Certified Internal Auditor Internal Audit Standards & Ethics 5 — Questions and Answers
Question 1: The IIA's 'Three Lines Model' positions internal audit in which line?
- First line — operational management
- Second line — risk and compliance functions
- Third line — independent assurance (Correct answer)
- Fourth line — external oversight
Correct answer: Third line — independent assurance
In the IIA's Three Lines Model, internal audit occupies the third line, providing independent assurance to the governing body and senior management.
Question 2: When internal audit's final report contains errors discovered after distribution, Standard 2421 requires the CAE to:
- Issue a corrected report to all parties that received the original (Correct answer)
- Notify only senior management of the error
- Document the error in the next audit's working papers
- Reopen the engagement and re-perform all procedures
Correct answer: Issue a corrected report to all parties that received the original
Standard 2421 requires the CAE to communicate a corrected final report to all parties who received the original erroneous report.
Question 3: An internal auditor who performs an operational role (e.g., approving transactions) during an engagement would violate which Standard?
- Standard 1000 — Purpose, Authority, and Responsibility
- Standard 1130 — Impairment to Independence or Objectivity (Correct answer)
- Standard 2200 — Engagement Planning
- Standard 2500 — Monitoring Progress
Correct answer: Standard 1130 — Impairment to Independence or Objectivity
Assuming operational responsibilities impairs the auditor's objectivity and independence, which is governed by Standard 1130.
Question 4: Under the IIA Standards, which statement about the internal audit charter is CORRECT?
- The charter must be updated annually by the CAE
- The charter defines the purpose, authority, and responsibility of the internal audit activity (Correct answer)
- The charter must be approved by external auditors
- The charter specifies the annual audit plan
Correct answer: The charter defines the purpose, authority, and responsibility of the internal audit activity
Standard 1000 requires the charter to define the internal audit activity's purpose, authority, and responsibility; it is approved by the board, not external auditors.
Question 5: The competency element of the IIA Code of Ethics requires internal auditors to:
- Hold the CIA certification within three years of employment
- Engage only in services for which they have necessary knowledge and skills (Correct answer)
- Complete 80 hours of CPE every two years
- Avoid engagements outside their primary industry experience
Correct answer: Engage only in services for which they have necessary knowledge and skills
The Competency rule requires auditors to engage only in services for which they possess sufficient knowledge, skills, and experience.
Question 6: Standard 2600 addresses communicating senior management's acceptance of risk. If the CAE believes the accepted risk level is inappropriate, the CAE must:
- Refuse to issue the final audit report
- Escalate the matter to the board (Correct answer)
- Document the disagreement and take no further action
- Notify external regulators of the unresolved risk
Correct answer: Escalate the matter to the board
Standard 2600 requires the CAE to escalate the matter to the board when management accepts a level of residual risk that the CAE believes is inappropriate.
Question 7: Which statement best describes 'impairment' to internal audit independence under the IIA Standards?
- Any situation in which the auditor disagrees with management
- Conditions that prevent the internal audit activity from fulfilling its responsibilities impartially (Correct answer)
- The auditor's lack of technical knowledge in a subject area
- Receiving audit fees from the organization being audited
Correct answer: Conditions that prevent the internal audit activity from fulfilling its responsibilities impartially
Impairment refers to conditions — whether actual, potential, or perceived — that prevent internal auditors from fulfilling their responsibilities without bias or undue influence.
Certified Internal Auditor Internal Audit Standards & Ethics 5
The IIA's 'Three Lines Model' positions internal audit in which line?