Cia Review: Part 2 Study Unit 5: Engagement Procedures and Supervision

CIA REVIEW: PART 2 5.
1 Procedures and Work Program

Study Unit 5 5.2 Supervision
5.3 Working Papers, Exit Meetings, and Staff Evaluations
Engagement Procedures
and Supervision
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CIA 2, SU 5 CIA 2, SU 5
Engagement Procedures
• Procedures are performed to obtain sufficient, reliable,
relevant, and useful information to achieve the engagement
objectives.
• Internal auditors should use available information
Procedures and Work technology (IT) to assist in performing audit work.
Program • Performance Standard 2240: Engagement Work Program

o Internal auditors must develop and document work
5.1 programs that achieve the engagement objectives.
Basic Procedures Confirmations
• Three basic procedures performed by internal auditors to • Confirmations are letters to third parties asking them to
gather information are (1) observing conditions, (2) verify the existence and valuation of a relevant monetary
interviewing people, and (3) examining records. amount in the clients records.
o Observation is effective for verifying whether
o Positive confirmations are used when the amounts
(1) particular assets, such as inventory or equipment,
exist or (2) a certain process or procedure is being being confirmed are material. The recipient is asked to
performed appropriately at a moment in time. sign and return the letter with a positive assertion that
o Interviewing (inquiring) is especially helpful in obtaining the amount is either correct or incorrect.
an understanding of client operations because of the o Negative confirmations are used when the amounts
opportunity to ask questions to clarify preceding being confirmed are immaterial or when controls are
answers or to pursue additional information. deemed to be functioning extremely well.
o Examining (inspecting) records is used in many audit
activities.
Reperformance
Tracing and Vouching (Recalculation)
• Tracing is the process of following a transaction forward • Reperformance consists of duplicating the clients work and
from the triggering event to a resulting event, ensuring that comparing the results.
the transaction was accounted for properly. • This is most useful for checking arithmetic accuracy and the
• Vouching is the process of tracking a result backwards to the correct posting of amounts from source documents to
originating event, ensuring that a recorded amount is journals to ledgers.
properly supported.
Analytical Procedures Engagement Work Program
• Analytical procedures are evaluations of financial information • The internal auditor plans and performs the engagement,
made by an analysis of relationships among financial and with supervisory review and approval.
nonfinancial data.
• A primary result of engagement planning is the preparation
• During the planning phase, analytical procedures are used by the of the work program.
internal auditor to determine the nature, extent, and timing of
auditing procedures. • The engagement work program is a document that lists
• Common analytical procedures performed by the internal auditor
the procedures to be followed during the engagement,
include (1) analysis of common size financial statements, (2) ratio designed to achieve the engagement plan (The IIA
analysis, (3) trend analysis, (4) analysis of future oriented Glossary).
information, and (5) internal and external benchmarking.
• Scanning is a use of professional judgment to review accounting
data to identify significant or unusual items to test.
Use of a Pro Forma Work

Engagement Work Program Program
• IG 2240, Engagement Work Program • A pro forma (standard) work program is used for repeated
o Matters to be considered prior to preparing the work engagements related to similar operations.
program include engagement scope, means of achieving • It is ordinarily modified over a period of years in response to
objectives, a risk and control matrix, availability of problems encountered.
essential resources, sample sizes, and conclusions and
judgments during planning. • The pro forma work program ensures at least minimum
coverage; provides comparability; and saves resources when
o Work programs reflect choices of procedures needed to
operations at different locations have similar activities, risks,
assess risks and test controls in the areas reviewed. They and controls.
also reflect the nature, extent, and timing of procedures
needed to achieve objectives. • However, a pro forma work program is not appropriate for a
o Work programs are approved by management of the complex or changing operating environment. The
internal audit activity prior to the beginning of the work. engagement objectives and related procedures may no
longer be relevant.
o Work programs typically include a time budget used to
control and evaluate the progress of the engagement.
Multiple-Choice Question Multiple-Choice Answer
An internal auditor has just completed a survey to become familiar with the organizations payroll An internal auditor has just completed a survey to become familiar with the organizations payroll
operations as part of an unplanned engagement. Which of the following most likely is performed operations as part of an unplanned engagement. Which of the following most likely is performed
next? next?
A. Assign internal audit personnel. A. Assign internal audit personnel.

