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us
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CIA Challenge Exam Study Guide 2025

Special Credit for Contribution

I am grateful to Ms. Maha Zahid for being the Co-Author in this book.
Special thanks to Mr. Abdullah Yousaf and Ms. Hira Muhammad for their
sincere efforts in making this book a reality.

Let’s Connect With Each Other

Web: zainacademy.us
mzain.org

Email: [email protected]
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INDEX
MAIN COVER…………………………………………………….………..……………..………………….….01

SPECIAL CREDIT FOR CONTRIBUTION……….……………………………………………...…02

PREFACE…………….…..………………………….……………………………..………..…………………...04

CIA CHALLENGE EXAM GUIDE………….…………………………..…………………………...….06

LETTER FROM MUHAMMAD ZAIN…….……………………………….….………………….....19

SECTION A – ESSENTIALS OF INTERNAL AUDITING….………………………….....23

SECTION B – PRACTICE OF INTERNAL AUDITING….…………………….………….216

SECTION C – BUSINESS KNOWLEDGE FOR INTERNAL AUDITING..........429

ABOUT THE AUTHOR….…………………….……………..………………………..…………...….…895

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PREFACE
Every thread of knowledge woven into the tapestry of my understanding is
a divine gift from the Supreme Architect, the Almighty Allah. It is His infinite
mercy and blessing that empowered me to conquer the daunting peaks of
the Certified Public Accountant (CPA), Certified Management Accountant
(CMA), Certified Internal Auditor (CIA), and Masters of Business
Administration (MBA) exams in my maiden attempt.
My heart thrums with gratitude as I recall the unceasing support of my
family. Their enduring sacrifices – the surrendering of resources and time –
have fueled my growth in all dimensions: moral, physical, and spiritual. I
extend a profound token of thanks to my mentors, whose wisdom,
experience, and teachings have sculpted me into the person I am today.
This book reflects the symphony of wisdom bestowed upon me by Allah, in
conjunction with the tapestry of experiences and learnings acquired over a
lifetime. My thirst for knowledge has led me on countless quests, diving into
the endless seas of information found on the Internet, Blogs, Social Media,
and Wikipedia. To all the scribes and curators of Google, Blogs, Social
Media, and Wikipedia, I owe a debt of gratitude for feeding my insatiable
curiosity and illuminating my path with their wisdom.
Yet, as I delved deeper, a profound realization dawned upon me: our human
understanding is but a mere droplet in the boundless ocean of knowledge
yet to be explored and discovered. This very human curiosity sparks a
cascade of innovations, discoveries, and ideas, nudging us ever so slightly
closer to the vast unknown.
In the grand scheme of this infinite wisdom, if my words happen to echo any
copyrighted material, I assure you it is nothing but a coincidence. Any
perceived resemblance is unintentional, a serendipitous concurrence of
thoughts and ideas.
I warmly welcome you, dear readers, to freely explore this book for your
personal growth and enlightenment, devoid of any time or device
constraints. To make this treasure trove of knowledge accessible to all, I
have consciously kept the price minimal, thereby encouraging genuine
engagement with the material.

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I strive for accuracy and integrity in every word that this book carries, yet I
am aware of the fallibility of human knowledge. If you stumble upon any
discrepancies or inaccuracies, I graciously invite your critique and
correction for future updates.
In the spirit of learning and wisdom, I implore our Lord, the Supreme Master
and Judge, to bless us with greater understanding and wisdom in this world,
and eternal grace in the Life Hereafter. Ameen.

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CIA Challenge Exam Study Guide 2025

CIA CHALLENGE EXAM GUIDE

Certified Internal Auditor (CIA) certification is offered by the Institute of
Internal Auditors (IIA), US. It is a premium internal auditing qualification
having a global presence. CIA is a symbol of excellence in compliance
reporting, risk management, and consultancy. CIA Challenge Exam has one
paper to qualify and it is available exclusively for CA, CPA, ACCA and CISA
members.
The IIA releases the profession's primary guidance, such as the International
Professional Practices Framework (IPPF), Code of Ethics, International
Standards for the Professional Practice of Internal Auditing. Membership
with IIA is not required to earn a CIA designation. Candidates can save their
earned money by not choosing the membership.
Chapters and affiliated institutes hold regular meetings, seminars, and
conferences to develop networking, contacts, and social bonding. It is
advisable to attend these types of events to learn about the current
practices in internal auditing.
Update Coming to CIA Challenge Exam Syllabus in 2026
CIA Challenge Exam syllabus will be updated to align with the new Global
Internal Audit Standards in 2026. During the 2025 program cycle, a
comprehensive study will be conducted by IIA to ensure the syllabus reflects
the latest standards and best practices in Internal Auditing.
Why Choose Zain Academy’s CIA Study Material
Zain provides four things for CIA Challenge Exam:
a. Study Guide,
b. Question Bank,
c. Learning Videos and
d. Personal Support and Guidance.

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Study Guide and Question Bank are available for subscription from websites
www.zainacademy.us and www.mzain.org at nominal pricing. They are
optimized for all screen sizes. The candidates will have access as long as
they wish to. There are no time and device restrictions. Learning Videos will
always be free and accessible from Zain Academy’s YouTube channel.
Muhammad Zain’s personal support and guidance are all complimentary till
you pass the exams. You can ask as many questions as you wish to either
through WhatsApp (+92 311 222 4261) or Email ([email protected])
and he will answer to the best of his ability. Zain Academy’s purpose is to
create the best CIA Challenge Exam Review (study guide and exam
questions) at affordable pricing.
Why Choose CIA
The Certified Internal Auditor (CIA) credential offers many benefits. CIA
certification can help you move forward in a focused direction. CIA
certification gives a message that you are a proficient internal auditor who
can bring valuable insights and experience. CIA holders can be entrusted
with significant responsibility. CIA also helps in increasing accounting
knowledge and skill.
CIA holders earning potential is excellent as compared to non-certified
peers. Companies retain talented individuals by giving them market-based
remuneration, bonuses, perks, fringe benefits, vacations. Qualified
individuals earning is multiplied if he/she opens consultancy, compliance or
internal auditing firm. CIA certified deserves the respect of the peers.
Way To Achieve CIA Credential
Education – ACCA, CISA and CA / CPA members of selected countries.
Please contact your local accounting body to obtain a letter of good
standing prior to submitting an application. This document or current
licensure must be provided to complete the application process.
Ethics – Reflect high moral and professional character and agree to abide
by the IIA’s Code of Ethics. Submit a Character Reference Form signed by a
CIA certified or supervisor or professor.
Examination – This is the most important of all the requirements.
Candidates spend considerable time clearing the one part of the CIA
Challenge Exam.

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Program Timeline for Applicants

Application Window: April – September
First Attempt Testing Windows: June, August, November or February
Once your application is approved, you have 180 days to register, schedule,
and sit for the exam. The examination is only offered in the testing windows
as listed above. The first exam registration is included in the application
bundled price. Retake examinations are available for an additional fee.
There is no maximum number of times candidates may retake the
examination within the three-year program window.
Retake Registration and Scheduling: All Year
Retake Testing Windows: February, June, August, November
CIA Examination
Candidates have to pass one paper to become certified. 150 Questions will
be asked in 3 hours’ time period. Each MCQ has to be solved in 1.2 minutes.
CIA Challenge Exam is offered in English Language only. Passing score is
600 out of 750.
IIA Retired Questions
Question Bank available with all the publishers are retired questions by IIA.
75% of the questions are the same with every publisher. The rest, 25%, is
their creativity.
REMEMBER that actual CIA exam questions are non-disclosed and are not
available to anyone.
Review providers rely on the publicly available exam syllabus, the IPPF,
retired CIA Exam Questions, and their knowledge of the trends in the field to
equip candidates to pass the exam. At Zain Academy, we rely on qualified
CIAs, CPAs, and CMAs to ensure our review materials are of the highest
quality.

