Gleim CIA Test Prep: Part 1 - Internal Audit Basics

Answer Explanations
(101 questions)

[1] Gleim #: 1.1.1

Answer (A) is correct . Guiding the ethical conduct of internal auditors is the

d
purpose of the Code of Ethics, not the Standards .

07 )
Answer (B) is incorrect. Establishing the basis for the evaluation of internal

h
70 o a
audit performance is one of The IIA’s stated purposes of the Standards .
Answer (C) is incorrect . Fostering improved organizational processes and

-4 (C m
04 c
operations is one of The IIA’s stated purposes of the Standards .

Answer (D) is incorrect . Delineating basic principles that represent the practice

a
h
of internal auditing is one of The IIA’s stated purposes of the Standards .
22 M A
[2] Gleim #: 1.1.2

Answer (A) is incorrect . The primary role of internal auditing includes, but is
not limited to, assessing the efficiency of operations.
23 C ad

Answer (B) is incorrect . Internal auditors serve management as well as the

board.
A
Answer (C) is incorrect. Reducing external audit fees may be a direct result of
internal audit work, but it is not a reason for staffing an internal audit activity.
+9 IA m

Answer (D) is correct . The Definition of Internal Auditing states, in part,

“Internal auditing is an independent, objective assurance and consulting activity
C am

designed to add value and improve an organization’s operations.”

/
H

Copyright 2013 Gleim Publications Inc. Page 1

Printed for Hammad Ahmad
 Gleim CIA Test Prep: Part 1 - Internal Audit Basics
Answer Explanations
(101 questions)

[3] Gleim #: 1.1.3

Answer (A) is incorrect . The professionalization of internal auditing is

d
important but is not a direct purpose of the Standards .

07 )
Answer (B) is incorrect. Independence and objectivity are but two aspects of

h
70 o a
the practice of internal auditing as it should be.
Answer (C) is incorrect . The Standards do not formally encourage external

-4 (C m
04 c
auditors to make more extensive use of the work of internal auditors.
Answer (D) is correct. The IIA provides the following purposes of the

a
h
Standards :
1. Delineate basic principles that represent the practice of internal auditing.
2. Provide a framework for performing and promoting a broad range of value-
22 M A
added internal audit activities.
3. Establish the basis for evaluating internal auditing performance.
4. Foster improved organizational processes and operations.
23 C ad

[4] Gleim #: 1.1.4

A
Answer (A) is incorrect . Attribute Standards apply to all internal audit services.
+9 IA m

Answer (B) is incorrect . Only Implementation Standards expand upon the

standards in other categories.
Answer (C) is correct. Implementation Standards expand upon the Attribute
C am

and Performance Standards. They provide requirements applicable to specific

engagements.
Answer (D) is incorrect . Performance Standards apply to all internal audit
/

services.
H

Copyright 2013 Gleim Publications Inc. Page 2

Printed for Hammad Ahmad
 Gleim CIA Test Prep: Part 1 - Internal Audit Basics
Answer Explanations
(101 questions)

[5] Gleim #: 1.1.5

Answer (A) is incorrect . Management is responsible for the establishment of

d
internal control.

07 )
Answer (B) is correct. The internal audit activity helps an organization

h
70 o a
accomplish its objectives by bringing a systematic, disciplined approach to
evaluate and improve the effectiveness of risk management, control, and

-4 (C m
04 c
governance processes (Definition of Internal Auditing).
Answer (C) is incorrect . Ensuring the reliability and integrity of financial and

a
operational information is a management responsibility.

h
Answer (D) is incorrect . Governance, risk management, and control processes
ultimately serve to safeguard the organization’s resources.
22 M A
[6] Gleim #: 1.1.6
23 C ad

Answer (A) is correct. Pronouncements by The IIA have no geographic limits.

Compliance with the concepts in the Standards is essential for the
A
responsibilities of internal auditors to be met, regardless of the national
environment.
+9 IA m

Answer (B) is incorrect . The internal audit activity collectively must possess
the knowledge, skills, and other competencies needed to perform its
responsibilities.
C am

Answer (C) is incorrect. The internal audit activity must evaluate the adequacy
and effectiveness of controls, including those relating to compliance with laws,
regulations, policies, procedures, and contracts.
/

Answer (D) is incorrect . Varying laws and customs and other environmental
H

factors justify policy differences.

Copyright 2013 Gleim Publications Inc. Page 3

Printed for Hammad Ahmad
 Gleim CIA Test Prep: Part 1 - Internal Audit Basics
Answer Explanations
(101 questions)

[7] Gleim #: 1.1.7

Answer (A) is incorrect . Assessing internal control is one of many tasks of the

d
internal audit activity, but it is not its primary purpose.

07 )
Answer (B) is correct. Internal auditing is an independent, objective assurance

h
70 o a
and consulting activity designed to add value and improve an organization’s
operations (Definition of Internal Auditing).