B. Establish initial engagement objectives. B. Establish initial engagement objectives.
C. Write the engagement work program. C. Write the engagement work program.
D. Conduct field work. D. Conduct field work.
The survey allows the internal auditor to become familiar with the engagement
client and therefore provides input to the work program.

Which of the substantive field work procedures presented below provides the best information Which of the substantive field work procedures presented below provides the best information
about completeness of recorded revenues? about completeness of recorded revenues?
A. Reconciling the sales journal to the general ledger control account. A. Reconciling the sales journal to the general ledger control account.
B. Vouching charges made to the accounts receivable subsidiary ledger to supporting shipping B. Vouching charges made to the accounts receivable subsidiary ledger to supporting shipping
records. records.
C. Vouching shipping records to the customer order file. C. Vouching shipping records to the customer order file.
D. Reconciling shipping records to recorded sales. D. Reconciling shipping records to recorded sales.
The completeness assertion relates to whether all transactions that should be

presented are included. To test this assertion with regard to revenues from sales of
goods shipped, the internal auditor might trace shipping documents to sales data
to determine whether items shipped have been recorded as revenues.
Supervision at the
Engagement Level
• Supervision is needed at all levels of the internal audit activity
from planning to performance to reporting results. The CAE may
delegate the task of supervision on individual engagements.
• Performance Standard 2340: Engagement Supervision

o Engagements must be properly supervised to ensure
objectives are achieved, quality is assured, and staff is
Supervision developed.
• Interpretation of Standard 2340
o The extent of supervision required will depend on the
5.2 proficiency and experience of internal auditors and the

complexity of the engagement. The chief audit executive has
overall responsibility for supervising the engagement,
whether performed by or for the internal audit activity, but
may designate appropriately experienced members of the
internal audit activity to perform the review. Appropriate
evidence of supervision is documented and retained.
Coordination during the

Relationships Engagement
• To ensure complete cooperation, senior management is • The auditor in charge should coordinate work assignments
responsible for notifying other departments of the existence among audit team members during the engagement.
of the internal audit activity.
• Coordination during the engagement ensures that
• Internal auditors need effective interpersonal skills to engagement objectives will be met efficiently and
promote the internal audit activity throughout the
organization. effectively.
• Internal auditors rely on collaboration and cooperation
among departments and other groups to work toward
shared goals.
• During an engagement, internal auditors have a unique
opportunity to build credibility and to promote the goals of
adding value and improving the organizations operations.
Which of the following is (are) true about engagement supervision? Which of the following is (are) true about engagement supervision?
1. Specific activities are prescribed in the Standards. 1. Specific activities are prescribed in the Standards.
2. The extent varies depending on the proficiency of the internal auditors. 2. The extent varies depending on the proficiency of the internal auditors.
3. The extent varies depending on the complexity of the engagement. 3. The extent varies depending on the complexity of the engagement.
4. The lead auditor has primary responsibility for supervision. 4. The lead auditor has primary responsibility for supervision.
A. 1 only. A. 1 only.
B. 1 and 3 only. B. 1 and 3 only.
C. 1 and 4 only. C. 1 and 4 only.
D. 1, 2, and 3 only. D. 1, 2, and 3 only.
The extent of supervision required depends on the proficiency and experience of

internal auditors and the complexity of the engagement. The chief audit executive
(CAE) has primary responsibility, but (s)he may delegate responsibility to
appropriately experienced members of the internal audit activity.

A new staff auditor was told to perform an audit in an area with which the auditor was not familiar. Due to A new staff auditor was told to perform an audit in an area with which the auditor was not familiar. Due to
time constraints, the audit was not supervised. The auditor was given the assignment because it represented a time constraints, the audit was not supervised. The auditor was given the assignment because it represented a
good learning experience, but the area was clearly beyond the auditors competence. Nevertheless, the good learning experience, but the area was clearly beyond the auditors competence. Nevertheless, the
auditor prepared comprehensive working papers and reported the results to management. In this situation, auditor prepared comprehensive working papers and reported the results to management. In this situation,
A. The audit department violated the Standards by not providing adequate supervision. A. The audit department violated the Standards by not providing adequate supervision.
B. The audit department violated the Standards by hiring an auditor without proficiency in the area. B. The audit department violated the Standards by hiring an auditor without proficiency in the area.
C. The chief audit executive (CAE) has not violated the Standards because they do not address supervision. C. The chief audit executive (CAE) has not violated the Standards because they do not address supervision.
D. The Standards and the Code of Ethics were followed by the audit department. D. The Standards and the Code of Ethics were followed by the audit department.
The extent of supervision required depends on the proficiency and experience of

