Certified Internal Auditor Case Studies & Practical Application 4

Question 1

An internal auditor learns through an anonymous tip that the CFO may be manipulating revenue recognition. The CAE informs the board audit committee chair privately. What is the most appropriate next step?

Accepted Answer

The audit committee should engage outside counsel and forensic auditors to investigate independently of management

Answer

Allegations involving senior management require independent investigation under the audit committee's direction, typically with outside experts, to avoid conflicts of interest.

Question 2

An auditor is evaluating a company's anti-money laundering (AML) program and finds that 200 currency transaction reports (CTRs) were filed late over the past year. What is the primary concern?

Accepted Answer

Regulatory non-compliance that may result in significant fines and potential criminal liability

Answer

Late CTR filings violate Bank Secrecy Act requirements and can result in substantial civil and criminal penalties for the organization.

Question 3

A manufacturing company's auditor reviews inventory controls and finds that cycle count adjustments average 8% of inventory value per month. What does this pattern indicate?

Accepted Answer

Significant control weaknesses in receiving, storage, or recording that require root cause investigation

Answer

Persistent high-value cycle count adjustments signal systematic control failures in inventory management processes, not a healthy counting program.

Question 4

During a cybersecurity audit, an auditor finds that 35 former employees still have active network credentials 90 days after termination. What is the most significant risk?

Accepted Answer

Unauthorized access to systems and data by individuals with no legitimate business need

Answer

Active credentials for terminated employees represent an immediate unauthorized access risk and are a common source of insider threat and data breaches.

Question 5

An auditor reviewing a government contractor's cost accounting finds that the company is allocating 100% of executive salaries to government contracts. The executives also work on commercial contracts. What is the primary concern?

Accepted Answer

Unallowable cost allocation that inflates charges to the government by attributing costs not exclusively incurred for government work

Answer

Allocating shared costs entirely to government contracts when executives support commercial work violates cost accounting standards and FAR, constituting potential false claims.

Certified Internal Auditor Practice Test

Certified Internal Auditor Practice Test

Certified Internal Auditor Case Studies & Practical Application 4