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CIA Challenge Exam Scoring

The CIA exam is computer-graded. The candidate will receive the result
within five minutes of finishing the exam. Scores are determined by the
difficulty level of questions asked and converting the value of questions
answered correctly to a scale that ranges between 250 to 750. A score of at
least 600 is required to pass the exam, i.e., 80%. If the questions are of
higher IQ level, the passing score can go below 600, but if the items tested
are easy, then passing criteria can go up from 600.
Whether the questions being asked are easy or difficult, I suggest you target
achieving an overall 85% in exams by accurately attempting the 128 correct
questions out of 150 questions in CIA Challenge Exam.
The trend analysis for several years of CIA exam passing ratio is between
40% to 44%, but for Challenge Exam, it is more than 60%.
Pearson VUE www.pearsonvue.com/iia conducts CIA examinations
globally. Select the testing center location that is easily reachable for you.
Investment in CIA
Investment in the CIA is one time if the candidates pass CIA Challenge Exam
on the first attempt. Investment in the CIA is advantageous throughout life.
CIA Challenge Exam Fee (payable directly to IIA)
IIA Member Rate: USD 1,255
Non-Member Rate: USD 1,625

Retake Exam Fee for IIA Members: USD 845

Retake Exam Fee for Non IIA Members: USD 995

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I highly recommend the candidates pay their dues through DEBIT CARD
only. This way, you will be free from all claims of the bank and will be much
relieved. The target must be to clear the exam in 1st Attempt so that the
examination fee is paid only once, and benefits of opportunity costs can be
derived.
Investment in study guides and question bank are separate and vary
according to the candidate’s preferences and study methods.
REMEMBER to subscribe to the Zain Academy’s CIA Challenge Exam Study
Book 2025 and CIA Challenge Exam Question Bank 2025, which are
economical, comprehensive, updated, and excellent.
Difficulty Level of CIA Challenge Exam
CIA Challenge Exam is hard as it will cover the entire topics from CIA Part 1
Essentials of Internal Auditing, CIA Part 2 Practice of Internal Auditing, and
CIA Part 3 Business Knowledge for Internal Auditing. CIA Challenge Exam
can be passed easily if the candidates can exhibit the traits of Excellency,
Creativity, Passionate, and Patience in their preparation and, in particular, on
exam day.
The Candidates must have a clear vision of their future. They must be able
to define their purpose of life. The will to win, the desire to succeed, the urge
to reach full potential – these are the keys that will unlock the door of CIA
certification.
The reason that many candidates find it difficult to achieve the CIA is that
they are not able to define their goals or ever seriously consider them as
believable or achievable. Champions can tell you where they are going, what
they plan to do along the way, and with whom they will be sharing their
adventure.
Keep looking for creativity, and don’t settle for the less. You have that
potential. It is just a matter of time that you explore and discover yourself.
Once you find yourself and your capability, you will never be the same again.

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CIA Challenge Exam for Qualified Accountants – Syllabus

There are three sections in CIA Challenge Exam.
a. Section A – Essentials of Internal Auditing – 35% weightage
b. Section B – Practice of Internal Auditing – 43% weightage
c. Section C – Business Knowledge for Internal Auditing – 22% weightage

CIA Challenge Exam for CISA Holders – Syllabus

There are three sections in CIA Challenge Exam.
a. Section A – Essentials of Internal Auditing – 50% weightage
b. Section B – Practice of Internal Auditing – 30% weightage
c. Section C – Business Knowledge for Internal Auditing – 20% weightage

CIA Challenge Exam Preparation Time

It is generally observed that ACCA, CA, CPA and CISA members are working
executives. They have to allocate time for work, family, studies, and personal
leisure. The candidates are ready for CIA Challenge Exam if they can give at
least 3 hours on weekdays and at least 6 hours on weekends for three to
four months continuously.
The candidates must follow the steps to understand the concepts being part
of the syllabus of the CIA Challenge Exam.

a. Read a whole particular section from the study guide first with the
questioning mind approach. Mark or highlight only the important
paras or sentences in the book.

b. Attempt the True / False Questions of that particular section

presented in the book to clarify the already read topics.

c. Attempt the Multiple Choice Questions of that particular section from

the Question Bank without any time constraints. Focus must be on
selecting the correct answers in the first place.

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If you attempt any question correctly, proceed to the next question.

These questions do not need to be reviewed ever again because a
question once attempted successfully will always be correct in the
future.

If any question attempted is wrong in the 1st place, mark or highlight

or flag those questions. Furthermore, there might be instances in
which you have selected the correct answer, but you doubt the result's
outcome if attempted later. These questions also need to be marked
or highlighted. These marked questions will form the basis of review,
revision, and rehearsal at a later stage.

d. Read the explanation of the incorrect answers selected and try to

understand the logic of the question and correct answer explanation.

e. As you complete 80% of the total questions of a particular section,

move to the next section, and repeat the steps from (a) to (d).

f. Revision of the already learned topics every week is warranted.

Dedicate a particular day in a week in which you will only revise the
already learned topics. Read only those paras from the book which
have been highlighted. Attempt only those questions from Test Bank
Questions, which have been marked or highlighted. Time
Management must come into effect while re-attempting the
questions. Each MCQ has to be attempted in 1.2 minutes. This way,
you will revise the entire section smartly, and your anxiety level will
decrease.

g. As you complete all the sections of the CIA Challenge Exam Study
Book, then focus on completing 100% of the MCQs from the Test
Bank Questions.

REMEMBER that each topic has an equal chance of selection in the

exam. So you have to be prepared for every concept.

ALSO REMEMBER that CIA Challenge Exam is of continuous 3-hour

duration. Train your mind to be active for at least 4 hours during MCQs
preparation.

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The candidates must have updated study books and test bank questions.
The study materials must be simple, concise, and easy to understand. The
majority of finance graduates and working executives prefer self-studies.
Recommended Study Approach
CIA exams are computer-based. It is recommended that all your preparation,
highlighting, and practice must be on the computer or laptop. The
candidates must avoid the traditional method of studying and making notes
via pen and paper. Pen and paper shall be used only for calculation-related
purposes while attempting the test bank questions.
The candidates can study at any time of day or night, but my preferable time
is an early morning daily at 4:30 am. This is the time where the human brain
is at a high energy level. This is also the time of great silence.
You will be provided with earplugs in the center and must use them to avoid
distractions from other candidates' noise. Silence also has its voice, which
you will agree with me on your exam day. Your mind needs to be
accustomed to it. Therefore, use good quality foam-based earplugs from
day 1 of your preparation. You can find these earplugs from your local
pharmacy.
You will be provided with black pens at the center and two sheets. Start
using a black pen from day 1. Your mind must be able to recognize and work
in a black pen.
Please become familiar with the MCQ screens and navigation of the
Pearson VUE Testing Environment before the exams. The tour can be
arranged from your computer. This will make you comfortable on your exam
day.

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How to Answer the MCQs in preparation and exams?

My preferable way of approaching any MCQ is provided below. Ask yourself
three bold phrases in every MCQ.

a. What are the requirements of the question? The question's

requirements are generally presented in the second last, or last line of
the question. Read it thoroughly and then reread the whole question
to filter out the extra information.

b. What is the answer? Read twice the answer choices carefully and
then select the best answer. Numerical questions require double-
checking of formulas and calculations.

c. If you do not know the answer, make an educated guess. The

educated guess is a technique to filter out the two options out of four
based on your insights. Now the two options are left to be paid
attention to. Read the requirements of the question again and then
the remaining two answer choices. Select the best one. This way, you
will increase your odds in favor by 50%.

In the exam, attempt all the questions even if the testlet is more challenging,
and time management is crucial. You will not be penalized for any incorrect
choices being made. Your score is determined out of correct questions only.
Mark or Flag all those questions which you want to review in the end if the
time allows. The Flag for Review button will be on the top right corner of the
exam screen.

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Types of Multiple Choice Questions

There are five different types of CIA Exam Multiple Choice Questions
(MCQs):
a. Direct Questions - This is the type of MCQ most candidates will be familiar
with, and it’s the most common type of question on the CIA exam. Most will
either ask you a question or have you complete a sentence, but all are
straightforward and present four single-statement answer choices.

b. Negative Questions - Sometimes MCQs include negative phrasing, with

words like except, not, unless, least, etc. The IIA may or may not print
negative words in bold, but you should always read the question stem wholly
and carefully. These questions can be tricky because they ask you to select
the false answer choice among three correct answers, which can feel
counterintuitive. To avoid being caught off guard, always give the question
stem your undivided attention.

c. Questions with Two or Three Answer Options - Other times, the exam will
pose a question and provide several statements separate from the answer
choices. The four answer choices will ask you to specify if one or more of
the statements satisfy the question. The best strategy is to determine which
sentences you’re sure are right or wrong and use them to eliminate answer
choices. Read the entire question stem carefully. Even if you’re not certain
about the right answer, you have high odds of making a correct educated
guess.

d. Questions with Several Variables - Some MCQs present several variables

within each answer choice. The answer choices appear in columns, like in
the example to the right, and you must select the one containing the right
mix of variables.

e. Questions with Graphical Illustrations - IA exam questions occasionally

require you to interpret a graph or other image before selecting the
appropriate answer choice. Any of the question types we have mentioned
could include a graphical illustration.

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Pearson VUE Testing Site Visit

After you schedule your appointment with Pearson VUE, visit the center at
least three days before the exam to become familiar with the location. If the
center is in a building, make yourself familiar with the security perimeters of
the building as well. Make contingency plans to reach the exam center in
case of any unexpected circumstances. Double-check the weather
conditions in advance of the exam day.
Day Before Exam Day
This day is also vital in the candidate’s life. Leave all the review, revisions, or
attempting the test bank questions at least 24 hours before the exam day.
CIA is a professional paper, and the candidate has to be ready at any time.
You have done enough preparation. Trust in Allah and have confidence in
your abilities. You have done enough training. It is now time to showcase
your talent.
You will be intimidated to see the materials or revise the test bank questions
or watch the lecture videos. Keep aside all these urges. Divert your mind to
the most enjoyable activity. That enjoyable activity can be praying,
meditating, walking in the garden, or even watching a good movie. Arrange
all the required documents, clothes, shoes, calculators, funds, and other
items in advance. Charge your cell phone if you plan to travel and navigate
by Apps. The Mobile Data Connection package must be active. Sleep for at
least 10 hours at night before the exam day.

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Activities on Exam Day

• Take a good shower and wear comfortable clothing according to the
weather conditions.

• Have a comprehensive meal that is easily digestible and consume any

necessary medicines.

• Bring printouts of Authorization Letter / Confirmation Letter / Notice

to Schedule received through email from Pearson VUE and Institute,
mentioning candidate’s name, section part, exam date, time, and
venue.

• Two original forms of non-expired identification with photograph and

signature are required. Therefore, bring an unexpired and signed
passport and national identity card / driver’s license along with you.

• Reach the exam center at least 60 minutes’ prior of your appointment

time.

• Drink coffee or tea before the exam so that you are charged enough.

• Visit the washroom before the start of exam.

• The mobile phone has to be switched off and placed in a locker along
with wallets.

• You will not be given any complimentary breaks during the 3-hour
exam. However, you can take one for taking a slight break for
recharging yourself, visiting the washroom, and having water.
However, the clock will continue to run.

• Do not make noise or stand up from the seat without permission.

Raise your hand first. The invigilator will visit you, and then you can
ask for pens, extra sheets for working or taking a break, or any
malfunction encountered in exams.

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• Once you finish your exam, review the mark or flagged questions and
try to attempt in the remaining time. Your score is based on the
number of questions you answer correctly. You are not penalized for
selecting the wrong answer.

• Make sure to submit your exam and watch for the system's incoming
message for acknowledging your submitted questions.
What To Do after Passing CIA Challenge Exam
Hats off to you for passing CIA Challenge Exam. Meet all other program
requirements and complete the Certificate Order Form by logging into CCMS
to get your certificate.

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LETTER FROM MUHAMMAD ZAIN

03 March 2025
Dear CIAs,
May Peace, Blessings, and Mercy of Allah be upon you and, in
particular, on the Noble Messenger Prophet Muhammad (Peace
Be Upon Him), his Family, and his Companions.
Be a symbol of excellence in your life. Always dream big and think
beyond the dimensions of the Universe. Man is made to conquer
the seven Heavens. Explore the purpose of your existence and
discover the enormous potential that is within oneself. Having
faith and trust in Creator will give you the light in the darkness and
unchartered territories. There is always a silver lining beneath the
dark skies. A creative mindset makes life simple. Work on your
passion by synchronizing your soul, heart, and mind. We all will die
one day, but only a few dare to live the life they wish for.
The Creator has created the entire Universe in six days. There is
great potential to discover the magnificent beauty that remains
unexplored to date. This is only possible by seeking knowledge
and applying them in our daily lives.
We are witnessing a moment in time that humanity has not ever
experienced before. This is the digital transformation age.
Business norms are artificial intelligence, Blockchain Technology,
Cryptocurrency, Business Intelligence, and big data.

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All the information is available in the blink of an eye. Whatever we

think in mind comes in front of our screens. These advancements
will change the dynamics of the whole world we live in today.
Cloud computing will replace all the traditional and so-called
“modern” work methods. The work of accountants, doctors,
engineers, and pilots will no longer exist. The irredeemable paper
money will be replaced by electronic money. Central Governments
will only exist in name only. Universal Government and a unified
taxation system will emerge. Virtual reality will be ordinary. Blind
will be able to see, deaf will be able to hear, without limbs persons
will be able to run, and mentally disabled people will utilize the
maximum brain capacity through mental chip implants.
Teleportation of humans will be done in a blink of an eye. With the
advent of Artificial General Intelligence, we will also be able to
communicate with animals and plants.
I advise all readers worldwide to focus on entrepreneurship after
the certification. This is the only way of survival. Only those
businesses that are operational who have inelastic demand for
their products or services. Furthermore, invest surplus funds in
real assets such as Gold, Silver, and property. They are effective
hedges against inflation and devaluation. They generate positive
returns even in times of economic distress.
I highly recommend that my potential readers pay their interest-
bearing debt at the earliest to avoid the debt trap and never go for
this easy money for the foreseeable future, even credit cards.
These are all the means to enslave the human race. Always spend
out of your realized income. Save some funds for your family as a
contingency measure.

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CIA Challenge Exam Study Guide 2025

Allow me the opportunity to present to you the 2025 edition of CIA

Challenge Exam Study Guide. It covers all the essential and
relevant 1,670 concepts and topics that will be tested in the CIA
Exam. It also includes the 1,481 True / False questions to
reinforce the core concepts. After reading this guide, you will feel
the difference. The practice of 3,819 Exam Questions is essential
from CIA Challenge Exam Question Bank 2025, available from the
Zain Academy website.
This Study Guide can also be used by any person who wishes to
become familiar with accounting, finance, and management
topics. However, extreme care is required when rendering
professional advice to clients.
Study with complete dedication and commitment. Make the goal
of learning something new and different each day. Replace your
fear with curiosity.
Let’s work together towards the common goal of earning a
Certified Internal Auditor (CIA) credential. My support and
guidance will be with you TILL YOU PASS THE EXAMS.
Furthermore, you can ask as many questions as you wish, either
through WhatsApp or email, and I will answer to the best of my
ability.
Your work is going to fill a large part of your life and the only way
to be truly satisfied is to do what you believe is great work. The
only way to do great work is to love what you do. If you haven’t
found it yet, keep looking. Don’t settle. As with all matters of the
heart, you will know when you find it.
Have the courage to follow your heart and intuition. They
somehow already know what you truly want to become.
Everything else is secondary.
Your imagination is everything. It is the preview of life’s coming
attractions. Only those who believe anything is possible can
achieve things most would consider impossible.
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Don’t let the noise of others’ opinions drown out your own inner
voice.
Remembering that you are going to die is the best way I know to
avoid the trap of thinking you have something to lose. You are
already naked. There is no reason not to follow your heart.
I dedicate this work to the Prophet Muhammad (Peace Be Upon
Him), Mercy to all the Creation, who has been humanity's source
of inspiration and guidance.
May the Knowledge delivered by me shall be a continuing blessing
for me in the Life Hereafter (Ameen).

With Love and Care,

Muhammad Zain

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SECTION A – ESSENTIALS OF INTERNAL AUDITING

QUALIFIED ACCOUNTANTS – WEIGHTAGE 35%
CISA HOLDERS – WEIGHTAGE 50%
SUB - SECTION I – FOUNDATIONS OF INTERNAL AUDITING
STUDY POINTS

S.No Description
1. Explore the Complete Form of IPPF?

The complete form of IPPF is International Professional Practices

Framework.

2. Define IPPF?

IPPF is the conceptual framework that organizes the authoritative

guidance promulgated by the IIA. Authoritative guidance
comprises of two categories:

a. Mandatory guidance.

b. Recommended guidance.

3. Elaborate on Mandatory Guidance?

Conformance with the principles outlined in mandatory guidance

is essential for the professional practice of internal auditing.

Mandatory guidance is developed following an established due

diligence process, including a public exposure period for
stakeholder input.

