CIA Governance & Corporate Structure 2 — Questions and Answers
Question 1: The concept of 'tone at the top' in corporate governance refers to:
- The highest salary band in the organization
- The ethical climate and commitment to integrity demonstrated by senior leadership (Correct answer)
- The top-tier risk categories identified during an audit
- The first section of the annual report filed with regulators
Correct answer: The ethical climate and commitment to integrity demonstrated by senior leadership
Tone at the top describes the ethical atmosphere that senior executives and the board create, which permeates the organization and influences employee behavior.
Question 2: According to IIA Standards, organizational independence for the internal audit function is achieved when the CAE reports to a level that allows the function to:
- Maximize the number of audits completed per year
- Fulfill its responsibilities without interference (Correct answer)
- Report directly to the external auditors
- Operate without a formal charter
Correct answer: Fulfill its responsibilities without interference
Organizational independence requires the CAE to report to a sufficiently high level in the organization so the internal audit activity can fulfill its responsibilities free from undue influence.
Question 3: Which of the following best describes dual reporting for the Chief Audit Executive?
- The CAE reports to two external audit firms simultaneously
- The CAE has administrative reporting to management and functional reporting to the board/audit committee (Correct answer)
- The CAE submits reports in both written and oral formats
- The CAE reports to both the CFO and the CEO
Correct answer: The CAE has administrative reporting to management and functional reporting to the board/audit committee
Dual reporting means the CAE reports administratively to management (e.g., the CEO) for day-to-day operations while reporting functionally to the board or audit committee for independence and oversight.
Question 4: The audit committee's oversight responsibilities typically include all of the following EXCEPT:
- Reviewing and approving the internal audit plan
- Setting executive compensation packages (Correct answer)
- Overseeing the external auditor relationship
- Monitoring the effectiveness of internal controls
Correct answer: Setting executive compensation packages
Setting executive compensation is the responsibility of the compensation committee, not the audit committee, which focuses on financial reporting, controls, and audit oversight.
Question 5: Under the IIA's International Professional Practices Framework (IPPF), which document establishes the purpose, authority, and responsibility of the internal audit activity?
- The annual audit report
- The internal audit charter (Correct answer)
- The risk assessment matrix
- The engagement work program
Correct answer: The internal audit charter
The internal audit charter is the formal document that establishes the internal audit activity's purpose, authority, and responsibility, and must be consistent with the IIA's Definition of Internal Auditing and Core Principles.
Question 6: A board of directors fulfills its governance responsibilities primarily through which of the following activities?
- Managing day-to-day operations and approving all expenditures
- Setting strategic direction, overseeing management, and ensuring accountability (Correct answer)
- Performing operational audits of business units
- Preparing financial statements for external reporting
Correct answer: Setting strategic direction, overseeing management, and ensuring accountability
The board fulfills governance responsibilities by setting strategic direction, hiring and overseeing senior management, and ensuring the organization is accountable to stakeholders.
Question 7: Which governance principle emphasizes that those making decisions on behalf of the organization must be answerable for their actions and outcomes?
- Transparency
- Accountability (Correct answer)
- Stewardship
- Sustainability
Correct answer: Accountability
Accountability is the governance principle requiring individuals and entities to answer for their actions and decisions, and is fundamental to effective corporate governance.
CIA Governance & Corporate Structure 2
The concept of 'tone at the top' in corporate governance refers to: