i-a comply with the iia's attribute standards answers

PART I INTERNAL AUDIT PROCESS

Powers CIA Review

Powers CIA Review

1. CIA May 94 I.16

Correct Answer is (D)

Not (a) because a conflict of interest compromises objectivity.

Not (b) because an auditees familiarity with the auditor due to lack of rotation in assignments compromises objectivity.

Not (c) because the auditors assumption of operational duties on a temporary basis compromises objectivity.

Answer (d) is correct. According to the Standards, the auditor should rely on outside expert opinion when appropriate such as if the internal audit department lacks certain knowledge or expertise.

2. CIA Nov 90 I.38

Correct Answer is (B)

Not (a) because this activity is appropriate for users and functional management.

Answer (b) is correct. A feasibility study should consider the costs and benefits of conversion to a new computer system. The feasibility study is a preliminary step prior to plans for implementation. Internal auditors may recommend standards of control and review procedures before implementation, but they should not design, install, or operate systems. Also, drafting procedures is not an audit function.

Not (c) because this activity is appropriate for users and functional management.

Not (d) because computer experts should perform this task.

3. CIA Nov 94 I.61

Correct Answer is (A)

Answer (a) is correct. Because the auditor reports directly to the Board of directors, (s)he has organizational independence, however, because the auditor did not report the issue to management, (s)he lacks objectivity.

Not (b) because the auditor reports directly to the Board of directors, (s)he has organizational independence, however, because the auditor did not report the issue to management, (s)he lacks objectivity.

Not (c) because the auditor reports directly to the Board of directors, (s)he has organizational independence, however, because the auditor did not report the issue to management, (s)he lacks objectivity.

Not (d) because the auditor reports directly to the Board of directors, (s)he has organizational independence, however, because the auditor did not report the issue to management, (s)he lacks objectivity.

4. CIA May 91 II.14


Answer (a) is correct. The internal auditing department should possess or should obtain the knowledge, skills, and disciplines needed to carry out its audit responsibilities. The internal auditing staff should collectively possess the knowledge and skills essential to the practice of the profession within the organization. These attributes include proficiency in applying internal auditing standards, procedures, and techniques. The internal auditing department should have employees or use outside service providers who are qualified in such disciplines as accounting, auditing, economics, finance, statistics, information technology, engineering, taxation, law, environmental affairs, and such other areas as needed to meet the audit responsibilities. Each member of the department, however, need not be qualified in all of these disciplines.

Not (b) because obtaining college transcripts is an appropriate procedure to determine a prospective auditor's qualifications.

Not (c) because checking an applicant's references is an appropriate procedure to determine a prospective auditor's qualifications.

Not (d) because determining previous job experience is appropriate during the hiring process.

5. CIA Nov 94 I.46


Answer (a) is correct. Proficiency in applying internal auditing standards, procedures, and techniques is required in performing internal audits. Proficiency means the ability to apply knowledge to situations likely to be encountered and to deal with them without extensive recourse to technical research and assistance.

Not (b) because proficiency in accounting principles and techniques is required only of auditors who work extensively with financial records and reports.

Not (c) because an internal auditor is required to have an understanding of, not a proficiency in, management principles.

Not (d) because internal auditors ordinarily need not be proficient in marketing techniques.

6. CIA Nov 94 I.47

Correct Answer is (C)

Not (a) because proficiency, not an understanding, is required in applying internal auditing procedures and techniques.

Not (b) because proficiency in accounting principles and techniques is required only of auditors who work extensively with financial records and reports.

Answer (c) is correct. An understanding of management principles is required to recognize and evaluate the materiality and significance of deviations from good business practice. An understanding means the ability to apply broad knowledge to situations likely to be encountered, to recognize significant deviations, and to be able to carry out the research necessary to arrive at reasonable solutions.


7. CIA Nov 94 I.48


Not (a) because proficiency, not an appreciation, is required of internal auditors in applying internal auditing procedures and techniques.

Answer (b) is correct. An appreciation is required of the fundamentals of such subjects as accounting, economics, commercial law, taxation, finance, quantitative methods, and information technology. An appreciation means the ability to recognize the existence of problems or potential problems and to determine the further research to be undertaken or the assistance to be obtained. However, proficiency in accounting principles and techniques is required of auditors who work extensively with financial records and reports.

Not (c) because an internal auditor must have an understanding, not an appreciation, of management principles.


8. CIA Nov 91 II.48


Not (a) because an auditor should conduct reasonable examinations, but detailed tests of all transactions are not required.

Not (b) because absolute assurance need not, and cannot, be given with regard to audited activities.

Answer (c) is correct. Due Care implies reasonable care and competence, not infallibility or extraordinary performance. Due care requires the auditor to conduct examinations and verifications to a reasonable extent, but does not require detailed audits of all transactions. Accordingly, the internal auditor cannot give absolute assurance that noncompliance or irregularities do not exist. Nevertheless, the possibility of material irregularities or noncompliance should be considered whenever the internal auditor undertakes an internal auditing assignment.

Not (d) because an auditor should provide recommendations to promote compliance with acceptable practices.

9. CIA Nov 91 I.6


Not (a) because regardless of their backgrounds, all internal auditors should participate in professional development programs.

Not (b) because the use of a mentor is encouraged, regardless of the new auditor's background.

