Unit 1 Ans With Explanation Part 3

Gleim CIA Test Prep: Part 1 - Internal Audit Basics
Answer Explanations
(101 questions)
[61] Gleim #: 1.5.61
Answer (A) is incorrect . Failing to report the violation of organizational policy
d
is contrary to The IIA’s Code of Ethics.
07 )
Answer (B) is incorrect. The employee’s patenting of new developments
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violates the general policy that all important new discoveries are the property of
the organization. Furthermore, if the practice is an alternative way to provide
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benefits to an employee, it may violate employee compensation rules. It may
also need to be reported to various taxing authorities.
a
Answer (C) is incorrect . Failing to report the violation of organizational policy
h
is contrary to the Standards .
Answer (D) is correct. Under the Standards , internal auditors should
22 M A
communicate engagement results. Rule of Conduct 4.2 states, “Internal auditors
shall perform internal auditing services in accordance with the International
Standards for the Professional Practice of Internal Auditing .” Rule of Conduct
2.3 under the objectivity principle states, “Internal auditors shall disclose all
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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’s Code of
A
Ethics and the Standards .
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[62] Gleim #: 1.5.62
Answer (A) is correct. Rule of Conduct 2.3 under the objectivity principle
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states, “Internal auditors shall disclose all material facts known to them that, if
not disclosed, may distort the reporting of activities under review.”
Answer (B) is incorrect . Such reporting is routine.
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Answer (C) is incorrect. Expressing an opinion on internal financial statements

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is acceptable since it is for internal use only.

Answer (D) is incorrect . Turning a case over to the security department is
acceptable as long as the internal auditor is careful not to state any final
conclusions that are not supported by factual information.
Copyright 2013 Gleim Publications Inc. Page 31

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Answer Explanations
(101 questions)
[63] Gleim #: 1.5.63
Answer (A) is correct . Rule of Conduct 2.3 under the objectivity principle
d
07 )
not disclosed, may distort the reporting of activities under review.” Moreover,
Rule of Conduct 1.3 under the integrity principle states, “Internal auditors shall
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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.”
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Answer (B) is incorrect. Internal auditors must report material facts that, if not
disclosed, could distort the reporting of activities. They also may not knowingly
a
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be a party to an illegal activity.
Answer (C) is incorrect . Internal auditors may not knowingly be a party to an
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illegal activity.
Answer (D) is incorrect . Internal auditors ordinarily are not required to disclose
voluntarily any illegal or improper acts to outside individuals or organizations.
They should try to work within their organizations. However, under Rule of
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Conduct 1.2, they should make any disclosures expected by the law or by the
profession.
A
[64] Gleim #: 1.5.64
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Answer (A) is correct. Nothing in The IIA’s Code of Ethics prohibits operating
an unrelated business outside of regular office hours. The activity does not, in
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itself, constitute a conflict of interest, a use of information for personal gain, or

an impairment of the internal auditor’s unbiased assessment.
Answer (B) is incorrect . Rule of Conduct 2.1 under the objectivity principle
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states, “Internal auditors shall not participate in any activity or relationship that
may impair or be presumed to impair their unbiased assessment. This
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participation includes those activities or relationships that may be in conflict

with the interests of the organization.”
Answer (C) is incorrect. Internal auditors should exercise diligence in
performing their duties.
Answer (D) is incorrect . Rule of Conduct 2.2 under the objectivity principle
states, “Internal auditors shall not accept anything that may impair or be
presumed to impair their professional judgment.”

Answer Explanations
(101 questions)
[65] Gleim #: 1.5.65
Answer (A) is incorrect . The ethical transgression, if any, was not made by the
d
internal auditor but by internal audit management.
07 )
Answer (B) is correct. Reporting the defective function as an engagement client
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failure is a violation of the internal auditor’s ethical obligation to disclose all
material facts known to him/her that, if not disclosed, may distort the reporting
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of activities under review (Rule of Conduct 2.3).
Answer (C) is incorrect . Immaterial facts need not be included.
a
h
Answer (D) is incorrect . The ethical transgression, if any, was not made by the
internal auditor but by internal audit management.
22 M A
[66] Gleim #: 1.5.66
Answer (A) is incorrect . Rule of Conduct 2.3 requires full disclosure of

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material facts when reporting on activities.
Answer (B) is correct. Rule of Conduct 2.2 under the objectivity principle
A
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Answer (C) is incorrect. A stock transaction not based on insider information is

not an impropriety.
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Answer (D) is incorrect . Continuing education is consistent with the duty to

continually improve proficiency and the effectiveness and quality of services
(Rule of Conduct 4.3).
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Answer Explanations
(101 questions)
[67] Gleim #: 1.5.67
Answer (A) is incorrect . A gift from an employee whose department may be
d
reviewed most likely violates Rule of Conduct 2.2.
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Answer (B) is incorrect. A gift from an employee whose department may be
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Answer (C) is correct. Rule of Conduct 2.2 under the objectivity principle
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presumed to impair their professional judgment.” A small promotional item,
a
such as a pen of minimal value, is unlikely to affect an auditor’s judgment.
h
Answer (D) is incorrect . A gift from an employee whose department may be
22 M A
[68] Gleim #: 1.5.68
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Answer (A) is incorrect . Time and budget parameters are not addressed in the
Code.
A
Answer (B) is incorrect . The Code does not address disclosure this specifically.
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not disclosed, may distort the reporting of activities under review.”
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Answer (D) is incorrect . The Code requires only that internal auditors be
prudent in the use and protection of information.
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Answer Explanations
(101 questions)
[69] Gleim #: 1.5.69
Answer (A) is incorrect . Having a material ownership interest in a competitor is
d
more likely to cause a conflict for a director or officer than an internal auditor.
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An internal auditor would seldom be able during the course of his/her
employment to take action that would enhance the value of the ownership
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interest.
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Answer (B) is incorrect. Teaching is compatible with internal auditing.
a
h
Answer (D) is incorrect . The IIA’s Code of Ethics does not specifically
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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.
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[70] Gleim #: 1.5.70

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

Answer (B) is incorrect . The Code of Ethics does not prohibit communicating
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confidential information to appropriate parties within the organization, e.g.,

senior management and the board.
Answer (C) is incorrect. Disclosures by the internal auditors are not limited to
information obtained as of the date of the final engagement communication.
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Answer (D) is incorrect . Obtaining information pertains to performing the

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engagement, not communicating results.

Answer Explanations
(101 questions)
[71] Gleim #: 1.5.71
Answer (A) is incorrect . Acceptance of anything from a customer is prohibited
d
but only if it would impair or be presumed to impair professional judgment.
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Answer (B) is incorrect. Rule of Conduct 4.3 under the competency principle
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states, “Internal auditors shall continually improve their proficiency and the
effectiveness and quality of their services.”
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Answer (C) is incorrect . Although an internal auditor is prohibited from using
confidential information for personal gain, and an investment in the
a
organization’s stock would be questionable, an investment in a mutual fund is
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acceptable.
Answer (D) is correct. Rule of Conduct 2.3 under the objectivity principle
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not disclosed, may distort the reporting of activities under review.” Moreover,
Rule of Conduct 1.3 under the integrity principle states, “Internal auditors shall
not knowingly be a party to any illegal activity, or engage in acts that are
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discreditable to the profession of internal auditing or to the organization.”

A
[72] Gleim #: 1.5.72
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Answer (A) is incorrect . The CAE dramatically changed internal audit’s scope
of work without consulting with the board. Moreover, highlighting potential
cost savings is appropriate for an engagement communication.
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Answer (B) is correct. The CAE dramatically changed internal audit’s scope of
work without consulting with the board. A second violation is the omission of
negative observations. Under The IIA’s Code of Ethics, the auditors must
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disclose all material facts known to them that, if not disclosed, may distort the
reporting of activities under review (Rule of Conduct 2.3).
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Answer (C) is incorrect. Highlighting potential cost savings is appropriate for

an engagement communication, and material negative observations must not be
omitted.
Answer (D) is incorrect . Omitting negative observations is also a violation.

