrative reporting is to management.
Q6.
During an audit, management restricts access to certain operational data. What should the auditor do FIRST?
A. Accept the limitation and complete the audit with available data.
B. Note the limitation and reduce the scope of testing.
C. Communicate the limitation to the CAE for possible disclosure to the board.
D. Withdraw from the engagement immediately.
✅ Answer: C.
Explanation:
Per IIA Standard 2600, scope limitations must be communicated to the board if they may impact the audit conclusion.
Q7.
If the internal audit activity lacks sufficient staff or skills to execute the annual audit plan, the CAE should:
A. Prioritize engagements and report resource limitations to senior management and the board.
B. Hire external consultants without board approval.
C. Proceed with limited coverage.
D. Defer all complex audits indefinitely.
✅ Answer: A.
Explanation:
Resource limitations that affect the audit plan must be communicated to senior management and the board (Standard 2030).
8. Audit Mandate / Internal Audit Charter
Q8.
Which of the following statements regarding the internal audit charter is TRUE?
A. It is optional and may be issued at the discretion of the CAE.
B. It defines internal audit’s authority, responsibility, and accountability.
C. It is prepared and approved solely by senior management.
D. It is a confidential document for internal auditors only.
✅ Answer: B.
Explanation:
The charter formally defines the internal audit activity’s purpose, authority, and responsibility, and must be approved by the board (Standard 1000).
9. Independence & Objectivity Conflict
Q9.
An internal auditor who previously managed the payroll department is asked to audit that function one year later. What is the best course of action?
A. Accept the engagement since one year has passed.
B. Decline the engagement due to potential impairment of objectivity.
C. Proceed but avoid testing areas previously managed.
D. Disclose the prior relationship to the CAE and continue.
✅ Answer: B.
Explanation:
Per IIA Standard 1130.A1, auditors must not audit activities for which they had responsibility within the previous 12 months.
10. Audit Charter & Independence
Q10.
To ensure independence, the internal audit charter should explicitly authorize:
A. Unrestricted access to all records, personnel, and physical properties.
B. Access limited to financial data only.
C. Reporting of results only to management.
D. Engagement approval by department heads.
✅ Answer: A.
Explanation:
The charter must give internal auditors unrestricted access to information and resources relevant to audits (Standard 1000).
11. Audit Scope Limitation Reporting
Q11.
If management refuses to remove a scope limitation, the CAE must:
A. Abandon the engagement immediately.
B. Communicate the limitation and its implications to the board.
C. Modify the audit opinion privately.
D. Adjust audit procedures silently.
✅ Answer: B.
Explanation:
Transparency requires the CAE to inform the board about unresolved scope limitations that could affect audit results (Standard 2600).
12. Professional Proficiency & Due Care
Q12.
Which of the following best represents due professional care under IIA Standard 1220?
A. Ensuring 100% accuracy of audit findings.
B. Considering the probability of significant errors, fraud, or noncompliance.
C. Delegating complex tasks to trainees.
D. Avoiding all use of professional judgment.
✅ Answer: B.
Explanation:
Due professional care requires auditors to apply reasonable assurance, considering the likelihood of material issues—not absolute accuracy.
Section B:
🧠CIA Part 1 — Advanced Case-Based MCQs
1. (Integrity & Pressure from Management)
During an audit of procurement, the auditor discovers evidence suggesting that a senior manager bypassed company policy for vendor selection. The CAE asks the auditor to “tone down” the wording in the final report to avoid damaging relationships. What is the most appropriate action?
A. Follow the CAE’s direction and issue a softer report.
B. Report the finding accurately, emphasizing evidence and facts.
C. Exclude the finding and include it in working papers only.
D. Wait for management’s self-report before proceeding.
✅ Answer: B.
Explanation:
The integrity principle requires internal auditors to report findings truthfully and fairly, even under pressure (IIA Code of Ethics: Integrity).
2. (Objectivity Conflict)
An internal auditor was recently promoted from the payroll department to the audit team. The CAE assigns her to review payroll processes. What should the auditor do?
A. Accept the engagement since she is now in audit.
B. Refuse the assignment and notify the CAE of potential objectivity impairment.
C. Conduct only high-level testing to avoid bias.
D. Proceed after informing management.
✅ Answer: B.
Explanation:
Per Standard 1130.A1, auditors must not assess activities they were responsible for in the past 12 months, as it impairs objectivity.
3. (Confidentiality Breach)
While on-site, an auditor overhears two team members discussing sensitive audit findings in a cafeteria where employees can overhear. Which principle has been violated?
A. Integrity
B. Confidentiality
C. Proficiency
D. Independence
✅ Answer: B.
Explanation:
Confidentiality requires auditors to safeguard audit information and not disclose it inappropriately (IIA Code of Ethics: Confidentiality).
4. (Proficiency & External Expertise)
The internal audit activity is assigned to evaluate complex cybersecurity controls, but the team lacks IT expertise. Which is the most appropriate action for the CAE?