Answer (c) is correct. The internal auditing department should possess or should obtain the knowledge, skills, and disciplines needed to carry out its audit responsibilities. The internal auditing staff should collectively possess the knowledge and skills essential to the practice of the profession within the organization. These attributes include proficiency in applying internal auditing standards, procedures, and techniques. The internal auditing department should have employees or use consultants who are qualified in such disciplines as accounting, economics, finance, statistics, electronic data processing, engineering, taxation, and law as needed to meet the audit responsibilities. Each member of the department, however, need not be qualified in all of these disciplines.

Not (d) because unless other auditors possess sufficient knowledge of these disciplines, hiring this person would accentuate staffing deficiencies.

10. CIA Nov 93 I.46


Answer (a) is correct. Due Care implies reasonable care and competence, not infallibility or extraordinary performance. Due care requires the auditor to conduct examinations and verifications to a reasonable extent, but does not require detailed audits of all transactions. Accordingly, the internal auditor cannot give absolute assurance that noncompliance or irregularities do not exist. Nevertheless, the possibility of material irregularities or noncompliance should be considered whenever the internal auditor undertakes an internal auditing assignment. The work performed in both areas was adequate and would withstand normal scrutiny.

Not (b) because the work performed in both areas was adequate and would withstand normal scrutiny.

Not (c) because the work performed in both areas was adequate and would withstand normal scrutiny.

Not (d) because the work performed in both areas was adequate and would withstand normal scrutiny.

11. CIA Nov 93 I.47


Not (a) because Due Care was not exercised in regard to requirements III and IV.

Not (b) because Due Care was not exercised in regard to requirements III and IV.

Answer (c) is correct. The procedures performed as a basis for concluding that no nonproductive work was accomplished resulted in insufficient competent evidence. The opinion of individuals whose work was in question lacks reliability. Given that the evidence regarding area IV was based on that in area III, it also is suspect.

Not (d) because Due Care was not exercised in regard to requirements III and IV.

12. CIA May 85 II.12


Not (a) because it is an example of an informal report.

Not (b) because it is an example of issuing a fair and complete report.

Answer (c) is correct. Auditors should be skilled in dealing with people and in communicating effectively. Auditors should understand human relations and maintain good relations with auditees. The participative audit approach is an outgrowth of this requirement. Recent research suggests that auditees who are involved in the audit and who expect to benefit there from will be less fearful, more cooperative, and more accepting of change. The auditor should establish an amicable problem-solving partnership with auditees, with full disclosure in most cases of audit objectives, scope, and findings. The auditor should seek the assistance and agreement of the auditee in determining standards of measurement and their means of application and in devising recommendations for corrective action. The auditee's views about auditor conclusions or recommendations also may be included in the report.

Not (d) because it is an example of both gaining input from the auditee and maintaining a good auditee relationship.

13. CIA Nov 91 I.49


Answer (a) is correct. Exercising due professional care means using reasonable audit skill and judgment in performing the audit. To this end, the internal auditor should consider

The extent of audit work needed to achieve audit objectives.

The relative materiality or significance of matters to which audit procedures are applied.

The adequacy and effectiveness of internal controls.

The cost of auditing in relation to potential benefits.

Not (b) because the auditor should consider the cost-benefit ratio before beginning an audit.

Not (c) because Due Care includes "evaluating established operating Standards and determining whether those Standards are acceptable and are being met."

Not (d) because Due Care does not require absolute assurance.

14. CIA May 90 I.43


Not (a) because governments typically have no such requirement.

Answer (b) is correct. An organization's code of ethical conduct is the established general value system the organization wishes to apply to its members' activities by communicating organizational purposes and beliefs and establishing uniform ethical guidelines for members, which include guidance on behavior for members in making decisions. Because laws and specific rules cannot cover all situations, organizations can benefit from having an established ethical code. It effectively communicates acceptable values to all members, including recruits and subcontractors. It also provides a method of policing and disciplining members for violations through formal review panels and group pressure (informal). A code establishes high standards against which individuals can measure their own performance and communicates to those outside the organization the value system from which the organization's members must not be asked to deviate.

Not (c) because codes of conduct provide qualitative, not quantitative, standards.

Not (d) because other purposes of a code of conduct are much more significant.

15.

CIA Nov 84 I.33


Not (a) because this requirement is not in the Code.

Not (b) because this requirement is not in the Code.

Not (c) because this requirement is not in the Code.

Answer (d) is correct. Rule of Conduct 2.3 states, "Internal auditors shall disclose all material facts known to them that, if not disclosed, may distort the reporting of activities under review."

16. CIA Nov 84 I.40


Not (a) because internal auditors should exercise diligence in performing their duties.

Not (b) because, according to Rule of Conduct 2.1, "Internal auditors shall not participate in any activity or relationship that may impair or be presumed to impair their unbiased assessment. This participation includes those activities or relationships that may be in conflict with the interests of the organization".

Answer (c) is correct. Nothing in The IIA Code of Ethics prohibits operating an unrelated business outside of regular office hours. The activity does not, in itself, constitute a conflict of interest, a use of information for personal gain, or an impairment of the auditor's unbiased assessment.

Not (d) because, according to Rule of Conduct 2.2, "Internal auditors shall not accept anything that may impair or be presumed to impair their professional judgment.

17. CIA Nov 84 II.21


Answer (a) is correct. The IIA Code of Ethics includes Principles that internal auditors are expected to apply and uphold. They are interpreted by the Rules of Conduct, behavior norms expected of internal auditors. That a particular conduct is not mentioned in the Rules of Conduct does not prevent it from being unacceptable or discreditable. Consequently, a reasonable inference is that individual judgment is necessary in the application of the Principles and the Rules of Conduct. Ethics provide basic principles in the practice of internal auditing. Members or CIAs should realize that their individual judgment is required in the application of these principles".