Answer Explanations
(101 questions)
[73] Gleim #: 1.6.73
Answer (A) is incorrect . Rule of Conduct 2.3 under the objectivity principle
d
requires internal auditors to disclose all material facts known to them that, if not
07 )
disclosed, might distort the reporting of activities under review.
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Answer (B) is incorrect. Rule of Conduct 2.2 prohibits internal auditors from
accepting anything that may impair, or be presumed to impair, their professional
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judgment.
Answer (C) is incorrect . Rule of Conduct 3.2 prohibits internal auditors from
a
using information for personal gain.
h
Answer (D) is correct. The principle of confidentiality permits the disclosure of
confidential information if there is a legal or professional obligation to do so.
22 M A
[74] Gleim #: 1.6.74
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Answer (A) is incorrect . Information must be sufficient to achieve engagement

objectives.
A
Answer (B) is incorrect . The Standards allow use of experts when needed.
Answer (C) is incorrect. Approval of the engagement work schedule by the
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board and senior management is required.

Answer (D) is correct . Rule of Conduct 3.1 under the confidentiality principle
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states, “Internal auditors shall be prudent in the use and protection of

information acquired in the course of their duties.” Discussion of sensitive
matters with an unauthorized party is the situation most likely to be considered a
Code violation.
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Answer Explanations
(101 questions)
[75] Gleim #: 1.6.75
Answer (A) is correct . Rule of Conduct 3.1 under the confidentiality principle
d
states, “Internal auditors shall be prudent in the use and protection of
07 )
information acquired in the course of their duties.” Additionally, Rule of
Conduct 3.2 states, “Internal auditors shall not use information for any personal
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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
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information by the CAE might be illegal under insider trading rules.
Answer (B) is incorrect. According to Rule of Conduct 4.2, “Internal auditors
a
h
shall perform internal audit services in accordance with the International
Standards for the Professional Practice of Internal Auditing (Standards) .” The
Standards require supporting information to be sufficient, reliable, relevant, and
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useful.
Answer (C) is incorrect . According to Rule of Conduct 4.3, “Internal auditors

shall continually improve their proficiency and the effectiveness and quality of
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their services.”
Answer (D) is incorrect . According to Rule of Conduct 1.1, “Internal auditors
A
shall perform their work with honesty, diligence, and responsibility.”
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[76] Gleim #: 1.6.76
Answer (A) is incorrect . The auditor improperly used information and violated
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The IIA’s Code of Ethics. Some action is warranted.

Answer (B) is correct. The staff internal auditor has violated Rule of Conduct
3.2 regarding use of information. A violation of The IIA’s Code of Ethics is the
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basis for a complaint to the International Ethics Committee, which is responsible

for receiving, interpreting, and investigating all complaints against members or
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CIAs on behalf of the Board of Directors of The IIA and making

recommendations to the Board on actions to be taken (Administrative Directive
5). In addition, organizational policy must be followed.
Answer (C) is incorrect. Summary discharge may not be in accordance with
company personnel policies.
Answer (D) is incorrect . The internal auditor has violated Rule of Conduct 3.2
regarding use of information. The IIA should be notified.

Answer Explanations
(101 questions)
[77] Gleim #: 1.6.77
Answer (A) is incorrect . The hospital is not a competitor or supplier of the
d
internal auditor’s employer. Hence, no conflict of interest is involved.
07 )
Answer (B) is incorrect. Giving a speech is not a violation of The IIA’s Code
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of Ethics. In fact, The IIA’s motto is “progress through sharing.”
Answer (C) is incorrect . The principle of confidentiality permits the disclosure
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of confidential information if there is a legal or professional obligation to do so.
Answer (D) is correct. Rule of Conduct 3.2 under the confidentiality principle
a
h
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.”
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[78] Gleim #: 1.6.78
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Answer (A) is incorrect . If senior management permits the omission, the

internal auditor is not guilty of failing to disclose material facts.
A
Answer (B) is incorrect . An investigation of expense accounts is within the
internal auditor’s normal responsibilities, but further investigation of fraud
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should ordinarily be made by investigative specialists.