4. List the Elements of Mandatory Guidance?

There are four elements of mandatory guidance:

a. Core Principles for the Professional Practice of Internal

Auditing.

b. Definition of Internal Auditing.

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c. Code of Ethics.

d. International Standards for the Professional Practice of Internal

Auditing (Standards).

5. Discuss Recommended Guidance?

Recommended guidance describes practices for implementing

the IIA’s core principles, definition of internal auditing, code of
ethics, and standards.

6. List the Recommended Elements of IPPF?

The recommended elements of the IPPF are:

• Implementation Guidance — assist internal auditors in applying

the Standards.

• Supplemental Guidance (Practice Guides) — provide detailed

processes and procedures for internal audit practitioners.

7. Describe the Mission of Internal Audit?

To enhance and protect organizational value by providing risk-

based and objective assurance, advice, and insight.

The mission of internal audit articulates what internal audit

aspires to accomplish within an organization. Its place in the new
IPPF is deliberate, demonstrating how practitioners should
leverage the entire framework to facilitate their ability to achieve
the mission.

8. Define Internal Auditing?

Internal auditing is an independent, objective assurance and

consulting activity designed to add value and improve an
organization’s operations. It helps an organization accomplish its
objectives by bringing a systematic, disciplined approach to
evaluating and improving the effectiveness of risk management,
control, and governance processes.

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The definition of internal auditing states the fundamental purpose,

nature, and scope.

9. What does the Code of Ethics state?

The code of ethics states the principles and expectations

governing the behavior of individuals and organizations in internal
auditing. It describes the minimum conduct and behavioral
expectations requirements rather than specific activities.

10. Elaborate on the Standards?

The Standards are principle-focused and provide a framework for

performing and promoting internal auditing. The Standards are
mandatory requirements consisting of the following:

• Statements of basic requirements for the professional practice

of internal auditing and evaluating the effectiveness of its
performance. The requirements are internationally applicable to
organizations and individuals.

• Interpretations, which clarify terms or concepts within the

statements.

• Glossary Terms.

11. Explain the Purposes of the standards?

The purposes of standards are:

a. Guide adherence to the mandatory elements of the International

Professional Practices Framework.

b. Provide a framework for performing and promoting a broad

range of value-added internal auditing services.

c. Establish the basis for the evaluation of internal audit

performance.

d. Foster improved organizational processes and operations.

12. What do the Standards consist of?

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Standards consist of the following items:

a. Statements of core requirements for the professional practice

of internal auditing and for evaluating the effectiveness of
performance that are internationally applicable at organizational
and individual levels.

b. Interpretations are clarifying terms or concepts within the

Standards.

13. List the Types of Standards?

The three types of Standards are:

a. Attribute Standards.

b. Performance Standards.

c. Implementation Standards.

14. At what level are standards applicable?

The standards apply to individual internal auditors and the internal

audit activity. All internal auditors are accountable for conforming
to the standards related to individual objectivity, proficiency, and
due professional care and the standards relevant to the
performance of their job responsibilities. Chief audit executives
are additionally accountable for the internal audit activity’s overall
conformance with the Standards.

15. Define the Attribute Standards?

Attribute standards address the attributes of organizations and

individuals performing internal auditing.

16. Define the Performance Standards?

Performance standards describe the nature of internal auditing

and provide quality criteria against which the performance of
these services can be measured.

17. Define the Implementation Standards?

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Implementation standards expand upon the attribute and

performance standards by providing the requirements applicable
to assurance or consulting services.

18. Explain the Primary Components of attribute standards?

• Purpose, Authority, and Responsibility (1000). The IAA's

purpose, authority, and responsibility should be formally defined
in the internal audit charter, consistent with the Standards, and
approved by the board.

• Independence and Objectivity (1100). The IAA must be

independent, and the internal auditors must be objective in
performing their work.

• Proficiency and Due Professional Care (1200). The engagement

must be performed with proficiency and due professional care.

• Quality Assurance and Improvement Program (1300). The Chief

Audit Executive (CAE, the head of the IAA) must develop and
maintain a quality assurance and improvement program that
covers all aspects of the internal audit activity and continuously
monitors its effectiveness.

19. Discuss the Primary Components of performance standards?

• Managing the Internal Audit Activity (2000). The CAE must

effectively manage the internal audit activity to ensure it adds
value to the organization.

• Nature of Work (2100). The internal audit activity must evaluate

and contribute to improving risk management, control, and
governance processes using a systematic and disciplined
approach.

• Engagement Planning (2200). Internal auditors must develop

and record a plan for each engagement, including the scope,
objectives, timing, and resource allocations.

• Performing the Engagement (2300). Internal auditors must

identify, analyze, evaluate, and record sufficient information to
achieve the engagement’s objectives.

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• Internal auditors shall not accept anything that may impair or be

presumed to impair their professional judgment. Examples
include accepting gifts, meals, trips, and special treatment that
exceed policy limits or are not disclosed and approved.

• Internal auditors must disclose any “material” facts about the

activities under review. Internal auditors must not withhold
reporting all the facts pertinent to the engagement results and
conclusions, even if those facts, results, or conclusions may be
displeasing to senior management and the board.

• Internal audit communications should be clear, factual, and

objective, avoiding language that could minimize, hide, or
exaggerate findings.

53. Describe about the considerations for implementing rules of

conduct for the Individual Internal Auditors in case of
Confidentiality?

• Internal auditors should understand the laws and regulations

related to confidentiality and information security for the
jurisdictions in which their organization operates, as well as know
any policies specific to their organization and internal audit
activity. Such policies may identify, for example, the type of
information that may be disclosed, the parties that must authorize
the disclosure and the procedures to be followed.

• Internal auditors should follow the policies and procedures set

by the organization and the CAE and comply with relevant laws
and regulations.

• Internal auditors collect only the data required to perform the

assigned engagement and use this information only for the
engagement’s intended purposes.

• Internal auditors protect information from intentional or

unintentional disclosure by using controls such as data
encryption, email distribution restrictions, and restriction of
physical access to the information.

• Internal auditors eliminate copies of or access to data when it is

no longer needed.

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• Internal auditors should consider confidentiality when

documenting internal audit work and observations. Work program
or engagement work paper templates may include reminders
about confidentiality; electronic formats may contain automated
controls that require internal auditors to acknowledge such
reminders before auditors can access and complete
documentation.

• Internal auditors are required to establish written restrictions

related to the distribution of engagement results and access to
engagement records, specifically in case of the assurance
engagement. That involves third parties, who might need to
release the results of an assurance engagement to parties outside
the organization.

• Internal auditors must stipulate limitations regarding how the

results may be distributed and used. They must follow established
procedures for disclosure, including contacting the proper
authority in the organization for written permission before
disclosing any information and retaining the authorization in work
papers.

• Internal auditors must not use any information for personal gain.

54. Produce the considerations for implementing rules of conduct for

the Individual Internal Auditors in case of Competency?

• Internal auditors should regularly assess themselves to gain

insight into their competency, proficiency, and effectiveness and
to find areas for potential growth. The IIA’s Competency
Framework may be a useful benchmarking tool.

• Internal auditors should seek constructive formal/informal

feedback from peers, supervisors, and the CAE. Feedback may be
given throughout engagements, supervisory reviews, and closing
engagements.

• Internal auditors assigned to plan an engagement must

determine the competencies needed to achieve the engagement
objectives. In engagement work papers, internal auditors may
document their rationale for the resource allocation used.

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• When resources appear insufficient, internal auditors should

consult with the CAE and document the discussion results. If
appropriate and sufficient resources are unavailable, seeking
additional resources outside the internal audit activity may be
necessary.

• Internal auditors may build competencies by pursuing education,

mentorship, and supervised work experiences. Correctly
supervised internal audit engagements play a significant role in
facilitating the development of internal auditors because most
internal audit activities have limited resources.

• Internal auditors are responsible for taking the necessary actions

to obtain any continuing professional education and development
(CPE/CPD) hours they may need.

• Internal auditors are responsible for conformance with the Code

of Ethics and relevant standards and obtaining the knowledge,
skills, and experience needed to perform their responsibilities and
continually improve their proficiency and quality of service.

• Internal auditors may create and maintain plans for their

professional development.

55. How can the Chief Audit Executive demonstrate Conformance?

• The CAE should maintain a quality assurance and improvement

program and report on the program's results, including
nonconformance, to senior management and the board. This is
part of sustaining integrity.