Not (b) because an internal auditor "shall not knowingly be a party to any illegal activity". Furthermore, an internal auditor is bound to respect and contribute only to the legitimate and ethical objectives of the organization.

Not (c) because internal auditors "shall engage only in those services for which they have the necessary knowledge, skills, and experience".

Not (d) because applying and upholding the integrity principle is the means by which an internal auditor establishes trust as a basis for reliance on his/her judgment.

18. CIA May 85 I.15


Not (a) because acceptance of anything from a customer is prohibited but only if it would impair or be presumed to impair professional judgment.

Answer (b) is correct. Rule of Conduct 2.3 states, "Internal auditors shall disclose all material facts known to them that, if not disclosed, may distort the reporting activities under review". Moreover, under Rule of Conduct 1.3, "Internal auditors shall not knowingly be a party to any illegal activity, or engage in acts that are discreditable to the profession of internal auditing or to the organization".

Not (c) because, under Rule of Conduct 4.3, "Internal auditors shall continually improve their proficiency and the effectiveness and quality of their services".

Not (d) because, whereas an internal auditor is prohibited from using confidential information for personal gain, and an investment in the company's stock would be questionable, an investment in a mutual fund is acceptable.

19. CIA Nov. 85 lI.9


Not (a) because only authorized personnel need access to appropriate data.

Not (b) because only authorized personnel need access to appropriate data.

Not (c) because only authorized personnel need access to appropriate data.

Answer (d) is correct. because the code require the internal auditors to be prudent in the use protection of information acquired in the course of their duties. However, authorized parties presumably may be allowed to review confidential information with the consent of the auditee. As long as no determent occurs to the legitimate and ethical objectives of the organization as a result, confidentiality is maintained.



Not (a) because the activities of a charity are unlikely to be contrary to the interests of the organization.

Answer (b) is correct. Under Rule of Conduct 2.1, "Internal auditors shall not participate in any activity or relationship that may impair or be presumed to impair their unbiased assessment. This participation includes those activities or relationships that may be in conflict with the interests of the organization". As a business insurance broker, the auditor may lose his/her objectivity because (s)he might benefit from a change in the employer's insurance coverage.

Not (c) because teaching is compatible with internal auditing.

Not (d) because, whereas dealing in commercial properties might involve a conflict, renting residential units most likely does not.



Not (a) because, according to Rule of Conduct 1.1, "Internal auditors shall perform their work with honesty, diligence, and responsibility.

Not (b) because, according to Rule of Conduct 4.3, "Internal auditors shall continually improve their proficiency and the effectiveness and quality of their services".

Not (c) because, according to Rule of Conduct 4.2, "Internal auditors shall perform internal auditing services in accordance with the Standards for the Professional Practice of Internal Auditing". The Standards require supporting information to be sufficient, reliable, relevant, and useful.

Answer (d) is correct. According to Rule of Conduct 3.1 of The IIA Code of Ethics, "Internal auditors shall be prudent in the use and protection of information acquired in the course of their duties". According to Rule of Conduct 3.2, "Internal auditors shall not use information for any personal gain or in any manner that would be contrary to the law or detrimental to the legitimate and ethical objectives of the organization". Thus, such use of information by the CAE might be illegal under the insider trading rules.

22.

CIA Nov 87 II.46


Not (a) because the charity's interests are unlikely to conflict with the employer's.

Not (b) because, although a conflict is possible in this case, it is not inevitable.

Answer (c) is correct. Rule of Conduct 3.2 of The IIA Code of Ethics states, "Internal auditors shall not use information for any personal gain or in any manner that would be contrary to the law or detrimental to the legitimate and ethical objectives of the organization." Because the employee is considered to stand in the shoes of the relative with regard to the mailing list, (s) he is deemed to be using company information for personal gain. The use is probably also contrary to the company's interest.

Not (d) because teaching is compatible with internal auditing.



Not (a) because teaching is compatible with internal auditing.

Not (b) because owning a significant amount of stock in a public company that is a competitor is more likely to cause a conflict for a director or officer than an internal auditor. An auditor would seldom be able during the course of his/her employment to take action that would enhance the value of the stock.

Answer (c) is correct. Rule of Conduct 2.2 of The IIA Code of Ethics states, "Internal auditors shall not accept anything that may impair or be presumed to impair their professional judgment."

Not (d) because the IIA Code of Ethics does not specifically mention use of the CIA designation. Acts discreditable to the profession or the organization are prohibited, but use of the CIA designation outside the employment context is not per se discreditable.

24.

CIA Nov 87 II.50


Answer (a) is correct. Under Rule of Conduct 2.1, "Internal auditors shall not participate in any activity or relationship that may impair or be presumed to impair their unbiased assessment. This participation includes those activities or relationships that may be in conflict with the interests of the organization. In these circumstances, the auditor lacks the appearance of objectivity because the outcome of the audit could directly affect the acquisition decision and the price of the stock. The use of the information also would be a violation of the Code and possibly of insider trading rules as well. Under Rule of Conduct 3.2, "Internal auditors shall not use information for any personal gain or in any manner that would be contrary to the law or detrimental to the legitimate and ethical objectives of the organization".

Not (b) because the appearance as well as the reality of loss of independence must be considered.

Not (c) because the auditor might be deemed to have a personal stake in the results of the audit.

Not (d) because the investment is significant to the auditor.

25. CIA May 89 I.44


Not (a) because the Code and the SPPIA would be violated.