Answer (C) is correct. Rule of Conduct 3.2 under the confidentiality principle
states, “Internal auditors shall not use information for any personal gain or in
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any manner that would be contrary to the law or detrimental to the legitimate
and ethical objectives of the organization.”
Answer (D) is incorrect . Disclosure of information technology controls is not
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detrimental to the objectives of the organization. They are not likely to be trade
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secrets.

Answer Explanations
(101 questions)
[79] Gleim #: 1.6.79
Answer (A) is incorrect . The facts do not suggest that a conflict of interest
d
existed. However, such a conflict would be present, for example, if the internal
07 )
auditor used confidential information to seize a business opportunity that
rightfully belonged to the organization.
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Answer (B) is incorrect. The Rules of Conduct specifically prohibit using
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information in a manner that would be detrimental to the legitimate and ethical
objectives of the organization.
a
Answer (C) is incorrect . The Rules of Conduct specifically prohibit using
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information in a manner that would be detrimental to the legitimate and ethical
objectives of the organization.
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Answer (D) is correct. These facts constitute a violation of The IIA’s Code of
Ethics. Rule of Conduct 3.1 under the confidentiality principle states, “Internal
auditors shall be prudent in the use and protection of information acquired in the
course of their duties.” Further, Rule of Conduct 3.2 states, “Internal auditors
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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
A
organization.” In this case, the decision whether to notify the financial officer
of his/her replacement was properly the organization’s. Accordingly, the internal
auditor was bound not to tell his/her friend.
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[80] Gleim #: 1.7.80

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Answer (A) is incorrect . The requirement to perform work with diligence does
not override the competency Rules of Conduct or the need to use good
judgment.
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Answer (B) is correct. Rule of Conduct 4.1 under the competency principle
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states, “Internal auditors shall engage only in those services for which they have
the necessary knowledge, skills, and experience.” Internal auditors may not
have, and are not expected to have, knowledge equivalent to that of a person
whose primary responsibility is to detect and investigate fraud
(Impl. Std. 1210.A2).
Answer (C) is incorrect. Loyalty is better exhibited by consulting with

professionals and knowing the limits of competence.
Answer (D) is incorrect . The internal auditor may violate the suspect’s civil
rights as a result of inexperience.

Answer Explanations
(101 questions)
[81] Gleim #: 1.7.81
Answer (A) is correct . Rule of Conduct 4.3 under the competency principle
d
07 )
effectiveness and quality of their services.” Furthermore, Attr. Std. 1230 states,
“Internal auditors must enhance their knowledge, skills, and other competencies
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through continuing professional development.” Hence, both The IIA’s Code of
Ethics and the Standards are violated by failing to earn continuing education
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credits.
Answer (B) is incorrect. The Standards also are violated because they require
a
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auditors to enhance their knowledge, skills, and other competencies through
continuing professional development.
Answer (C) is incorrect . Both the Code and the Standards would be violated.
22 M A
Answer (D) is incorrect . The IIA’s Code of Ethics also is violated. Rule of
Conduct 4.3 under the competency principle states, “Internal auditors shall
continually improve their proficiency and the effectiveness and quality of their
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services.”
A
[82] Gleim #: 1.7.82
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Answer (A) is incorrect . The IIA’s Code of Ethics may be enforced against IIA
members and recipients of, or candidates for, IIA professional certifications.
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states, “Internal auditors shall perform internal audit services in accordance with
the International Standards for the Professional Practice of Internal Auditing .”
Because the internal auditors are members of The Institute, The IIA’s Code of
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Ethics is enforceable against them even though they are not CIAs.
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Answer (C) is incorrect. The IIA’s Code of Ethics says nothing about
resignation to avoid improper activities.
Answer (D) is incorrect . Internal auditors should respect and contribute to the
legitimate and ethical objectives of the organization, but an IIA member, a
holder of an IIA professional certification, or a candidate for certification may
be liable for disciplinary action for failure to adhere to the Standards .