-4 (C m
04 c
Answer (C) is incorrect . Detecting fraud is one of many possible tasks of the
internal audit activity, but it is not its primary purpose.

a
h
Answer (D) is incorrect . Assisting the external auditors in their audit of the
financial statements is one of many possible tasks of the internal audit activity,
but it is not its primary purpose.
22 M A
[8] Gleim #: 1.1.8
23 C ad

Answer (A) is incorrect . Performing the functions of design and

implementation of risk management and control systems would impair the
A
objectivity of the internal auditors. An internal auditor may, however,
recommend control standards and review procedures prior to their
implementation.
+9 IA m

Answer (B) is correct. The Definition of Internal Auditing states, in part,

“Internal auditing is an independent, objective assurance and consulting activity
C am

designed to add value and improve an organization’s operations.”

Answer (C) is incorrect. Internal auditing serves the organization, not the
external auditors.
/

Answer (D) is incorrect . Internal auditing is much broader than examining and
H

evaluating an organization’s accounting system.

Copyright 2013 Gleim Publications Inc. Page 4

Printed for Hammad Ahmad
 Gleim CIA Test Prep: Part 1 - Internal Audit Basics
Answer Explanations
(101 questions)

[9] Gleim #: 1.1.9

Answer (A) is incorrect . Eliminating risks is a responsibility of management.

d
Answer (B) is correct. The internal audit activity helps an organization

07 )
accomplish its objectives by bringing a systematic, disciplined approach to

h
70 o a
evaluate and improve the effectiveness of risk management, control, and
governance processes (Definition of Internal Auditing). Managing, controlling,

-4 (C m
04 c
and eliminating risk are responsibilities of management.
Answer (C) is incorrect . Managing risk is a responsibility of management.

a
h
Answer (D) is incorrect . Controlling risk is a responsibility of management.
22 M A
[10] Gleim #: 1.1.10

Answer (A) is correct. Attribute Standards concern the characteristics of

organizations and parties providing internal auditing services.
23 C ad

Answer (B) is incorrect . The IPPF does not contain Independence Standards.
A
Answer (C) is incorrect. Performance Standards describe the nature of internal
auditing and provide quality criteria for evaluation of internal audit
performance.
+9 IA m

Answer (D) is incorrect . Implementation Standards apply to specific types of

engagements.
C am

[11] Gleim #: 1.1.11

/

Answer (A) is correct . The mandatory guidance portion of the IPPF consists of
the Definition of Internal Auditing, the Code of Ethics, Attribute Standards,
H

Performance Standards, and Implementation Standards.

Answer (B) is incorrect. Practice Aids are not part of the IPPF.
Answer (C) is incorrect . Practice Advisories are strongly recommended
guidance.

Answer (D) is incorrect . Development Aids are not part of the IPPF.

Copyright 2013 Gleim Publications Inc. Page 5

Printed for Hammad Ahmad
 Gleim CIA Test Prep: Part 1 - Internal Audit Basics
Answer Explanations
(101 questions)

[12] Gleim #: 1.1.12

Answer (A) is incorrect . SOX imposes no requirements regarding membership

d
rotation of the audit committee.

07 )
Answer (B) is incorrect. Under the terms of SOX, only one member of the

h
70 o a
audit committee need be a financial expert.
Answer (C) is incorrect . The SOX requirement regarding a financial expert

-4 (C m
04 c
does not refer to the chairman of the board.
Answer (D) is correct. Under the terms of SOX, at least one member of the

a
h
audit committee must be a financial expert.
22 M A
[13] Gleim #: 1.1.13

Answer (A) is incorrect . The audit committee must be directly responsible for
appointing, compensating, and overseeing the work of the independent auditor.
23 C ad

Answer (B) is correct. Under the terms of SOX, each member of the issuer’s
audit committee must be an independent member of the board of directors. To
A
be independent, a director must not be affiliated with, or receive any
compensation (other than for service on the board) from, the issuer.
+9 IA m

Answer (C) is incorrect. The SOX requirement regarding independent members

refers to the audit committee, not the entire board.
C am

Answer (D) is incorrect . SOX does not impose a requirement regarding

mandatory former employment with the independent public accounting firm.
/
H

Copyright 2013 Gleim Publications Inc. Page 6

Printed for Hammad Ahmad
 Gleim CIA Test Prep: Part 1 - Internal Audit Basics
Answer Explanations
(101 questions)

[14] Gleim #: 1.1.14

Answer (A) is incorrect . The staffing of the internal audit activity is determined

d
by the CAE and the board; it is not an appropriate matter to include in the

07 )
internal audit charter.

h
70 o a
Answer (B) is incorrect. The CAE’s compensation plan is not an appropriate
matter to include in the internal audit charter.

-4 (C m
04 c
Answer (C) is incorrect . Scope is an aspect of individual internal audit
engagements.

a
h
Answer (D) is correct. The purpose, authority, and responsibility of the internal
audit activity must be formally defined in an internal audit charter.
22 M A
[15] Gleim #: 1.1.15

Answer (A) is incorrect . The appropriate contents of the internal audit charter
23 C ad

are the purpose, authority, and responsibility of the internal audit activity.