Not (b) because the Code and the SPPIA would be violated.

Answer (c) is correct. The IIA's Code of Ethics (Rule of Conduct 4.3) states, "Internal auditors shall continually improve their proficiency and the effectiveness and quality of their services". The Code also requires compliance with the SPPIA (Rule of Conduct 4.2). Under the SPPIA, internal auditors should enhance their knowledge, skills, and competencies through continuing professional development. Hence, both The IIA's Code of Ethics and the SPPIA would be violated by failing to earn continuing education credits.

Not (d) because the Code and the SPPIA would be violated.

26. CIA May 88 I.48


Not (a) because this is an activity separate from the interests and activities of the organization. No impairment of professional judgment exercised during the internal auditor's duties is likely to result from this activity.

Answer (b) is correct. Rule of Conduct 2.2 states, "Internal auditors shall not accept anything that may impair or be presumed to impair their professional judgment". Preparing a personal tax return for a division manager for a fee falls under this prohibition.

Not (c) because this is an activity separate from the interests and activities of the organization. No impairment of professional judgment exercised during the internal auditor's duties is likely to result from this activity.

Not (d) because this is an activity separate from the interests and activities of the organization. No impairment of professional judgment exercised during the internal auditor's duties is likely to result from this activity.



Not (a) because reporting to company officials is not detrimental to the organization.

Not (b) because the Code imposes no such requirement. The appropriate authorities within the organization should be notified.

Answer (c) is correct. Such payments may be illegal. Rule of Conduct 2.3 states, "Internal auditors shall disclose all material facts known to them that, if not disclosed, may distort the reporting of activities under review".

Not (d) because the Code imposes no such requirement. The appropriate authorities within the organization should be notified.



Not (a) because disclosure of information technology controls is not detrimental to the objectives of the organization. They are not likely to be trade secrets.

Answer (b) is correct. Insider trading is prohibited by federal securities law. According to Rule of Conduct 3.1, "Internal auditors shall be prudent in the use and protection of information acquired in the course of their duties". Furthermore, according to Rule of Conduct 3.2, "Internal auditors shall not use information for any personal gain or in any manner that would be contrary to the law or detrimental to the legitimate and ethical objectives of the organization".

Not (c) because, if senior management permits the omission, the auditor is not guilty of failing to disclose material facts in the report.

Not (d) because an audit of expense accounts is within the auditor's normal responsibilities, but further investigation of fraud should ordinarily be made by investigative specialists.



Not (a) because the timing of the gift is irrelevant.

Answer (b) is correct. Rule of Conduct 2.2 states, "Internal auditors shall not accept anything that may impair or be presumed to impair their professional judgment".

Not (c) because the Rule of Conduct uses the word "anything".

Not (d) because the gift's acceptance should be based on whether the auditor's professional judgment will be impaired or be presumed to be impaired.

30. CIA Nov 89 I.45


Not (a) because immaterial facts need not be included.

Not (b) because the ethical transgression, if any, was not made by the auditor but by audit management.

Not (c) because the ethical transgression, if any, was not made by the auditor but by audit management.

Answer (d) is correct. Reporting the defective function as an auditee failure is a violation of the auditor's ethical obligation to disclose all material facts known to him/her that, if not disclosed, may distort the reporting of activities under review (Rule of Conduct 2.3).

31. CIA May 89 I.43


Not (a) because awarding the contract to the lowest bidder does not necessarily indicate an absence of favoritism. The lowest bid is not always the best because many factors other than price must be weighed.

Not (b) because awarding the contract to the lowest bidder does not necessarily indicate an absence of favoritism. The lowest bid is not always the best because many factors other than price must be weighed.

Not (c) because the functions described are within the ordinary scope of work of a purchasing agent who does not have an actual or apparent conflict of interest.

Answer (d) is correct. The purchasing agent has a conflict of interest because (s)he appears to lack objectivity. Ethics codes require that even the appearance of impropriety be avoided. Consequently, the agent should not have participated in the decision, however scrupulous his/her actions may have been.

32. CIA Nov 90 I.46


Answer (a) is correct. An organization's code of ethical conduct is the established general value system the organization wishes to apply to its members' activities by communicating organizational purposes and beliefs and establishing uniform ethical guidelines for members, which include guidance on behavior for members in making decisions. Because laws and specific rules cannot cover all situations, organizations can benefit from having an established ethical code. It effectively communicates acceptable values to all members, including recruits and subcontractors. It also provides a method of policing and disciplining members for violations through formal review panels and group pressure (informal). A code establishes high standards against which individuals can measure their own performance and communicates to those outside the organization the value system from which the organization's members must not be asked to deviate.

Not (b) because governments typically have no such requirement.

Not (c) because codes of conduct provide qualitative, not quantitative, standards.

Not (d) because other purposes of a code of conduct are much more significant.

33. CIA Nov 90 I.50


Not (a) because the IIA board of directors is not authorized to require continuing professional education as a sensation for misconduct.

Not (b) because the board is not authorized to require retaking of the CIA examination as a sensation for misconduct.

Answer (c) is correct. The Code of Ethics specifically mentions forfeiture of IIA membership as possible penalty for violation of its provisions.

Not (d) because the board has no authority to assess a monetary fine.

34. CIA Nov 90 I.48


Answer (a) is correct. Rule of Conduct 2.2 states, "Internal auditors shall not accept anything that may impair or be presumed to impair their professional judgment". Small promotional item, such as a pen that are available to the general public and are of minimal value, are not likely to hinder the auditor's professional judgment.