Answer Explanations
(101 questions)
[83] Gleim #: 1.7.83
Answer (A) is correct . Rule of Conduct 4.2 under the competency principle
d
requires internal auditing services to be performed in accordance with the
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Standards . Attr. Std. 1200 requires engagements to be performed with
proficiency and due professional care. They also should be properly supervised
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to ensure that objectives are achieved, quality is assured, and staff is developed
(Perf. Std. 2340).
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Answer (B) is incorrect. All internal auditors need not be proficient in all areas.
The internal audit activity as a whole should have an appropriate mix of skills.
a
h
Answer (C) is incorrect . The Standards and the Code were not followed.
Answer (D) is incorrect . The Code requires compliance with the Standards ,
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and the Standards require proper supervision.
[84] Gleim #: 1.7.84

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Answer (A) is incorrect . An internal auditor must possess the necessary

A
knowledge, skills, and competencies at the time an engagement is conducted,
not the time it is accepted.
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effectiveness and quality of their services.”
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Answer (C) is incorrect. 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.
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Answer (D) is incorrect . No professional conflict of interest exists per se,

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especially given that the internal auditor was previously in public accounting.
However, the internal auditor should be aware of potential conflicts.

Answer Explanations
(101 questions)
[85] Gleim #: 1.7.85
Answer (A) is incorrect . The Code requires compliance with the Standards ,
d
and the Standards require internal auditors to enhance their knowledge, skills,
07 )
and other competencies through continuing professional development, but
neither the Code nor the Standards require formal continuing education.
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Answer (B) is correct. The IIA’s Code of Ethics applies not only to individuals
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but also to entities that provide internal auditing services. Rule of Conduct 4.2
under the competency principle states, “Internal auditors shall perform internal
audit services in accordance with the International Standards for the
a
h
Professional Practice of Internal Auditing .”
Answer (C) is incorrect . The Code requires internal auditors to respect and
22 M A
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.
Answer (D) is incorrect . Staffing requirements must be determined based on

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the circumstances of each engagement.

A
[86] Gleim #: 1.7.86
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Answer (A) is incorrect . Rule of Conduct 3.1 states, “Internal auditors shall be
prudent in the use and protection of information acquired in the course of their
duties.” Rule of Conduct 3.2 states, “Internal auditors shall not use information
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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.”
Answer (B) is incorrect . Rule of Conduct 2.2 states, “Internal auditors shall not
/
accept anything that may impair or be presumed to impair their professional

judgment.”
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Answer (C) is incorrect. 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.”
Answer (D) is correct . Rule of Conduct 4.2 under the competency principle
states, “Internal auditors shall perform internal audit services in accordance with
the International Standards for the Professional Practice of Internal Auditing .”
Attribute Standard 1200 requires engagements to be performed with proficiency
and due professional care.

Answer Explanations
(101 questions)
[87] Gleim #: 1.7.87
Answer (A) is incorrect . Rule of Conduct 1.1 requires honesty, diligence, and
d
responsibility in the performance of work.
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Answer (B) is incorrect. Rule of Conduct 2.2 prohibits accepting anything that
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may impair or be presumed to impair the professional judgment of an internal
auditor.
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Answer (C) is correct. Engagements must be performed with proficiency and
due professional care (Attr. Std. 1200), and the engagement results must be
a
communicated (Perf. Std. 2400). Engagement results include observations,
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conclusions, opinions, recommendations, and action plans (PA 2410-1). If
internal auditors expressed opinions or otherwise communicated engagement
Standards ,
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results without substantive investigation and compliance with the
such communications would be meaningless. The Standards are therefore
incorporated by reference into The IIA’s Code of Ethics by Rule of Conduct 4.2.
Thus, internal auditors must identify sufficient, reliable, relevant, and useful
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information to achieve the engagement’s objectives (Perf. Std. 2310).
Answer (D) is incorrect . A separate ethics rule prohibits conflicts of interest.

