CIA Ethics & Professional Standards 3 — Questions and Answers
Question 1: An internal auditor previously provided consulting advice on designing controls for a new payroll system. Later she is assigned an assurance engagement on the same system. Which is true?
- Assurance on a previously consulted area is always prohibited
- It may be acceptable if objectivity is not impaired and the impairment risk is managed and disclosed if needed (Correct answer)
- It is acceptable only if the external auditor approves
- Consulting work automatically creates a conflict of interest
Correct answer: It may be acceptable if objectivity is not impaired and the impairment risk is managed and disclosed if needed
Assurance on areas where consulting was previously provided is allowed when objectivity is not impaired and safeguards are applied.
Question 2: Senior management restricts internal audit's access to certain records during an engagement. What should the CAE do?
- Ignore the restriction and obtain the records secretly
- Accept the restriction without further action
- Communicate the impairment and its implications to the board and senior management (Correct answer)
- Cancel the engagement and remove it from the audit plan
Correct answer: Communicate the impairment and its implications to the board and senior management
Any impairment to independence or objectivity, including scope limitations, must be disclosed to appropriate parties such as the board.
Question 3: An internal auditor's brother is the manager of the warehouse scheduled for an inventory audit. The best course of action is to:
- Proceed, since family ties do not affect professional work
- Disclose the relationship and be reassigned to avoid a conflict of interest (Correct answer)
- Proceed but exclude the brother from interviews
- Ask the brother to certify the inventory counts
Correct answer: Disclose the relationship and be reassigned to avoid a conflict of interest
Personal relationships with the auditee create a conflict of interest that should be disclosed and avoided by reassignment.
Question 4: Which situation best demonstrates professional skepticism?
- Accepting a manager's verbal explanation without corroboration
- Critically assessing evidence and corroborating management representations (Correct answer)
- Assuming management is dishonest in all cases
- Relying only on the prior year's audit conclusions
Correct answer: Critically assessing evidence and corroborating management representations
Professional skepticism means a questioning mind and critical assessment of evidence, without assuming dishonesty.
Question 5: Regarding fraud, internal auditors are expected to:
- Have the same expertise as a person whose main job is detecting and investigating fraud
- Have enough knowledge to evaluate fraud risk and how the organization manages it (Correct answer)
- Guarantee that all material fraud will be detected
- Avoid any work related to fraud
Correct answer: Have enough knowledge to evaluate fraud risk and how the organization manages it
Internal auditors need sufficient fraud knowledge to evaluate fraud risk but are not expected to be fraud investigation experts.
Question 6: A final engagement communication contained a significant error that has since been discovered. What should the CAE do?
- Correct the workpapers only
- Communicate the corrected information to all parties who received the original communication (Correct answer)
- Wait until the next engagement to mention the error
- Ask the auditee to correct the report
Correct answer: Communicate the corrected information to all parties who received the original communication
When a final communication contains a significant error or omission, corrected information must go to everyone who received the original.
Question 7: Which activity most directly maintains an internal auditor's competency?
- Performing more engagements in the same area each year
- Continuing professional development and education (Correct answer)
- Reading prior audit reports only
- Delegating complex work to external consultants
Correct answer: Continuing professional development and education
Competency is enhanced through continuing professional development that improves knowledge, skills, and effectiveness.