Not (b) because a gift may not be accepted, under article lV.

Not (c) because the manager may think that a gift will ward off future audit.

Not (d) because a gift may not be accepted, under article lV.



Answer (a) is correct. The first Standards of Conduct states these qualities "Internal auditors shall perform their work with honesty, diligence, and responsibility".

Not (b) because timeliness, sobriety, and clarity are not mentioned.

Not (c) because paraphrase from standards 250(knowledge, skills, and Disciplines).

Not (d) because punctuality is not mentioned in the Code.



Answer (a) is correct. Professional organizations usually do not deal with auditors employees and are not in competition with them. They also normally do not reveal or use confidential information to the detriment of employers.

Not (b) because this could be a conflict of interest and could involve misuse of confidential information.

Not (c) because each relationship might create a conflict of interest and could involve misuse of confidential information.

Not (d) because could result in misuse of confidential information.



Answer (a) is correct. Article ll requires the auditor to be loyal to his employer.

Not (b) because this action violates the auditor's duties under Article ll.

Not (c) because this action violates the auditor's duties under Article ll.

Not (d) because this action violates the auditor's duties under Article ll.

38. CIA May 96 I.68


Not (a) because the auditor cannot ignore the matter since it is an ethical issue.

Not (b) because the Standards require the director of internal auditing to distribute audit report to those members of organization who can take appropriate actions.

Answer (c) is correct. IIAs Code of Ethics Article lX require CIA to reveal all material facts which could conceal unlawful practices.

Not (d) because management should determine what constitutes just compensation.

39. CIA May 90 I.45


Not (a) because continuing education is encouraged and because the program is open to all employees, there is no violation.

Answer (b) is correct. Without consent by appropriate senior management, acceptance of any gift is prohibited (Article ll of Code of Ethics).

Not (c) because the auditors is required to reveal all material facts in his or her opinion.

Not (d) because a violation would occur only if confidential information were used for personal gain. In his case, no information was known.



Answer (a) is correct. Article lV requires auditor to report any information that is material to management.

Not (b) because this action is acceptable for internal use only.

Not (c) because this action is acceptable as long as the auditor is careful not to state any final conclusions that are not supported by factual evidence.

Not (d) because this is typical done.

41. CIA May 92 I.47


Not (a) because diligence does not override professional competence or use good judgment.

Not (b) because loyalty would be better exhibited by consulting professionals in interrogation and knowing your limits of competence.

Answer (c) is correct. The code requires members and CIAs to refine from undertaking services, which cannot be reasonably completed with professional competence.

Not (d) because the auditor may violate the suspect's civil rights due to his inexperience, but that is not a certainty.



Not (a) because a conflict of interest policy should prohibit financial dealings or the transfer of benefits between an employee and those with whom the organization deals. For example, according to The IIA Code of Ethics, internal auditors shall not accept anything that may impair or be presumed to impair their professional judgment (Rule of Conduct 2.2).

Answer (b) is correct. A prohibition on public service is ordinarily inappropriate. This is a right, if not a duty, of all citizens.

Not (c) because a conflict of interest policy should prohibit financial dealings or the transfer of benefits between an employee and those with whom the organization deals. For example, according to The IIA Code of Ethics, internal auditors shall not accept anything that may impair or be presumed to impair their professional judgment (Rule of Conduct 2.2).

Not (d) because the IIA Code of Ethics prohibits use of information for personal gain (Rule of Conduct 3.2).

43. CIA Nov 92 I.49


Not (a) because the auditor has violated the Code of Ethics standard regarding use of confidential information. The institute should be notified.

Not (b) because summary discharge may not be in accordance with company personnel policies.

Not (c) because the auditor was negligent in his use of confidential information and violates the Code of Ethics. Some action is warranted.

Answer (d) is correct. Since the IIA Code (Article lV) was violated, the institute should be notified. In addition, company policy must be followed.



Not (a) because this is a material fact that could distort a report of operations if not revealed.

Answer (b) is correct. The Code of Ethics calls for compliance with the Standards. Standards 550 (external auditors) charges the director with coordination with external auditors and exchanging information. In addition, the code requires that all material facts known be revealed. Since this impact the external auditors work, in which the internal auditors are participating, the situation must be divulged.

Not (c) because the shortage is known and the external auditors should be told more than that there is a possibility.

Not (d) because the audit director should discuss the issue with the management first and later with the board of directors. The audit directors can report this issues directly with the external auditor.

45. CIA May 93 I.45


Answer (a) is correct. CIAs must not knowingly be a party to any illegal or improper. Also, reporting within the organization is the proper action.

Not (b) because CIAs must not knowingly be a party to an illegal or improper act. The fact that this activity is improper and, probably, illegal requires the CIA to report it.

Not (c) because CIAs must not knowingly be a party to an illegal or improper act. The fact that this activity is improper and, probably, illegal requires the CIA to report it. Merely nothing the condition in the audit working paper does not constitute reporting it.

Not (d) because CIA are not required to voluntarily reveal illegal or improper acts to outside individuals or organizations. They should try to work within their organization.

46. CIA Nov 93 I.45


Not (a) because, although this result may follow from establishing a code of conduct, it is not the primary purpose. To consider it so would be self-serving.

Not (b) because a code of conduct may help to establish minimum standards of competence, but it would be impossible to legislate equality of competence by all members of a profession.

Answer (c) is correct. This is a distinguishing mark of profession.

Not (d) because, there are situations where responsibility to the public at large may conflict with, and be more important than, loyalty to one's organization.