• The CAE’s management of the internal audit activity supports its

integrity, objectivity, confidentiality, and competency. It must be
demonstrated, documented, communicated, and evident by the
quality assurance and improvement program results as well as
the IAA policies, procedures, plans, processes, training materials,
and minutes of meetings.

• The CAE’s conformance with the Rules of Conduct may be

independently validated through a quality assurance and
improvement program.

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• The CAE, as the leader of the internal audit activity, is to uphold

the Code of Ethics principles and rules of conduct, thereby setting
the tone for the value of ethics among the team.

• The CAE typically retains forms signed by internal auditors and

outsourced and co-sourced providers to document their
consideration and disclosure of potential conflicts of interest or
impairments to objectivity.

• The CAE complies with the Confidentiality Principle and Rules of

Conduct by documenting and retaining records of disclosures
approved by legal counsel, if applicable, and by senior
management and the board.

• The CAE provides evidence of control of access to records by

implementing mechanisms that restrict access and mitigate the
risk of circumventing or otherwise violating these controls.

• The CAE may demonstrate a culture supportive of competency

and the continual improvement of proficiency, effectiveness, and
quality through evidence that:

• Engagements have been appropriately resourced and

supervised.
• Feedback has been solicited from internal audit stakeholders
and sufficiently considered.
• Performance reviews of internal auditors have been conducted
regularly.
• Opportunities for training, mentoring, and professional
education have been provided.
• A quality assurance and improvement program is active.
• Internal audit services are performed in conformance with the
Mandatory Guidance.

56. How can the Individual Internal Auditor demonstrate

Conformance?

• Internal auditors’ participation/attendance in training,

workshops, webinars, or meetings where ethical issues were
discussed, provides evidence supporting an individual’s
commitment to maintaining and improving ethical awareness.
Also, CPE/CPD credits, of which the CAE may retain records.

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• Internal auditors’ signatures acknowledge their understanding of

the code of ethics and relevant policies, procedures, laws, and
regulations.

• Internal auditor’s feedback from post-engagement surveys and

supervisory reviews of engagements may provide additional
evidence that the internal auditors’ work appeared to be
performed ethically.

• Internal auditors demonstrate compliance with engagement

record confidentiality by documenting distribution restrictions in
engagement work papers and reports and retaining
authorizations of all disclosures and approved distribution lists.

• Internal auditors may retain a signed acknowledgment that the

work program has kept engagement-related information
confidential.

• Internal auditors may evidence their knowledge, skills, and

experience, partly through credentialed qualifications, such as
university/professional certifications, and relevant work history
as detailed on their resume, which should be on file.

• Internal auditors may maintain documentation of a skills self-

assessment, a plan for professional development, and the
completion of continuing professional education/development
courses or training.

• Internal auditors may provide evidence of experiences such as

specific work assignments (i.e., on-the-job training) or
volunteering in professional organizations to expand their
competencies.

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SECTION A – ESSENTIALS OF INTERNAL AUDITING

QUALIFIED ACCOUNTANTS – WEIGHTAGE 35%
CISA HOLDERS – WEIGHTAGE 50%
SUB - SECTION I – FOUNDATIONS OF INTERNAL AUDITING
TRUE / FALSE QUESTIONS AND ANSWERS
S.No Questions Answers
1. Conformance FALSE. Conformance with the principles
with the outlined in mandatory guidance is essential for
principles the professional practice of internal auditing.
outlined in
mandatory
guidance is
required but not
essential for the
professional
practice of
internal auditing.
2. There are four TRUE. The four elements of mandatory
elements of guidance are:
mandatory
guidance. a. Core Principles for the Professional Practice
of Internal Auditing.
b. Definition of Internal Auditing.
c. Code of Ethics.
d. International Standards for the Professional
Practice of Internal Auditing (Standards).

3. The mission of FALSE. The mission of internal audit is to

internal audit is to enhance and protect organizational value by
enhance and providing risk-based and objective assurance,
protect advice, and insight.
organizational
value by providing
risk-based and
absolute
assurance,
advice, and
insight.

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4. The complete TRUE. IPPF stands for International
form of IPPF is Professional Practices Framework.
International
Professional
Practices
Framework.
5. The code of TRUE. The code of ethics describes the
ethics states the minimum requirements for conduct and
principles and behavioral expectations rather than specific
expectations activities.
governing the
behavior of
individuals and
organizations in
internal auditing.
6. The standards FALSE. The standards are principle-focused
are rule-focused and provide a framework for performing and
and provide a promoting internal auditing.
framework for
performing and
promoting
internal auditing.
7. There are three TRUE. Attribute, performance, and
types of implementation standards.
standards.
8. The standards FALSE. The standards apply to individual
apply to internal internal auditors and the internal audit activity.
audit activity.
9. The purpose of TRUE. The purpose of the standards is to:
the standards is
to establish the a. Guide adherence to the mandatory elements
basis for of the International Professional Practices
evaluating Framework.
internal audit b. Provide a framework for performing and
performance. promoting a broad range of value-added
internal auditing services.
c. Foster improved organizational processes
and operations.

10. Ten core TRUE.

principles guide
the internal audit a. Demonstrates integrity.
activity.

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44. A written charter TRUE. The internal audit charter establishes the
approved by the IAA's position within the organization,
board that authorizes access to records, personnel, and
formally defines physical properties relevant to the performance
the internal audit of engagements, and defines the scope of
activity's purpose, internal audit activities.
authority, and
responsibility
enhances its
independence.
45. Having a material TRUE. Having a material ownership interest in a
ownership competitor is most likely a violation of the code
interest in a of ethics for an internal auditor. The material
competitor is ownership position in a major competitor will
most likely a impair the auditor's objectivity.
violation of The
IIA Code of
Ethics.
46. Designing and FALSE. Designing and implementing
implementing appropriate controls is not an appropriate
appropriate responsibility for the IIA but the responsibility
controls is the of management.
responsibility of
the Internal Audit
Activity.
47. Protecting TRUE. The mission of internal audit is to
organizational enhance and protect organizational value by
values is a part of providing risk-based and objective assurance,
the mission of advice, and insight.
internal audit.
48. Confidentiality TRUE. Confidentiality protects information
involves from being disclosed to unauthorized
protecting individuals and entities within and outside the
information from organization.
being disclosed
to unauthorized
individuals and
entities.
49. The integrity of TRUE. The integrity of internal auditors
internal auditors establishes trust and thus provides the basis
establishes trust. for reliance on their judgment.

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50. The QAIP is one TRUE. Quality Assurance and Improvement
of the ways that Program states that the IAA must perform
the IAA assesses engagements at the expected level of quality.
and ensures the
proper level of
quality and
adherence to all
of the standards.
51. The signatures of FALSE. The signatures of the CAE, a designated
the CAE, a board member, and a member of senior
designated board management need to be included in the charter,
member, and a along with the date, name, and title of each
member of senior person.
management
need not be
included in the
charter.
52. The accuracy of TRUE. Examples of assurance engagements
recorded financial include:
transactions is an
example of • Assessing if controls are properly designed
assurance and implemented.
engagements. • Whether production standards are being
met.
53. Privacy and TRUE. Common categories of consulting
benchmarking are engagements include:
categories of
consulting • Training.
engagements. • System design.
• System development.
• Due diligence.
• Internal control assessments.
• Process mapping.

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SECTION A – ESSENTIALS OF INTERNAL AUDITING

QUALIFIED ACCOUNTANTS – WEIGHTAGE 35%
CISA HOLDERS – WEIGHTAGE 50%
SUB - SECTION II – INDEPENDENCE AND OBJECTIVITY
STUDY POINTS

S.No Description
1. Explain the requirement of Standard 1100 – Independence and
Objectivity?

The internal audit activity must be independent, and internal

auditors must be objective in performing their work.

2. Define Independence?

Independence is the freedom from conditions that threaten the

ability of the internal audit activity to carry out internal audit
responsibilities unbiasedly. To achieve the degree of independence
necessary to carry out the responsibilities of the internal audit
activity effectively, the chief audit executive has direct and
unrestricted access to senior management and the board. This can
be achieved through a dual-reporting relationship. Threats to
independence must be managed at the individual auditor,
engagement, functional, and organizational levels.

3. Discuss Objectivity?

Objectivity is an unbiased mental attitude that allows internal

auditors to perform engagements in such a manner that they
believe in their work product and that no quality compromises are
made. Objectivity requires that internal auditors not subordinate
their judgment on audit matters to others. Threats to objectivity
must be managed at the individual auditor, engagement, functional,
and organizational levels.