A
Rule of Conduct 2.1 states, “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
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be in conflict with the interests of the organization.”

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Answer Explanations
(101 questions)
[88] Gleim #: 1.8.88
Answer (A) is incorrect . The purpose of the Code of Ethics is to promote an
d
ethical culture in the profession of internal auditing.
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Answer (B) is incorrect. Policies and procedures guide the internal auditors in
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their consistent compliance with the internal audit activity’s standards of
performance.
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Answer (C) is correct. The charter establishes the internal audit activity’s
position within the organization, including the nature of the chief audit
a
executive’s functional reporting relationship with the board; authorizes access to
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records, personnel, and physical properties relevant to the performance of
engagements; and defines the scope of internal audit activities (Inter. Std. 1000).
22 M A
Thus, the charter prescribes the internal audit activity’s relationships with other
units within the organization and with those outside.
Answer (D) is incorrect . The internal audit activity’s authority is defined in a

charter approved by the board.
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[89] Gleim #: 1.8.89

A
Answer (A) is correct. The charter establishes the internal audit activity’s
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engagements; and defines the scope of internal audit activities (Inter. Std. 1000).
Internal auditing brings a systematic, disciplined approach to evaluating and
improving risk management, control, and governance processes (Definition of
Internal Auditing).
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Answer (B) is incorrect . Internal auditors ordinarily are not required to report
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deficiencies in regulatory compliance to the appropriate agencies. However,

they must observe the law and make disclosures expected by the law and
profession (Rule of Conduct 1.2).
Answer (C) is incorrect. Only significant engagement results are discussed with
the board.
Answer (D) is incorrect . Submission of budgetary variance reports is not a
primary objective of internal auditing. It is a budgetary control that management
may require on a periodic basis.

Answer Explanations
(101 questions)
[90] Gleim #: 1.8.90
Answer (A) is incorrect . Disclosure to the board is an obligation, not an
d
element of authority.
07 )
Answer (B) is correct. The charter establishes the internal audit activity’s
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engagements; and defines the scope of internal audit activities (Inter.
Attr. Std. 1000).
a
h
Answer (C) is incorrect . Access to the external auditor’s engagement records
cannot be guaranteed.
22 M A
Answer (D) is incorrect . The audit schedule is based on a risk assessment; it is
thus inappropriate to designate specific engagement areas in the internal audit
charter.
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[91] Gleim #: 1.8.91

A
Answer (A) is correct. The purpose, authority, and responsibility of the internal
audit activity must be formally defined in a charter. The CAE must periodically
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review and present the charter to senior management and the board for approval
(Attr. Std. 1000).
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Answer (B) is incorrect . The Standards cannot provide actual authority to an

internal audit activity.
Answer (C) is incorrect. The controller is not the only member of management.
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Answer (D) is incorrect . Management and the board, not a particular manager,
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give the internal audit activity its authority.

Answer Explanations
(101 questions)
[92] Gleim #: 1.8.92
Answer (A) is correct . The length of the CAE’s employment should not be
d
codified in the charter; it is a matter of ongoing judgment for the board.
07 )
Answer (B) is incorrect. The charter establishes the internal audit activity’s
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position within the organization and defines the scope of internal audit activities.
Answer (C) is incorrect . The charter establishes the internal audit activity’s
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position within the organization and authorizes access to records.
Answer (D) is incorrect . The charter establishes the internal audit activity’s
a
h
position within the organization and authorizes access to personnel.
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[93] Gleim #: 1.8.93
Answer (A) is incorrect . The engagement client does not determine the scope
of this type of assurance engagement. A scope limitation imposed by the client
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might prevent the internal audit activity from achieving its objectives.
Answer (B) is incorrect . Other objectives may be established by management

A
and the internal auditors. The engagement is not limited to the specific standards
set by the quality assurance department. It considers such standards in the
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development of the engagement program.