47. CIA May 91 II.5


Not (a) because staffing requirements must be determined based on the circumstances of each audit.

Answer (b) is correct. The IIA Code of Ethics applies not only to individuals but also to entities that provide internal auditing services. Under Rule of Conduct 4.2, "Internal auditors shall perform internal auditing services in accordance with the Standards for the Professional Practice of Internal Auditing."

Not (c) because the Code requires internal auditors to respect and contribute to the legitimate and ethical objectives of the organization and not engage in acts discreditable to the organization. However, the Code does not specifically mention compliance with organizational policy.

Not (d) because the Code requires compliance with the SPPIA, and the SPPIA require internal auditors to enhance their knowledge, skills, and competencies through continuing professional development, but neither the Code nor the SPPIA require formal continuing education.

48. CIA Nov 93 I.44


Answer (a) is correct. When evaluating a code of conduct, it is important to consider two items: comprehensiveness and compliance. The code should address the ethical issues that the employees are expected to encounter and provide suitable guidance. The audit must also consider the extent to which employees are complying with the standards established.

Not (b) because evaluating the comprehensiveness of the code is also necessary.

Not (c) because evaluating the comprehensiveness of the code is also necessary.

Not (d) because evaluating the comprehensiveness of the code is also necessary.



Not (a) because the IIA Code of Ethics applies IIA members and CIAs

Answer (b) is correct. The IIA Code of Ethics, Standards of Conduct Vll, requires members and CIAs to adopt suitable means to comply with standards.

Not (c) because loyalty to the organization must be exhibited, but the standards must be followed by a member or CIA.

Not (d) because the IIA Code of Ethics says nothing about resignation to avoid improper activities.



Answer (a) is correct. This is the primary purpose of the Code of Ethics.

Not (b) because Code of Ethics was not designated to serve as standards for effective accounting practice.

Not (c) because a Code of Ethics does not provide the framework within which accounting policies are developed.

Not (d) because the primary purpose of Code of Ethics is not for interviewing new accountants.



Not (a) because this procedure would only ensure employee knowledge and acceptance of the code, which are not at issue.

Not (b) because this procedure would only ensure employee knowledge and acceptance of the code, which are not at issue.

Not (c) because public knowledge might affect the behavior of some individuals but not to the same extent as the perceived likelihood of sanctions for wrongdoing.

Answer (d) is correct. Penalties for violations of a code of conduct should enhance its effectiveness. Some individuals will be deterred from misconduct if they expect it to be detected and punished.

52. CIA May 94 I.66


Answer (a) is correct. The IIA Code requires conditionality. Standard 220 (Knowledge, Skills and Disciplines) and 240 (Compliance with standards of Conduct)

Not (b) because approval of the audit committee or management is required by the Standards.

Not (c) because the Standards require sufficient evidence to support findings.

Not (d) because the Standards allow use of experts when needed.

53. CIA May 96 I.17


Answer (a) is correct. The IIA Code of Ethics contains basic principles, which require individuals judgment to apply.

Not (b) because while the comparison might be interesting, I would not help determine how to apply the code.

Not (c) because application might not be in the best interest of the auditee.

Not (d) because judgment may be applied to their use but not to whether or not to use them.

54. CIA May 95 I.43


Not (a) because there is no professional conflict of interest exists per se, However, the auditor should be aware of potential conflicts.

Not (b) because George has committed to obtaining the needed expertise before conducting the audit.

Answer (c) is correct. This would be a violation of Article X of the code, which requires auditors to continually strive for improvement in their proficiency and the effectiveness of their services audits.

Not (d) because the information was disclosed as part of the normal process of cooperation between the internal and external auditor. Because the books were adjusted, the external auditor was expected to inquire as to the nature of the adjustment.

55. CIA May 94 I.9


Not (a) because this would be included in the normal scope of this type of audit.

Not (b) because testing employees is not prohibited by the Standards.

Not (c) because not prohibited by the Standards

Answer (d) is correct. The internal auditing activity is ultimately responsible to the board of directors. Not much benefit is gained by surveying the board since their views will be biased for this audit. Standards 100 (Independence) and 300 (Scope of Work).

56. CIA Nov 95 I.51


Not (a) because the auditor must act consistently with the sprit embodied in the IIA Code of Ethics. It not be practical to seek the advice of legal counsel for all ethical decision. Ethics is a moral and professional concept, not just a legal concept.

Answer (b) is correct. This is consistent with the concept embodied in the IIA Code. The last sentence of the code clearly indicates that the auditor needs to uphold the objectives of the IIA.

Not (c) because it would not be practical to seek management advice for all potential dilemmas. Furthermore, the advice might not be consistent with the profession's standards.

Not (d) because, if the company's standards are not consistent with, or as high as, the profession's standards, and the internal auditor is held to the standards of the profession.

57. CIA May 95 I.53


Answer (a) is correct. Although an argument should be made that the auditor should report the matter to the audit committee and management, there is no evidence that the auditor is deliberately withholding material facts their for no violation of the Code occurred

Not (b) because material fraud, if suspected, should be brought to the attention of management. However, in this case, the auditor gathered sufficient evidence to dispel the suspicion of fraud.

Not (c) because the auditor did not deliberately withhold important information.

Not (d) because the auditor has gathered sufficient information. Internal legal counsel's opinion appears to be sufficient.

58. CIA Nov 95 I.52


Answer (a) is correct. This is consistent with the IIAs Code of Ethics "Internal auditors shall not accept anything that may impair or be presumed to impair their professional judgment."