Answer (B) is incorrect . The appropriate contents of the internal audit charter
A
are the purpose, authority, and responsibility of the internal audit activity.
Answer (C) is incorrect. The appropriate contents of the internal audit charter
+9 IA m

are the purpose, authority, and responsibility of the internal audit activity.
Answer (D) is correct . A risk assessment is not appropriate for inclusion in the
C am

internal audit charter.

/
H

Copyright 2013 Gleim Publications Inc. Page 7

Printed for Hammad Ahmad
 Gleim CIA Test Prep: Part 1 - Internal Audit Basics
Answer Explanations
(101 questions)

[16] Gleim #: 1.1.16

Answer (A) is incorrect . Internal audit engagements are scheduled based on a

d
risk assessment, only one of the elements of which is monetary materiality.

07 )
Answer (B) is correct. The internal audit activity’s purpose, authority, and

h
70 o a
responsibility are specifically granted in the form of a written charter approved
by the board.

-4 (C m
04 c
Answer (C) is incorrect . An attitude of independence is required for internal
auditors, not for auditees and management.

a
h
Answer (D) is incorrect . Internal audit engagements are scheduled based on a
risk assessment, not simply time elapsed since the last engagement.
22 M A
[17] Gleim #: 1.1.17

Answer (A) is incorrect . While the records of board meetings do reflect

23 C ad

discussions related to the internal audit charter, they are no substitute for an
actual formal charter.
A
Answer (B) is incorrect . The corporate bylaws are not the appropriate place to
define the purpose, authority, and responsibility of the internal audit activity.
+9 IA m

Answer (C) is correct. The purpose, authority, and responsibility of the internal
audit activity must be formally defined in a written charter, consistent with the
Definition of Internal Auditing, the Code of Ethics, and the Standards .
C am

Answer (D) is incorrect . A memorandum of understanding is an agreement

between parties expressing their common will that does not necessarily contain
the elements of a contract.
/
H

Copyright 2013 Gleim Publications Inc. Page 8

Printed for Hammad Ahmad
 Gleim CIA Test Prep: Part 1 - Internal Audit Basics
Answer Explanations
(101 questions)

[18] Gleim #: 1.1.18

Answer (A) is correct . The internal audit activity provides independent,

d
objective assurance and consulting services designed to add value and improve

07 )
an organization’s operations (Definition of Internal Auditing).

h
70 o a
Answer (B) is incorrect. The IIA Glossary defines assurance and consulting,
not auditing and assurance, as the types of services provided by the internal

-4 (C m
04 c
audit activity.
Answer (C) is incorrect . Engagement is not a type of internal audit service.

a
h
Answer (D) is incorrect . The IIA Glossary defines assurance and consulting,
not auditing and consulting, as the types of services provided by the internal
audit activity.
22 M A
[19] Gleim #: 1.1.19
23 C ad

Answer (A) is incorrect . The support of management and the board is crucial
when inevitable conflicts arise between the internal audit activity and the
A
department or function under review.
Answer (B) is incorrect . The support of management and the board is crucial
+9 IA m

when inevitable conflicts arise between the internal audit activity and the
department or function under review.
Answer (C) is correct. The support of management and the board is crucial
C am

when inevitable conflicts arise between the internal audit activity and the
department or function under review.
Answer (D) is incorrect . The support of management and the board is crucial
/

when inevitable conflicts arise between the internal audit activity and the
H

department or function under review.

Copyright 2013 Gleim Publications Inc. Page 9

Printed for Hammad Ahmad
 Gleim CIA Test Prep: Part 1 - Internal Audit Basics
Answer Explanations
(101 questions)

[20] Gleim #: 1.1.20

Answer (A) is correct . Final approval of the internal audit charter resides with

d
the board. The board has this power inherently.

07 )
Answer (B) is incorrect. Authorization of internal audit access to records,

h
70 o a
personnel, and physical properties is one of the elements to be included in the
internal audit charter.

-4 (C m
04 c
Answer (C) is incorrect . Definition of the scope of internal audit activities is
one of the elements to be included in the internal audit charter.

a
h
Answer (D) is incorrect . The nature of the chief audit executive’s functional
reporting relationship with the board is one of the elements to be included in the
internal audit charter.
22 M A
[21] Gleim #: 1.2.21
23 C ad

Answer (A) is correct. The IIA’s Code of Ethics is typical. Its purpose is “to
promote an ethical culture in the profession of internal auditing.”  The definition
A
of internal auditing states that it is “an independent, objective assurance and
consulting activity.”  Moreover, internal auditing is founded on “the trust placed
in its objective assurance about governance, risk management, and control.” 
+9 IA m

Accordingly, internal auditors are professionals who serve others by providing

assurance and consulting services.
C am

Answer (B) is incorrect . A code of conduct can help to establish minimum

standards of competence, but it would be impossible to ensure equality of
competence by all members of a profession.
Answer (C) is incorrect. In some situations, responsibility to the public at large
/

may conflict with and be more important than loyalty to one’s organization.
H

Answer (D) is incorrect . 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.

Copyright 2013 Gleim Publications Inc. Page 10

Printed for Hammad Ahmad