Answer (C) is incorrect. The internal auditors must conduct the engagement
and communicate any scope limitations to management and the board.
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Answer (D) is correct . The written charter, approved by the board, defines the
scope of internal audit activities (Inter. Std. 1000).
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Answer Explanations
(101 questions)
[94] Gleim #: 1.8.94
Answer (A) is incorrect . Following the long-range planning process provides
d
no guarantee of access.
07 )
Answer (B) is incorrect. The internal audit activity must inform the board of
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any scope limitations, but the board’s approval is not required.
Answer (C) is incorrect . The internal audit activity need not report to a specific
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individual in the organization, although reporting administratively to the CEO is
desirable.
a
h
Answer (D) is correct. Specific guidelines are written in the internal audit
activity’s charter authorizing access to records, personnel, and physical
properties relevant to the performance of engagements (Inter. Attr. Std. 1000).
22 M A
Such provisions reduce the likelihood of scope limitations.
[95] Gleim #: 1.8.95

23 C ad
Answer (A) is incorrect . Adoption of policies for the functioning of the internal
A
audit activity does not protect its organizational position.
Answer (B) is correct. The internal audit charter is a formal document that
+9 IA m
defines the internal audit activity’s purpose, authority, and responsibility. Final
approval of the internal audit charter resides with the board (Inter. Attr. Std.
1000).
C am
Answer (C) is incorrect. Written policies and procedures serve to guide the
internal auditor but have little effect on management.
Answer (D) is incorrect . The establishment of an audit committee alone does
/
not ensure the status of the internal audit activity.

H

Answer Explanations
(101 questions)
[96] Gleim #: 1.8.96
Answer (A) is correct . The charter formally defines the purpose, authority, and
d
responsibility of the internal audit activity. Resource requirements are based on
07 )
risk-based plans that are consistent with organizational objectives; they are not
an appropriate topic to codify in the internal audit charter.
h
70 o a
Answer (B) is incorrect. The charter formally defines the purpose, authority,
-4 (C m
04 c
and responsibilities of the internal audit activity.
Answer (C) is incorrect . Final approval of the internal audit charter resides with
a
the board.
h
Answer (D) is incorrect . The board can use the written charter as a basis for
evaluating the internal audit activity.
22 M A
[97] Gleim #: 1.8.97
23 C ad
Answer (A) is incorrect . The specific job title of the chief audit executive may
vary across organizations (The IIA Glossary).
A
Answer (B) is incorrect . The internal audit activity may be insourced.
Answer (C) is correct. The CAE is a person in a senior position responsible for
+9 IA m
effectively managing the internal audit activity in accordance with the internal
audit charter and the Definition of Internal Auditing, the Code of Ethics, and the
Standards (The IIA Glossary).
C am
Answer (D) is incorrect . The term “chief audit executive” is defined broadly
because (1) the internal audit activity may be insourced or outsourced and (2)
many different titles are used in practice.
/
H

Answer Explanations
(101 questions)
[98] Gleim #: 1.8.98
Answer (A) is incorrect . The CAE does not need to get additional approval
d
from the internal auditors. Only board approval is required.
07 )
Answer (B) is incorrect. The CAE must establish policies and procedures to
h
70 o a
guide the internal audit activity.
Answer (C) is incorrect . After the CAE receives board approval, the internal
-4 (C m
04 c
audit charter must be amended and the CAE must establish policies and
procedures.
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
(Attr. Std. 1000). The nature of consulting services must be defined in the
22 M A
internal audit charter (Impl. Std. 1000.C1).
[99] Gleim #: 1.8.99

23 C ad
Answer (A) is correct. Formal staff meetings provide the best opportunity for
A
ensuring that issues are addressed timely and efficiently. In The Practice of
Modern Internal Auditing , Sawyer states that one reason for staff meetings is to
explain “routine administrative matters, to teach new techniques, and even to let
+9 IA m
off steam.” For example, staff members should be able to raise questions about
ineffective procedures, promotions, salaries, or other problems.
C am
Answer (B) is incorrect . The employee evaluation conference is not a timely

place to discuss problems and receive updates.
Answer (C) is incorrect. Informal communication is not the most appropriate
forum.
/
Answer (D) is incorrect . Memoranda are usually impersonal and do not afford a
H
good opportunity for maximum exchange of ideas.