Not (b) because this would be inconsistent with the standards adopted by the profession>

Not (c) because the auditor is guided by the profession's standards, not the customs of individual countries or regions.

Not (d) because the action is explicitly prohibited by the Code of Ethics.

59. CIA May 96 I.70


Answer (a) is correct. This is part of the introduction to the IIA Code of Ethics.

Not (b) since they are part of internal auditing standard.

Not (c) because the Rules of Conduct are an aid in interpreting the Principles.

Not (d) because this is the purpose of the statement of responsibility.

60. CIA Nov 95 I.53


Not (a) because this action violates the Code of Ethics.

Not (b) because this action violates the Code of Ethics.

Not (c) because this action violates the Code of Ethics, but the auditor should report the unlawful activities to the appropriate personnel within the organization, not to a regulatory agency.

Answer (d) is correct. The auditor should inform the appropriate authorities in the organization if there are sufficient indicators of the commission of a fraud.

61. CIA Nov 96 I.6


Not (a) because although there is a mineral difference in the standard, the auditor ought to be guided by the most applicable set of standards.

Not (b) because although there is a mineral difference in the standard, the auditor ought to be guided by the most applicable set of standards.

Not (c) because the auditor ought to be guided by the applicable IIA Standards and governmental auditing standards.

Answer (d) is correct. Members and CIAs are required to follow the IIA standards. Additional governmental audit standards should also be followed on these governmental grants audit.

62. CIA Nov 96 I.16


Not (a) because the mere existence of Company A's Code of Ethics does not assure that its tenets are followed.

Answer (b) is correct. A formal Code of Ethics effectively communicates acceptable values to all members, provides a method of policing and disciplining members for violations, establishes objective standards against which individuals can measure their own performance, and communicates the organization's value system to outsiders.

Not (c) because an audit of ethical behavior is not dependent on the existence of a formal Code of Ethics. Policies, however, may provide the criteria for such an audit.

Not (d) because an audit of ethical behavior is not dependent on the existence of a formal Code of Ethics. Policies, however, may provide the criteria for such an audit.

63. CIA May 96 I.61


Not (a) because according to the Code of Ethics.

Answer (b) is correct. The director has to avoid conflict of interest or activity that might impair or be presumed to impair their unbiased assessment. The director may not accept anything of value that may impair his professional judgment. Reference to Code of Ethics, section lV and V.

Not (c) according to the Code of Ethics.

Not (d) according to the Code of Ethics.

64. CIA Nov 94 I.52


Not (a) because telling the neighbor about the plant closing is the only violation of the Code of Ethics.

Answer (b) is correct. According to the IIA Code of Ethics (Article ll, lV, V, Vlll, and X) telling the neighbor about a plant closing (item3) is the only violation

Not (c) because telling the neighbor about the plant closing is the only violation of the Code of Ethics.

Not (d) because telling the neighbor about the plant closing is the only violation of the Code of Ethics.

65. CIA Nov 94 I.53


Not (a) because receiving an item of value from a customer of the employer (item5) and failure to disclose the kickback (item 8) are the only violations.

Answer (b) is correct. According to the IIA Code of Ethics (Article ll, lV, V, Vlll, and X) receiving an item of value from a customer of the employer (item5) and failure to disclose the kickback (item 8) are the only violations.

Not (c) because receiving an item of value from a customer of the employer (item5) and failure to disclose the kickback (item 8) are the only violations.

Not (d) because receiving an item of value from a customer of the employer (item5) and failure to disclose the kickback (item 8) are the only violations.

66. CIA Nov 94 I.54


Not (a) because receiving royalties from a book publisher is the only action that is not a violation of the Code.

Not (b) because receiving royalties from a book publisher is the only action that is not a violation of the Code. The receipt of royalties is not a violation because it is not a basis for presuming an impairment of professional judgment.

Answer (c) is correct. According to the IIA Code of Ethics (Article ll, lV, V, Vlll, and X), receiving royalties from a book publisher (item 9) is the only action that is not a violation, and the other (item 10, 11, 12) are clear violations.

Not (d) because receiving royalties from a book publisher is the only action that is not a violation of the Code.

67. CIA Nov 96 I.43


Not (a) because, it is clearly violates the IIAs Code Article lV, but statement ll is also correct.

Not (b) because it could cause a conflict of the type describes and would be considered a discreditable act (Article lll). However, statement l is also correct.

Answer (c) is correct. The action may represent a violation of the code for both of the reason given.

Not (d) because it is a violation of the Code.

68. CIA Nov 96 I.33


Answer (a) is correct. The Code of Ethics and Standards do not provide for strict confidentiality of information.

Not (b) because the option is allowable, and an attorney can provide legal confidentiality.

Not (c) because the option is allowable, but is not a guarantee of confidentiality.

Not (d). To maintain confidentiality; the employer can be directed to other option to provide the information.

69. CIA Nov 96 I.32


Answer (a) is correct. Auditor must exhibit loyalty to the organization, but not be a party to any illegal activity. Thus, auditors must comply with legal subpoenas.

Not (b) because article Vlll prohibits auditors from using information for personal gain.

Not (c) because article V prohibits auditors from accepting gifts that may impair or be presumed to impair their professional judgment.

Not (d) because article ll prohibits auditors from knowingly being a party to any illegal activity.

70. CIA May 97 I.10


Not (a) because the employee's patenting of new developments violates the general policy that all-important new discoveries are the property of the company. Furthermore, if the practice is an alternative way to provide benefits to an employee, it may violate employee compensation rules. It may also need to be reported to various taxing authorities.

