Auditing Principles & Procedures Flashcards
7 cards from real CIA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Auditing Principles & Procedures flashcards as text
Which internal control is most effective at preventing unauthorized changes to policyholder premium rates?
Answer: Requiring dual authorization for rate changes in the policy system
Dual authorization (segregation of duties) ensures no single employee can unilaterally alter premium rates.
Audit risk is defined as the risk that:
Answer: The auditor issues an incorrect opinion on materially misstated financial statements
Audit risk is the probability that the auditor expresses an inappropriate opinion when the financial statements contain material misstatement.
In the context of insurance fraud detection during an audit, 'red flags' most commonly include:
Answer: Claims filed within 30 days of policy inception with unusually high values
Claims filed shortly after policy issuance for large amounts are classic indicators of potential fraud that warrant further investigation.
Control risk in an insurance audit is the risk that:
Answer: Internal controls fail to prevent or detect a material misstatement
Control risk measures the likelihood that the client's internal controls will fail to catch a material error or fraud.
When assessing inherent risk in an insurance company audit, which factor would MOST increase inherent risk?
Answer: Complex long-tail liability lines requiring subjective reserve estimates
Long-tail liability lines involve highly subjective reserve estimates that are susceptible to significant management bias, increasing inherent risk.
The Sarbanes-Oxley Act requirements most directly affect insurance company audits by:
Answer: Requiring management assessment and auditor attestation of internal controls over financial reporting
SOX Section 404 requires management to assess internal controls and the auditor to attest to that assessment for public companies.
Which sampling technique ensures every item in the population has an equal chance of selection?
Answer: Random sampling
Random (probability) sampling gives each population item an equal and known probability of selection, supporting statistical inference.