Internal Auditor's Role in Ethical Climate Assessment

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Questions and Answers

What is the primary role of an internal auditor in assessing an organization's ethical climate?

Conducting regular surveys to gauge employee opinions

Implementing a whistleblower hotline to report unethical behavior

Performing background checks on new employees

Evaluating the organization's strategies and processes for legal and ethical compliance (correct)

Which of the following is NOT a component of an organization's internal environment according to COSO?

Integrated responses to multiple risks (correct)

Authority and responsibility to resolve issues

Knowledge and skills needed to perform activities

Framework to plan, execute and monitor activities

What enhances the independence of the internal audit activity?

The audit committee approves the CAE's annual salary increase

The chief executive officer approves the internal audit charter

The chief audit executive administratively reports to the board (correct)

The CAE approves the annual internal audit plan

What would be the most effective way to verify suspicious claims in an electronic claims-submission process?

Develop an integrated test facility and submit false claims to verify the system's detection Signup and view all the answers

What is the primary objective of an internal auditor in assessing an organization's ethical climate?

To evaluate the effectiveness of the organization's strategies and processes for achieving legal and ethical compliance Signup and view all the answers

According to COSO, which of the following is a component of an organization's internal environment?

Knowledge and skills needed to perform activities Signup and view all the answers

What is a characteristic of an independent internal audit activity?

The CAE administratively reports to the board Signup and view all the answers

What would be an appropriate step to take when suspecting fraudulent claims in an electronic claims-submission process?

Develop an integrated test facility and submit false claims to verify the system's detection Signup and view all the answers

Which of the following is most likely to be considered a control weakness?

Vendor invoice payment requests are not accompanied by a purchase order and receiving report Signup and view all the answers

What is the primary purpose of a logic test in data validation?

To ensure all entered data has the correct number of digits Signup and view all the answers

Who should receive the results of a formal quality assessment in an internal audit activity?

The audit committee and senior management Signup and view all the answers

What document promotes the objectivity of the internal audit activity?

Audit charter Signup and view all the answers

Which of the following is an essential aspect of the day-to-day supervision and review process?

The adequacy of the review process Signup and view all the answers

Which assignment would impair the independence of the internal audit director?

Preparing the financial statements for the company's defined contribution plan Signup and view all the answers

What is the primary purpose of check digits in data validation?

To detect errors in data entry Signup and view all the answers

Which of the following is a type of control activity?

Logic tests Signup and view all the answers

What is the best approach when conducting a fraud investigation?

Select a member of the accounting department who is not involved in the fraud to join the investigation team in a consulting capacity Signup and view all the answers

What is a key characteristic of effective organizational communication?

A well-designed system of internal controls Signup and view all the answers

What is the primary objective of implementing a fair work and pay practice?

To treat employees equitably and consistently Signup and view all the answers

What is an example of a risk management avoidance response?

Exiting a marketplace Signup and view all the answers

What is one of the benefits of using a formal risk management framework?

It facilitates the alignment of risk mitigation strategies with management priorities Signup and view all the answers

What should the chief audit executive (CAE) do when an internal auditor is temporarily assigned to a non-audit role?

Review all work performed by the auditor during their temporary assignment Signup and view all the answers

Why is it essential to have a culture of integrity and transparency in an organization?

To promote fair treatment of all stakeholders Signup and view all the answers

What is the primary objective of implementing a system of internal controls?

To detect and prevent fraud Signup and view all the answers

What competency is essential for an internal auditor reviewing controls related to corporate tax reporting?

Knowledge of key indicators of fraud in tax reporting Signup and view all the answers

Which of the following practices enhances the organizational independence of the internal audit activity?

CAE reports to the board regarding audit staff performance evaluation and compensation Signup and view all the answers

What should an auditor do if evidence of fraud is discovered during an engagement?

Immediately notify management of the area under review and the other internal auditors involved in the engagement Signup and view all the answers

What is an important consideration when conducting tests of controls for travel expenses?

Considering a judgmental approach for the sample size Signup and view all the answers

What is a key competency required for an internal auditor reviewing controls related to corporate tax reporting?

Knowledge of key indicators of fraud in tax reporting Signup and view all the answers

What is the primary purpose of the chief audit executive (CAE) reporting to the board?

To enhance the organizational independence of the internal audit activity Signup and view all the answers

What should an auditor do after discovering evidence of fraud during an engagement?

