ACC653 Ch 9

Senior management has requested that the internal audit function perform an operational review of the telephone marketing operations of a major division and recommend procedures and policies for improving management control over the operation. The internal audit function should:

• a. Accept the audit engagement because independence would not be impaired.

• b. Accept the engagement, but indicate to management that recommending controls would impair audit independence so that management knows that future audits of the area would be impaired.

• c. Not accept the engagement because internal audit functions are presumed to have expertise on accounting controls, not marketing controls.

• d. Not accept the engagement because recommending controls would impair future objectivity of the department regarding this auditee.

Answer explanation

A is the best answer. This engagement would not impair the function’s independence. Making recommendations

on the design or enhancement of internal control activities is a responsibility of the

internal audit function. It is management’s responsibility to implement and own controls.

Who is ultimately responsible for determining that the objectives for an internal audit engagement have been met?

• a. The individual internal audit staff member.

• b. The CAE.

• c. The audit committee.

• d. The internal audit engagement supervisor.

Answer explanation

B is the best answer. The CAE is ultimately responsible for determining whether the objectives of an internal audit engagement have been successfully achieved. The CAE is pivotal to a successful internal audit function.

Which of the following is NOT a responsibility of the CAE?

• a. To communicate the internal audit function’s plans and resource requirements to senior management and the board for review and approval.

• b. To oversee the establishment, administration, and assessment of the organization’s system of internal controls and risk management processes.

• c. To follow up on whether appropriate management actions have been taken on significant issues cited in internal audit reports.

• d. To establish a risk-based plan to accomplish the objectives of the internal audit function consistent with the organization’s goals.

Answer explanation

B is the best answer. All are responsibilities of the CAE as defined by the Standards except for overseeing the establishment, administration, and assessment of the organization’s system of internal

controls and risk management processes, which is management’s responsibility.

Audit committees are most likely to participate in the approval of:

• a. Audit staff promotions and salary increases.

• b. The internal audit report observations and recommendations.

• c. Audit work schedules.

• d. The appointment of the CAE.

Answer explanation

D is the best answer. The independence of the internal audit activity is enhanced when the audit committee participates in naming the CAE. The company’s CAE is responsible for staff promotions and for approving internal audit reports. Audit work schedules are a part of the internal audit activity’s

planning function.

According to the IPPF, the independence of the internal audit activity is achieved through:

• a. Staffing and supervision.

• b. Continuing professional development and due professional care.

• c. Human relations and communications.

• d. Organizational status and objectivity.

Answer explanation

D is the best answer. According to the Standards, organizational status and objectivity permit members of the internal audit activity to render the impartial and unbiased judgments essential to the proper conduct of engagements. Staffing and supervision relate to the professional proficiency of the internal audit activity. Continuing professional development, due professional care, and human relations and communications relate to the professional proficiency of the internal auditor.

Which of the following activities undertaken by the internal auditor might be in conflict with the standard of independence?

• a. Risk management consultant.

• b. Product development team leader.

• c. Ethics advocate.

• d. External audit liaison.

Answer explanation

B is the best answer. In some circumstances, such as a product development team, the role of team leader or member may conflict with the independence attribute of the internal audit function. The auditor can participate as a consultant to the team but should not participate as a team leader.

The risk management consultant does not conflict with the independence of the internal audit function.

To improve the ethical climate, the internal auditor should assume the role of ethics advocate, which therefore does not conflict with the independence of the internal audit function.

External audit liaison does not conflict with the independence of the internal audit function as the internal and external audit functions both share information and work collaboratively outside the influence of

management.