internal auditors and the complexity of the engagement. Because the auditor
lacked adequate proficiency, supervision was required. Without adequate
supervision, the Standards were violated.
Purpose of Working Papers
• Working papers facilitate supervision of the engagement.
They serve as a means of communication between internal
Working Papers, Exit auditors and the auditor in charge.
• All working papers are reviewed to ensure that (1) they
Meetings, and Staff support engagement communications and (2) all necessary
procedures are performed.
Evaluations • Written review notes record questions arising from the
review. When clearing review notes, the auditor ensures
5.3 that the working papers provide adequate evidence that
questions raised have been resolved.
Exit Meetings Staff Performance Appraisals

• Internal auditors discuss conclusions and recommendations • The CAE is responsible for ensuring that the internal audit
with appropriate management before the CAE issues the activity has sufficient resources, including employees with
final communications. the knowledge, skills, and other competencies appropriate
• The primary purpose of an exit meeting is to ensure the for planned activities.
accuracy of the information used by an internal auditor. o Thus, as part of the resource management process, a
• A secondary purpose is to improve relations with written appraisal of each internal auditors performance
engagement clients. is required at least annually.
• The exit meeting is an important element of the o Furthermore, at the conclusion of any major audit
participative approach to internal auditing. engagement, supervisory personnel should complete
• Discussions at the exit meeting should be documented in performance appraisals for all audit staff who worked on
case a dispute arises. the engagement.
• Supervisors should attend exit meetings to maintain good
client relationships and reinforce audit observations.
When conducting a performance appraisal of an internal auditor who has been a below average When conducting a performance appraisal of an internal auditor who has been a below average
performer, an inappropriate procedure is to performer, an inappropriate procedure is to
A. Notify the internal auditor of the upcoming appraisal several days in advance. A. Notify the internal auditor of the upcoming appraisal several days in advance.
B. Use objective, impartial language. B. Use objective, impartial language.
C. Use generalizations. C. Use generalizations.
D. Document the appraisal. D. Document the appraisal.
In a performance appraisal of a below average performer, it is appropriate and

advisable to notify the employee of the upcoming appraisal, use objective
language, and document the appraisal. It is not appropriate to use generalizations
when making a performance appraisal of a below average performer. Rather, the
evaluator must cite specific information and be prepared to support assertions
with evidence.

An internal auditing manager is reviewing the engagement working papers prepared by the staff. An internal auditing manager is reviewing the engagement working papers prepared by the staff.
Which of the following review comments is true? Which of the following review comments is true?
A. Each working paper should include the actual and the budgeted times related to such A. Each working paper should include the actual and the budgeted times related to such
engagement work. engagement work.
B. Including copies of all the forms and directives of the engagement client constitutes over B. Including copies of all the forms and directives of the engagement client constitutes over
documentation. documentation.
C. Conclusions need not be documented in the working papers when the engagement objectives C. Conclusions need not be documented in the working papers when the engagement objectives
are achieved. are achieved.
D. Each working paper should include a statement regarding the engagement clients cooperation. D. Each working paper should include a statement regarding the engagement clients cooperation.
All engagement working papers are reviewed to ensure they support engagement
communications and necessary audit procedures are performed. However, adequate
support includes only those forms and directives that are relevant to the engagement
or to the observations, conclusions, and recommendations. Thus, including copies of all
the forms and directives of the client constitutes over documentation.

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CIA REVIEW: PART 2 5.

1 Procedures and Work Program

Program • Performance Standard 2240: Engagement Work Program

Use of a Pro Forma Work

A. Assign internal audit personnel. A. Assign internal audit personnel.

Multiple-Choice Question Multiple-Choice Answer

The completeness assertion relates to whether all transactions that should be

• Performance Standard 2340: Engagement Supervision

5.2 proficiency and experience of internal auditors and the

Coordination during the

The extent of supervision required depends on the proficiency and experience of

Multiple-Choice Question Multiple-Choice Answer

The extent of supervision required depends on the proficiency and experience of

Exit Meetings Staff Performance Appraisals

In a performance appraisal of a below average performer, it is appropriate and

Multiple-Choice Question Multiple-Choice Answer

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