CIA Governance & Corporate Structure 1 — Questions and Answers
Question 1: According to the IIA Standards, the Chief Audit Executive (CAE) should report functionally to which body to ensure organizational independence?
- The Chief Financial Officer
- The Board or Audit Committee (Correct answer)
- The Chief Executive Officer
- The External Auditor
Correct answer: The Board or Audit Committee
The IIA Standards require the CAE to have functional reporting to the board or audit committee to maintain independence from management.
Question 2: The Three Lines of Defense model assigns internal audit to which line?
- First line
- Second line
- Third line (Correct answer)
- Fourth line
Correct answer: Third line
Internal audit is the third line of defense, providing independent assurance over the effectiveness of risk management and controls established by the first and second lines.
Question 3: Which committee of the board of directors bears primary responsibility for overseeing the internal audit function?
- Compensation Committee
- Nominating Committee
- Audit Committee (Correct answer)
- Risk Committee
Correct answer: Audit Committee
The audit committee has primary board-level responsibility for overseeing financial reporting, internal controls, and the internal audit function.
Question 4: Under the Sarbanes-Oxley Act Section 301, audit committee members must be:
- Employed by the company for at least two years
- Independent directors with no material relationship to the company (Correct answer)
- Certified Public Accountants
- Appointed by the CEO
Correct answer: Independent directors with no material relationship to the company
SOX Section 301 requires audit committee members to be independent directors, meaning they cannot accept consulting fees or be affiliated persons of the company.
Question 5: An internal audit charter must be approved by:
- The Chief Financial Officer only
- The senior management team collectively
- The Board or its delegated audit committee (Correct answer)
- The external auditors
Correct answer: The Board or its delegated audit committee
Per IIA Standard 1000, the internal audit charter must be approved by the board or its delegated audit committee to establish the function's authority and independence.
Question 6: Corporate governance is best described as:
- The process of preparing financial statements for shareholders
- The system of rules, practices, and processes by which a company is directed and controlled (Correct answer)
- The internal audit methodology used to assess operational risks
- The regulatory filing requirements imposed by the SEC
Correct answer: The system of rules, practices, and processes by which a company is directed and controlled
Corporate governance is the system of rules, practices, and processes by which a company is directed and controlled, balancing the interests of stakeholders.
Question 7: Which COSO component focuses on the attitudes and actions of leadership that set the ethical tone for an organization?
- Risk Assessment
- Control Activities
- Control Environment (Correct answer)
- Monitoring Activities
Correct answer: Control Environment
The Control Environment is the COSO component that reflects 'tone at the top' — the integrity, ethical values, and management philosophy that establish the foundation for internal control.
CIA Governance & Corporate Structure 1
According to the IIA Standards, the Chief Audit Executive (CAE) should report functionally to which body to ensure organizational independence?