A. Cancel the engagement.
B. Outsource the engagement or bring in IT specialists.
C. Proceed with available auditors using a checklist.
D. Defer until auditors receive IT training.
✅ Answer: B.
Explanation:
Standard 1210.A1 allows the CAE to use external experts when the team lacks the necessary skills or knowledge.
5. (Independence Reporting Structure)
The CAE reports to the CFO for both administrative and functional purposes. To strengthen independence, what change should be made?
A. Report administratively to the CEO and functionally to the audit committee.
B. Report fully to the CFO.
C. Move to the legal department.
D. Continue current reporting if audit plans are approved by CFO.
✅ Answer: A.
Explanation:
To ensure independence, the CAE should report functionally to the board/audit committee and administratively to executive management.
6. (Scope Limitation)
Management denies access to certain risk assessment documents claiming confidentiality. What is the auditor’s best response?
A. Document the denial and inform the CAE to escalate the issue.
B. Proceed without those documents.
C. Modify findings to reflect missing data.
D. Conduct a limited review and issue a disclaimer.
✅ Answer: A.
Explanation:
A scope limitation should be communicated to the CAE and, if unresolved, to the board per Standard 2600.
7. (Resource Limitation Impact)
Due to staff shortages, the internal audit department cannot complete the approved annual plan. What should the CAE do?
A. Revise the plan and communicate limitations to senior management and the board.
B. Skip low-risk audits without reporting.
C. Outsource remaining audits without approval.
D. Delay all work until next cycle.
✅ Answer: A.
Explanation:
Per Standard 2030, resource limitations affecting the plan must be reported to the board and senior management.
8. (Internal Audit Charter – Authority Issue)
A department head refuses to share performance data with auditors, claiming internal audit has “no authority” over operations. Which document clarifies internal audit’s right of access?
A. Code of Ethics
B. Internal Audit Charter
C. Engagement letter
✅ Answer: B.
Explanation:
The internal audit charter defines the authority, purpose, and responsibility of the internal audit activity, including unrestricted access to records (Standard 1000).
9. (Objectivity in Combined Roles)
The CAE is asked by the CEO to temporarily oversee the compliance department while still leading the internal audit function. What risk arises?
A. Impairment of objectivity and independence.
B. Enhanced assurance coverage.
C. Conflict with confidentiality only.
D. Violation of due professional care.
✅ Answer: A.
Explanation:
Performing management functions like compliance oversight impairs independence and objectivity (Standard 1112).
10. (Ethical Dilemma – Integrity & Confidentiality)
An auditor discovers evidence of potential fraud involving a senior executive. The CAE advises waiting until after year-end to report to avoid “corporate disruption.” What should the auditor do?
A. Follow the CAE’s instruction to maintain confidentiality.
B. Immediately report the issue to the board or audit committee.
C. Report to HR and legal counsel only.
D. Wait until management approves the disclosure.
✅ Answer: B.
Explanation:
Integrity and professional responsibility require immediate reporting of significant fraud risks to the board/audit committee, not delay for convenience (Standard 2060).
11. (Proficiency – Continuous Development)
An internal auditor certified 5 years ago has not pursued continuing professional education (CPE). What risk exists?
A. Loss of independence.
B. Lack of due professional care.
C. Impairment of proficiency.
D. Violation of confidentiality.
✅ Answer: C.
Explanation:
Auditors must maintain proficiency through continuous professional development (Standard 1210 & IIA Code of Ethics).
12. (Scope Limitation – Disclosure Level)
If a significant scope limitation affects the ability to form a conclusion, how should it be reported?
A. Include it only in internal working papers.
B. Communicate it to senior management and the board.
C. Adjust audit scope silently.
D. Discuss with the auditee and resolve internally.
✅ Answer: B.
Explanation:
Per Standard 2600, unresolved scope limitations must be communicated to the board with their implications.
13. (Resource Allocation – Audit Plan Risk)
The CAE is pressured to add new engagements to the plan without increasing resources. What should the CAE do?
A. Accept the request and reduce testing depth.
B. Inform management and the board of the resource constraint and risk to coverage.
C. Defer other audits silently.
D. Outsource without notifying the board.
✅ Answer: B.
Explanation:
Resource limitations that reduce audit coverage must be communicated to the board (Standard 2030).
14. (Audit Charter & Organizational Independence)
To ensure organizational independence, the internal audit charter should be:
A. Approved by management only.
B. Approved by both senior management and the board.
C. Prepared by CAE and filed with HR.
D. Confidential to auditors only.
✅ Answer: B.
Explanation:
Per Standard 1000, the CAE must periodically review and present the audit charter for board approval.
15. (Integrity in Reporting)
An auditor finds evidence of policy noncompliance but management insists it’s immaterial. The auditor disagrees. What action aligns with integrity?
A. Remove the observation to avoid conflict.
B. Include the observation in the report with supporting evidence.
C. Report only to immediate supervisor.
D. Wait for external audit review.
✅ Answer: B.
Explanation:
Integrity requires the auditor to report truthfully and completely, based on facts and professional judgment (IIA Code of Ethics).
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