Not (b) because failing to report the violation of company policy is contrary to The IIA Code of Ethics Standards.

Not (c) because failing to report the violation of company policy is contrary to The IIA Code of Ethics Standards.

Answer (d) is correct. According to the Standards, internal auditors should communicate engagement results. Rule of Conduct 4.2 states, "Internal auditors shall perform internal auditing services in accordance with the Standards for the Professional Practice of Internal Auditing". Rule of Conduct 2.3 states, "Internal auditors shall disclose all material facts known to them that, if not disclosed, may distort the reporting of activities under review". Hence, the failure to report violates The IIA Code of Ethics Standards.

71. CIA May 97 I.70


Not (a) because, according to Rule of Conduct 1.2, "Internal auditors shall observe the law and make disclosures expected by the law and the profession". Failure to comply with a subpoena is illegal.

Not (b) because the hospital is not a competitor or supplier of the auditor's employer. Hence, no conflict of interest is involved.

Not (c) because giving a speech is not a violation of The IIA Code of Ethics. In fact, The IIA's motto is "progress through sharing".

Answer (d) is correct. According to Rule of Conduct 3.2, "Internal auditors shall not use information for any personal gain or in any manner that would be contrary to the law or detrimental to the legitimate and ethical objectives of the organization".

72. CIA May 97 I.66


Not (a) because the auditor is not withholding information because he or she has passed the information along to the director of internal audit. The information may be useful in a subsequent audit in the marketing area.

Not (b) because the auditor is not withholding information because he or she has passed the information along to the director of internal audit. Furthermore, the auditor has documented a red flag that may be important in a subsequent audit. This action also does not violate the Standards.

Answer (c) is correct. There is no violation of either The IIA Code of Ethics or the Standards.

Not (d) because the auditor is not withholding information because he or she has passed the information along to the director of internal audit. Furthermore, the auditor has documented a red flag that may be important in a subsequent audit. This action also does not violate the Standards.

73. CIA May 97 I.64


Not (a) because acceptance of the gift could easily be presumed to have impaired the CIA's professional judgment. Furthermore, the gift could easily be perceived as a kickback.

Answer (b) is correct. As long as individual is a certified Internal Auditor, he or she should be guided by the professions Code of Ethics in addition to the organizations code of conduct. Article V of the Code of Ethics would preclude such a gift because it could be presumed to have influenced the individuals decisions.

Not (c) because acceptance of the gift could easily be presumed to have impaired the CIA's professional judgment. Furthermore, the gift could easily be perceived as a kickback.

Not (d) because acceptance of the gift could easily be presumed to have impaired the CIA's professional judgment. Furthermore, the gift could easily be perceived as a kickback.

74. CIA Nov 94 I.57


Answer (a) is correct. Rule of Conduct 1.2 states, "Internal auditors shall observe the law and make disclosures expected by the law and the profession". Thus, complying with a valid subpoena does not violate The IIA Code of Ethics.

Not (b) because rule of Conduct 3.2 states, "Internal auditors shall not use information for any personal gain or in any manner that would be contrary to the law or detrimental to the legitimate and ethical objectives of the organization".

Not (c) because rule of Conduct 2.2 states, "Internal auditors shall not accept anything that may impair or be presumed to impair their professional judgment".

Not (d) because rule of Conduct 1.3 states, "Internal auditors shall not knowingly be a party to any illegal activity, or engage in acts that are discreditable to the profession of internal auditing or to the organization." Moreover, Rule of Conduct 2.3 states, "Internal auditors shall disclose all material facts known to them that, if not disclosed, may distort the reporting of activities under review".

75. CIA May 94 I.30


Not (a) because including facts in the working papers is not a violation of the Standards or the Code.

Not (b) because additional discussion with the audit manager is not necessary before discussion with the director of internal audit.

Answer (c) is correct. It is the director of internal auditing who is responsible to communicate with the external auditor (IIAs Code of Ethics)

Not (d) because resigning is an option always available to the auditor without a violation of the Standards or the Code.

76. CIA May 95 I.57


Not (a) because this could be viewed as general information about best practices and is acceptable to carry to the next employer.

Not (b) because the auditor is applying knowledge of a commonly used, standards, and audit techniques. It is not confidential information.

Not (c) because this information could be viewed as part of continuing education of the auditor. As long as it is general information about best practices and is acceptable to carry to the next employer.

Answer (d) is correct. All the three answers are not violated.

77. CIA Nov 92 I.48


Not (a) because sanctions against CIAs must be imposed by the Board of Directors.

Not (b) because the CIA violated the law and performed an act discreditable to the profession.

Not (c) because sanctions against CIAs must be imposed by the Board of Directors.

Answer (d) is correct. The sanction must be imposed by the Board. This act is probably severe enough to warrant forfeiture of the CIA designation (IIA Code of Ethics, Applicability section).

78. CIA May 97 I.60


Not (a) because this is the definition of standards given in the foreword of the Standards for the Professional Practice of Internal Auditing.

Answer (b) is correct. The Code of Ethics defines the minimum ethical standards for the internal auditor.

Not (c) because the Standards define the practice of internal auditing "as it should be".

Not (d) because the Standards are applicable across all industries and types of internal audit organizations.

HW A-28 2004 Powers Resources Corporation. All rights reserved

2004 Powers Resources Corporation.

All rights reservedHW A-27

i-a comply with the iia's attribute standards answers

Documents

correct answer

auditor reports

answer b

answer d

internal auditing department

internal audit department

internal auditing standards

internal auditors