4. What does Organizational Independence mean?

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Organizational independence means the internal audit activity

must not have any current or previous relationships with the
departments it audits.

Organizational independence can be achieved through a properly

designed internal audit charter.

5. Who does the CAE report to?

The CAE should report to an audit committee or equivalent for

functional and engagement issues.

The CAE should report to the CEO (or a similar position) for
administrative issues.

6. List the Examples of Functional Reporting?

• Approving the internal audit charter.

• Approving the risk-based internal audit plan.

• Approving the internal audit budget and resource plan.

• Receiving communications from the chief audit executive on the

internal audit activity’s performance relative to its plan and other
matters.

• Approving decisions regarding the appointment and removal of

the chief audit executive.

• Approving the remuneration of the chief audit executive.

• Management and the chief audit executive make appropriate

inquiries to determine the inappropriate scope or resource
limitations.

7. Give Examples of Administrative Reporting?

• Budgeting and management accounting.

• Human resource administration, including personnel

evaluations and compensation.

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• Internal communications and information flows.

• Administration of the internal audit activity’s policies and

procedures.

8. Illustrate the requirement of Standard 1110 – Organizational

Independence?

The chief audit executive must report to a level within the

organization that allows the internal audit activity to fulfill its
responsibilities. The chief audit executive must confirm to the
board, at least annually, the organizational independence of the
internal audit activity.

The internal audit activity must be free from interference in

determining the scope of internal auditing, performing work, and
communicating results. The chief audit executive must disclose
such interference to the board and discuss the implications.

9. Examine about the Individual Objectivity?

Internal auditors must be impartial, unbiased and avoid conflict of

interest.

10. Analyze the Requirements of Standard 1130 – Impairment to

Independence or Objectivity?

The impairment details must be disclosed to appropriate parties if

independence or objectivity is impaired in fact or appearance. The
nature of the disclosure will depend upon the impairment.

11. Produce the Common Impairments to independence and

objectivity?

a. A personal conflict of interest.

b. A scope limitation, including restricting access to records,

personnel, or properties.

c. Resource limitation, which includes funding limitations.

d. Situations where the auditor assesses operations for which they

were previously responsible.

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e. Assurance engagements for functions over which the CAE

previously had responsibility.

f. Consulting engagements in areas where assurance

engagements are also performed.

12. What shall be the Internal Auditor's course of action if he believes

independence or objectivity has been Impaired?

If an auditor believes that independence or objectivity has been

impaired, the auditor must disclose the nature of the impairment to
the CAE or appropriate parties. If an impairment arises during an
engagement, it must be reported immediately to the engagement
manager to address or eliminate the situation.

13. Elaborate on Conflict of Interest?

A situation in which an internal auditor, who is in a position of trust,

has a competing professional or personal interest. Such competing
interests can make it challenging to fulfill their duties impartially. A
conflict of interest exists even if no unethical or improper act
results. A conflict of interest can create an appearance of
impropriety that can undermine confidence in the internal auditor,
the internal audit activity, and the profession. A conflict of interest
could impair an individual’s ability to perform their duties and
responsibilities objectively.

14. Describe the Auditor's Responsibility if a conflict of interest arises

in assurance and consulting engagements?

An auditor with a conflict of interest in an assurance engagement

should be removed. The auditor can be reassigned to the
engagement if the conflict is resolved.

Any conflicts of interest in a consulting engagement should be

disclosed to the client. The auditor may remain on the consulting
engagement if the client has no objections.

15. Clarify the Scope Limitation?

A scope limitation is a restriction on the engagement that prevents

accomplishing the objectives and plans.

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16. Generate the Consequences of Resource Limitations?

Without sufficient resources and funding, the IAA may not be able
to operate independently and objectively.

For example, inadequate staffing, insufficient training, or outdated

technology might invite compromises or shortcuts that would
impair the IAA’s position in the organization.

17. May auditors Assess Operations that they were previously

responsible for?

Internal auditors must refrain from assessing specific operations

for which they were previously responsible. Objectivity is presumed
impaired if an auditor provides assurance services for an activity
for which the auditor had responsibility within the previous year.

Objectivity is also impaired when auditors audit an area for which

they will have future responsibility within one year after the
engagement.

18. May auditors provide Consulting for Operations that they were
previously responsible for?

Yes, internal auditors may provide consulting services relating to

operations for which they had previous responsibilities.

If internal auditors have potential impairments to independence or

objectivity relating to proposed consulting services, the disclosure
must be made to the engagement client before accepting the
engagement.

19. Can internal auditors provide Assurance Services in areas of

previous consulting engagements?

The internal audit activity may provide assurance services where it

had previously performed consulting services, provided the nature
of the consulting did not impair objectivity. It provides individual
objectivity is managed when assigning resources to the
engagement.

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• Internal auditor audits an area in which they recently worked, such

as when an employee transfers into an internal audit from a
different functional area of the organization and then is assigned
to an audit of that function.

• An internal auditor audits an area where a relative or close friend

is employed.

• An internal auditor assumes, without evidence, that an area being

audited has effectively mitigated risks based solely on a prior
positive audit or personal experiences (e.g., a lack of professional
skepticism).

• An internal auditor modifies the planned approach or results

based on the undue influence of another person, often someone
senior to the internal auditor, without appropriate justification.

25. How can the Chief Audit Executive Promote Objectivity in the
internal audit department?

There are several ways that the CAE can promote and maintain
objectivity within the IAA:

• Job assignments should minimize potential conflicts of interest.

For example, an auditor should not audit an area where their
spouse works.

• Information about potential conflicts of interest can be collected

periodically.

• Jobs should be rotated so that relationships do not develop

between the auditor and the auditee that might impair the auditor’s
judgment.

• A strong QAIP will help ensure that organizational independence

and objectivity are part of the culture of the IAA.

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SECTION A – ESSENTIALS OF INTERNAL AUDITING

QUALIFIED ACCOUNTANTS – WEIGHTAGE 35%
CISA HOLDERS – WEIGHTAGE 50%
SUB - SECTION II – INDEPENDENCE AND OBJECTIVITY
TRUE / FALSE QUESTIONS AND ANSWERS
S.No Questions Answers
1. The internal audit FALSE. The internal audit activity must be
activity must be independent, and internal auditors must be
independent, and objective in performing their work.
internal auditors
may be objective in
performing their
work.
2. Independence is the FALSE. Independence is the freedom from
freedom from conditions that threaten the ability of the
conditions that internal audit activity to carry out internal
threaten the ability audit responsibilities in an unbiased
of the internal audit manner.
activity to carry out
responsibilities in a
biased manner.
3. The chief audit FALSE. The chief audit executive has direct
executive has and unrestricted access to senior
indirect and management and the board.
restricted access to
senior management
and the board.
4. Objectivity requires TRUE. Objectivity is an unbiased mental
that internal attitude that allows internal auditors to
auditors not perform engagements in such a manner
subordinate their that they believe in their work product and
judgment on audit that no quality compromises are made.
matters to others.
5. Threats to FALSE. Threats to objectivity must be
objectivity must be managed at the individual auditor,
managed only at the engagement, functional, and
individual auditor organizational levels.
level.

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6. The CAE alone FALSE. The CAE cannot alone determine
determines the IIA’s the IIA’s independence and placement.
independence and Instead, the CAE, the board, and senior
placement. management must reach a shared
understanding of the internal audit’s
responsibility, authority, and expectations.

7. The board TRUE. The board authorizes the internal

authorizes the audit activity to allocate resources, set
internal audit frequencies, select subjects, determine
activity to allocate scopes of work, apply techniques required
resources. to accomplish audit objectives, and issue
reports.

8. The IAA will be less FALSE. The IAA will be more independent if
independent if it it reports to the board of directors because
reports to the board of the support they receive from the highest
of directors. levels of the organization.

9. Independence TRUE. Conditions that limit the freedom of

requires freedom the IAA to carry out their activities stem
from conditions that from the organizational placement and
threaten the IIA’s assigned responsibilities of the IAA; the
objectivity. CAE must work with the board and senior
management to avoid such conditions.

10. Organizational FALSE. Organizational independence

independence means the internal audit activity must not
means the internal have any current or previous relationships
audit activity must with the departments it audits.
have any current or
previous
relationships with
the departments it
audits.
11. The CAE should FALSE. The CAE should report functionally
report to the board. In contrast, the CAE should
administratively to report administratively to upper (senior)
the board. management.