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Gleim CIA Test Prep: Part 1 - Internal Audit Basics

[61] Gleim #: 1.5.61

Answer (A) is incorrect . Failing to report the violation of organizational policy

[62] Gleim #: 1.5.62

Answer (C) is incorrect. Expressing an opinion on internal financial statements

is acceptable since it is for internal use only.

Copyright 2013 Gleim Publications Inc. Page 31

[63] Gleim #: 1.5.63

itself, constitute a conflict of interest, a use of information for personal gain, or

participation includes those activities or relationships that may be in conflict

Copyright 2013 Gleim Publications Inc. Page 32

[65] Gleim #: 1.5.65

Answer (A) is incorrect . Rule of Conduct 2.3 requires full disclosure of

material facts when reporting on activities.

Answer (C) is incorrect. A stock transaction not based on insider information is

Answer (D) is incorrect . Continuing education is consistent with the duty to

Copyright 2013 Gleim Publications Inc. Page 33

[67] Gleim #: 1.5.67

Answer (A) is incorrect . A gift from an employee whose department may be

Copyright 2013 Gleim Publications Inc. Page 34

[69] Gleim #: 1.5.69

Answer (A) is incorrect . Having a material ownership interest in a competitor is

[70] Gleim #: 1.5.70

(Rule of Conduct 2.3).

confidential information to appropriate parties within the organization, e.g.,

Answer (D) is incorrect . Obtaining information pertains to performing the

engagement, not communicating results.

Copyright 2013 Gleim Publications Inc. Page 35

[71] Gleim #: 1.5.71

Answer (A) is incorrect . Acceptance of anything from a customer is prohibited

discreditable to the profession of internal auditing or to the organization.”

Answer (C) is incorrect. Highlighting potential cost savings is appropriate for

Copyright 2013 Gleim Publications Inc. Page 36

[73] Gleim #: 1.6.73

Answer (A) is incorrect . Information must be sufficient to achieve engagement

board and senior management is required.

states, “Internal auditors shall be prudent in the use and protection of

Copyright 2013 Gleim Publications Inc. Page 37

[75] Gleim #: 1.6.75

Answer (C) is incorrect . According to Rule of Conduct 4.3, “Internal auditors

[76] Gleim #: 1.6.76

The IIA’s Code of Ethics. Some action is warranted.

basis for a complaint to the International Ethics Committee, which is responsible

CIAs on behalf of the Board of Directors of The IIA and making

Copyright 2013 Gleim Publications Inc. Page 38

[77] Gleim #: 1.6.77

Answer (A) is incorrect . The hospital is not a competitor or supplier of the

Answer (A) is incorrect . If senior management permits the omission, the

should ordinarily be made by investigative specialists.

Copyright 2013 Gleim Publications Inc. Page 39

[79] Gleim #: 1.6.79

[80] Gleim #: 1.7.80

Answer (C) is incorrect. Loyalty is better exhibited by consulting with

Copyright 2013 Gleim Publications Inc. Page 40

[81] Gleim #: 1.7.81

Copyright 2013 Gleim Publications Inc. Page 41

[83] Gleim #: 1.7.83

[84] Gleim #: 1.7.84

Answer (A) is incorrect . An internal auditor must possess the necessary

Answer (D) is incorrect . No professional conflict of interest exists per se,

Copyright 2013 Gleim Publications Inc. Page 42

[85] Gleim #: 1.7.85