Fully document in the workpapers the evidence that has been discovered and recommend appropriate controls to address the fraud Signup and view all the answers

What is an important consideration when selecting a sample size for testing controls?

Considering a judgmental approach Signup and view all the answers

Who can review the work of the Chief Audit Executive (CAE)?

An individual with the appropriate background and knowledge Signup and view all the answers

Which of the following is a role of an internal auditor regarding fraud risk?

Identification and reduction Signup and view all the answers

What should internal auditors consider when exercising due professional care?

Cost of assurance, adequacy of governance, and probability of significant errors Signup and view all the answers

When can an internal audit activity indicate that it operates in conformance with the International Standards for the Professional Practice of Internal Auditing?

When the chief audit executive confirms that the internal audit activity has addressed all areas of nonconformance Signup and view all the answers

What is the purpose of the Chief Audit Executive (CAE) disclosing self-review of their work?

To ensure transparency and objectivity Signup and view all the answers

What should an internal auditor consider when assessing an organization's fraud risk?

The probability of significant errors, fraud, or noncompliance Signup and view all the answers

What is the primary objective of an internal auditor when reviewing the work of the Chief Audit Executive (CAE)?

To ensure the CAE's work is objective and unbiased Signup and view all the answers

What should an internal auditor consider when exercising professional care?

The cost of assurance, adequacy of governance, and probability of significant errors Signup and view all the answers

Study Notes

Internal Auditing Role

The internal auditor's role is to evaluate the organization's strategies and processes for achieving the desired level of legal and ethical compliance, assessing the organization's ethical climate.

COSO Components

COSO (Committee of Sponsoring Organizations) identifies the following components of an organization's internal environment:
- Authority and responsibility to resolve issues
- Framework to plan, execute, and monitor activities
- Knowledge and skills needed to perform activities
Integrated responses to multiple risks is not a COSO component.

Independence of Internal Audit Activity

The audit committee's approval of the chief audit executive's (CAE) annual salary increase enhances the independence of the internal audit activity.

Investigating Suspicious Claims

When investigating suspicious claims, developing an integrated test facility and submitting false claims to verify that the system is detecting such claims on a consistent basis is an effective approach.

Control Weakness

Vendor invoice payment requests not being accompanied by a purchase order and receiving report is a control weakness.

Impairing Independence

Preparing financial statements for the company's defined contribution plan can impair the director's independence.

Error Detection

Logic tests are used to detect potential errors in credit card numbers by checking whether all entered numbers contain the correct amount of digits.

Quality Assessment Reporting

The results of a formal quality assessment should be reported to the audit committee and senior management.

Promoting Objectivity

Using an internal auditor who is carrying out an engagement to review controls related to corporate tax reporting must possess knowledge of key indicators of fraud in tax reporting and the ability to recognize significant deviations from good business practices.

Organizational Independence

The chief audit executive (CAE) reviewing and approving the annual audit plan enhances the organizational independence of the internal audit activity.

Fraud Investigation

When evidence of fraud is discovered, immediately notifying management of the area under review and other internal auditors involved in the engagement is the best course of action.

Effective Organizational Communication

A culture of integrity and transparency is a key characteristic of effective organizational communication.

Fair Work and Pay Practice

Implementing a fair work and pay practice, as well as a policy to treat employees equitably and consistently, can help reduce pressure or incentive for fraudulent behavior.

Risk Management

Avoiding or exiting a marketplace is an example of a risk management avoidance response.
A formal risk management framework facilitates a methodical approach to risk mitigation, defines and standardizes the terminology used in risk communication, and facilitates the alignment of risk mitigation strategies with management priorities.

Temporary Assignment

When an internal auditor is assigned temporarily to a non-audit role, the chief audit executive (CAE) should review all work performed by the auditor during her temporary assignment to ensure no impairments.

Fraud Risk

Internal auditors play a role in identifying and reducing fraud risk, but not in mitigation or remediation.

Due Professional Care

Internal auditors must exercise due professional care by considering the cost of assurance in relation to potential benefits, adequacy and effectiveness of governance, risk management, and control processes, and probability of significant errors, fraud, or noncompliance.

Conformance with International Standards

An internal audit activity should only indicate that its work is performed in conformance with the International Standards for the Professional Practice of Internal Auditing if it has addressed all areas of nonconformance and the audit committee has been notified.

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Description

This quiz assesses the internal auditor's role in evaluating an organization's ethical climate, including strategies for ensuring legal and ethical compliance.