12. Functional reporting TRUE. Proper functional reporting to the

is connected to the board is a crucial source of independence
and authority for the IAA.

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systems of control designing, installing, operating, or drafting
before system procedures.
implementation.
46. A new regulatory TRUE. A new regulatory requirement
requirement prompts a pressing need to develop
prompts a pressing policies, procedures, controls, and risk
need to develop management activities to ensure
policies to ensure compliance.
compliance.
47. Individual objectivity TRUE. Individual objectivity means the
means that they internal auditors perform engagements in
honestly believe in such a manner that they have an honest
their work product belief in their work product and that no
and that no significant quality compromises are made.
significant quality
compromises are
made.

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SECTION A – ESSENTIALS OF INTERNAL AUDITING

QUALIFIED ACCOUNTANTS – WEIGHTAGE 35%
CISA HOLDERS – WEIGHTAGE 50%
SUB - SECTION III – PROFICIENCY AND DUE PROFESSIONAL
CARE
STUDY POINTS

S.No Description
1. Elaborate on the requirements of Standard 1200 – Proficiency
and Due Professional Care?

Engagements must be performed with proficiency and due

professional care.

2. What does Standard 1210 – Proficiency state?

Internal auditors must possess the knowledge, skills, and other

competencies to perform their responsibilities. The internal audit
collectively must possess or obtain the knowledge, skills, and
other competencies needed to perform its responsibilities.

3. Explain Proficiency?

Proficiency is a collective term that refers to the knowledge, skills,

and other competencies required of internal auditors to carry out
their professional responsibilities effectively. It considers current
activities, trends, and emerging issues, to enable relevant advice
and recommendations. Internal auditors are encouraged to
demonstrate their proficiency by obtaining appropriate
professional certifications and qualifications, such as the Certified
Internal Auditor designation and other designations offered by The
Institute of Internal Auditors and other appropriate professional
organizations.

4. Describe the Internal Auditor’s Responsibility relating to

proficiency in Assurance Engagements?

The chief audit executive must obtain competent advice and

assistance if the internal auditors lack the knowledge, skills, or

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other competencies needed to perform all or part of the

engagement.

Internal auditors must have sufficient knowledge to evaluate the

risk of fraud and how the organization manages it. However, they
are not expected to have the expertise of a person whose primary
responsibility is detecting and investigating fraud.

Internal auditors must have sufficient knowledge of key

information technology risks and controls and available
technology-based audit techniques to perform their assigned
work. However, not all internal auditors are expected to have the
expertise of an internal auditor whose primary responsibility is
information technology auditing.

5. State the Key Points Regarding Proficiency?

• Proficiency is a quality that is both engagement-specific and

auditor-specific. In other words, there is no specific way to be
proficient. Necessary skills and knowledge differ for each
auditor and each specialty, and a single auditor can be
proficient in several areas.

• Regardless of their specialty, every auditor must be able to

evaluate the risk of fraud and identify key IT risks and
controls.

• Developing and maintaining proficiency is an ongoing effort.

Internal auditors must maintain and update their skills through
continuing professional education (CPE). In addition, CPE is
mandatory for CIAs to maintain their certification.

6. How often shall the Assessment of Proficiency be done?

The CAE must ensure that the IAA has the proficiency to perform
engagements. An assessment of proficiency should be done at
least annually or more often in a quickly changing environment.

7. Clarify the Responsibility of the CAE regarding Proficiency?

• The CAE ensures that each internal auditor and the IAA have
the necessary proficiencies to perform the engagements.

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• The CAE determines the appropriate levels of education and

experience required for an internal audit position.

• The CAE may use The IIA’s Global Internal Audit Competency
Framework or a similar benchmark to establish the criteria by
which to assess the proficiency of internal auditors. These
criteria may be used to create job descriptions and an
inventory of the competencies needed within the internal audit
activity.

• The CAE may develop a strategy for recruiting, assigning,

training, and developing staff to establish a proficient internal
audit activity and ensure its competencies remain current and
sufficient.

• If the CAE determines that the needed skills and competencies

do not exist within the IAA, they must go outside the IAA to get
them.

8. List the Types of Engagements for which Outside Service

Providers may be needed?

• Engagements that require specialist knowledge (such as tax

questions, foreign languages, or IT).

• Valuations of assets (both tangible and intangible).

• Determination of physical amounts (for example, oil reserves).

• Fraud.

• Interpretations of legal or tax matters.

• Mergers and acquisitions.

9. State the Considerations for the Assessment of an External

Party?

• The relevant professional certifications and/or membership in

a professional organization.

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• Experience and education in similar situations and the area in

which they will be engaged.

• Reputation.

• Knowledge of the business and industry.

10. Describe the CAE’s Role when reviewing the tasks performed by
an Outside Expert?

The CAE must review all tasks performed by an outside expert to

assess whether or not the conclusions are reasonable and
unbiased and address all the relevant issues. If the CAE does not
have sufficient experience and understanding to perform the
assessment, it will be necessary to have someone else perform
the review.

11. List the knowledge that an internal auditor should have?

• The indicators of fraud.

• Key information-technology risks and controls.

• Available technology-based audit techniques.

12. Lists the Skills that an internal auditor should have?

• Working well with others.

• Understanding human relations.

• Maintaining satisfactory relationships with engagement

clients.

• Clear and effective communication techniques (both in oral

and written form) to convey such matters as engagement
objectives, evaluations, conclusions, and recommendations.

13. List the Knowledge Areas of the IIA Competency Framework?

The four knowledge areas are:

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a. Professionalism – Beyond knowledge and technical skills,

professional competency requires a dedication to the
profession of internal audit, investment in the practice of
internal audit, and a level of ethical conduct that creates trust
between internal auditors and organizational stakeholders.
Internal auditors provide valuable, independent, objective
analysis and advice that help guide and drive organizations
toward higher performance.

b. Performance – Occupations become professions when

professional associations codify their policies, and internal
audit is defined by the International Professional Practices
Framework® (IPPF).

c. Environment – Environmental competencies are more than

just the skills employees use daily in a particular organization.
Environmental competencies are the industry-wide cross-
company universe of skills that allow internal auditors to drive
business execution and align with management. Through
environmental competencies, internal auditors make sure the
organization is positioned to meet its strategic goals in the
industry in which it operates.

d. Leadership and Communication – Leadership and

communication competencies help internal auditors
understand the strategic context of their organizations,
including the internal and external forces that act on the
organization. These competencies allow internal audit leaders
to clearly and appropriately express information and data to all
levels of the organization and lead others to do the same while
actively listening to the ideas and information of other
stakeholders.

14. State the Levels of Competency within the Framework?

The three levels of competency within the Framework are:

a. General awareness.

b. Applied knowledge.

c. Expert.

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SECTION A – ESSENTIALS OF INTERNAL AUDITING

QUALIFIED ACCOUNTANTS – WEIGHTAGE 35%
CISA HOLDERS – WEIGHTAGE 50%
SUB - SECTION III – PROFICIENCY AND DUE PROFESSIONAL
CARE
TRUE / FALSE QUESTIONS AND ANSWERS
S.NO QUESTIONS ANSWERS
1. Internal auditors TRUE. Internal auditors develop individual
develop proficiency throughout their careers by
individual obtaining and maintaining appropriate
proficiency certifications, experience, and professional
throughout their education, which includes continuing
careers. professional development.

2. Proficiency and FALSE. Proficiency and due professional care

due professional are the responsibility of the chief audit
care are the executive and each internal auditor.
responsibility of
the management.
3. Internal auditors TRUE. Internal auditors must have sufficient
must have knowledge to evaluate the risk of fraud and how
sufficient the organization manages it. However, they are
knowledge to not expected to have the expertise of a person
evaluate the risk whose primary responsibility is detecting and
of fraud. investigating fraud.

4. Internal auditors TRUE. Internal auditors must have sufficient

must have knowledge of key information technology risks
sufficient and controls and available technology-based
knowledge of key audit techniques to perform their assigned work.
information
technology risks
and controls.
5. The chief audit FALSE. The chief audit executive must decline
executive can the consulting engagement or obtain competent
accept advice and assistance if the internal auditors
consulting lack the knowledge, skills, or other
engagement if

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SECTION A – ESSENTIALS OF INTERNAL AUDITING

QUALIFIED ACCOUNTANTS – WEIGHTAGE 35%
CISA HOLDERS – WEIGHTAGE 50%
SUB - SECTION IV – QUALITY ASSURANCE AND
IMPROVEMENT PROGRAM (WEIGHTAGE 7%)
STUDY POINTS

S.No Description
1. What does QAIP stand for?

QAIP stands for Quality Assurance and Improvement Program.

2. List the Standards related to the QAIP?

There are several Standards related to the QAIP. They are:

• Standard 1300: Quality Assurance and Improvement Program.

• Standard 1310: Requirements of the Quality Assurance and

Improvement Program.

• Standard 1311: Internal Assessments.

• Standard 1312: External Assessments.

• Standard 1320: Reporting on the Quality Assurance and

Improvement Program.

• Standard 1321: Use of Conforms with the International

Standards for the Professional Practice of Internal Auditing.

• Standard 1322: Disclosure of Nonconformance.

3. State the Common Elements of QAIPs?

While each QAIP needs to be specific to that company, there are

some common elements that all QAIPs include. The QAIP will:

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• Cover all aspects of the internal audit activity.

• Evaluation of the conformance of the IAA with the Standards

and the Code of Ethics.

• Assess the efficiency and effectiveness of the IAA.

• Identify opportunities for continuous improvement.

• Involve the board in the oversight of the QAIP.

4. Identify the Goals of the QAIP?

Because the QAIP's goals are to ensure that the IAA delivers quality
to the company, it is essential to understand what quality means to
the IAA. The quality of a service (or product) is the degree to which
that product or service meets the customer's expectations. To
know what quality is for the IAA, the CAE needs to know the
stakeholders' expectations of the IAA.

5. Mention the Functions of QAIP?

The two functions of the QAIP are:

a. Conclude on the quality of the IAA.

b. Generate recommendations for improvements within the IAA.

6. Describe the requirement of Standard 1300 – Quality Assurance

and Improvement Program?

The chief audit executive must develop and maintain a quality

assurance and improvement program covering all aspects of the
internal audit activity.

7. Explain Quality Assurance and Improvement Program?

Quality assurance and improvement programs are designed to

evaluate the internal audit activity’s conformance with the
Standards and an evaluation of whether internal auditors apply the
Code of Ethics. The program also assesses the internal audit
activity's efficiency and effectiveness and identifies improvement

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• Conclusions of assessors.

• Corrective action plans.

34. Mention the Specific Report Functions?

External assessments. Upon completing the external assessment,

the assessor will communicate formally with senior management
and the board, presenting the assessment’s findings. However, the
preliminary results of the assessment should be discussed with the
CAE. The final results are communicated to the CAE, with copies
sent directly to senior management and the board. Based on the
report, the CAE must communicate specific planned actions
concerning significant issues.

Internal assessments. Internal assessments are carried out to

assure the CAE that the auditors comply with the Standards and
other applicable criteria. The CAE’s responsible for ensuring that,
at least annually, the results of the internal assessments,
necessary action plans, and their successful implementation are
reported to senior management and the board.

35. Illustrate the Rating Scale that may be used to show the Degree of
Conformance?

• Generally conforms – This is the top rating, which means that

an internal audit activity has a charter, policies, and processes,
and the execution and results are judged to conform with the
Standards.

• Partially conforms – Deficiencies in practice are judged to

deviate from the Standards, but these deficiencies did not
preclude the internal audit activity from performing its
responsibilities.

• Does not conform – Deficiencies in practice are judged so

significant that they seriously impair or preclude the internal
audit activity from performing adequately in all or significant
areas of its responsibilities.

36. When may the phrase “Conforms with the International Standards
for the Professional Practice of Internal Auditing” be used?

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It is used only if the results of the QAIP support it.

37. To whom must nonconformance with the standards be Disclosed?

To senior management and the board.

38. Which Evaluations shall be included in QAIP Assessments?

QAIP assessments should include evaluations of the following:

• Compliance with the Definition of Internal Auditing, the Code of

Ethics, and the Standards, including timely corrective actions to
remedy any significant instances of noncompliance.

• Adequacy of the IAA’s charter, goals, objectives, policies, and

procedures.

• Contribution to the organization’s governance, risk management,

and control processes.

• Compliance with applicable laws, regulations, and other

governmental or industry standards.

• Effectiveness of continuous improvement activities and adoption

of best practices.

• The extent to which the internal auditing activity adds value and
improves the organization’s operations.

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SECTION A – ESSENTIALS OF INTERNAL AUDITING

QUALIFIED ACCOUNTANTS – WEIGHTAGE 35%
CISA HOLDERS – WEIGHTAGE 50%
SUB - SECTION IV – QUALITY ASSURANCE AND
IMPROVEMENT PROGRAM
TRUE / FALSE QUESTIONS AND ANSWERS
S.NO QUESTIONS ANSWERS
1. QAIP stands for TRUE. QAIP stands for Quality Assurance and
Quality Assurance Improvement Program.
and Improvement
Program.
2. The internal audit TRUE. The internal audit activity will maintain
activity will a quality assurance and improvement program
maintain a quality that covers all aspects of the internal audit
assurance and activity.
improvement
program.
3. The chief audit TRUE. The chief audit executive will
executive will communicate to senior management and the
communicate to board on the internal audit activity’s QAIP,
senior including results of internal assessments (both
management and ongoing and periodic) and external
the board on the assessments.
internal audit
activity’s QAIP.
4. The QAIP is FALSE. The QAIP is conducted at least once
conducted every five years by a qualified, independent
annually by a assessor or assessment team from outside
qualified, the company.
independent
assessor or
assessment team
outside the
company.
5. All CAEs are TRUE. Because the nature of the work
required to performed by each IAA is different, general
develop a QAIP. guidelines are useful for setting up the QAIP,
but the CAE will need to work with the board to

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be certain that the QAIP that is set up meets
the specific needs of the organization and
addresses the work done by the IAA.

6. There are several TRUE. The following are the standards related
standards related to the QAIP:
to the QAIP.
• Standard 1300: Quality Assurance and
Improvement Program.
• Standard 1310: Requirements of the Quality
Assurance and Improvement Program.
• Standard 1311: Internal Assessments.
• Standard 1312: External Assessments.
• Standard 1320: Reporting on the Quality
Assurance and Improvement Program.
• Standard 1321: Use of Conforms with the
International Standards for the Professional
Practice of Internal Auditing.
• Standard 1322: Disclosure of
Nonconformance.

7. The QAIP will TRUE. The QAIP will:

identify
opportunities for • Cover all aspects of the internal audit
continuous activity.
improvement. • Evaluation of the conformance of the IAA
with the Standards and the Code of Ethics.
• Assess the efficiency and effectiveness of
the IAA.
• Involve the board in the oversight of the
QAIP.

8. Operational TRUE. The stakeholders of the IAA may

managers are one include:
of the
stakeholders of • The board of directors.
the IAA. • Senior management.
• The external auditor.
• Customers.
• Shareholders.
• Oversight organizations, regulators, and
government agencies.

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SECTION A – ESSENTIALS OF INTERNAL AUDITING

QUALIFIED ACCOUNTANTS – WEIGHTAGE 35%
CISA HOLDERS – WEIGHTAGE 50%
SUB - SECTION V – GOVERNANCE, RISK MANAGEMENT, AND
CONTROL
STUDY POINTS

S.No Description
1. What are the Requirements of Standard 2100 – Nature of Work?

The internal audit activity must evaluate and improve the

organization’s governance, risk management, and control
processes using a systematic, disciplined, and risk-based
approach. Internal audit credibility and value are enhanced when
auditors are proactive, and their evaluations offer new insights
and consider future impact.

2. Explain the purpose of the Three Lines Model?

The Three Lines Model aims to help organizations identify

structures and processes that best assist in achieving objectives
and facilitate strong governance and risk management.

3. How many Parties are there in the Three Lines Model?

There are four parties in the Three Lines Model:

a. Management takes actions to achieve organizational

objectives, including risk management. Management will perform
both first-line roles and second-line roles.

b. Internal Audit provides independent assurance and performs

third-line roles.

c. Governing Body provides accountability to stakeholders for

organizational oversight. The governing body will perform the
governing body roles of integrity, leadership, and transparency.

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d. External Assurance Providers provide additional assurance by

satisfying legal and regulatory requirements and expectations that
protect the interest of stakeholders, and they will also support and
supplement internal sources of assurance when required by
management.

4. List the Three Lines of Roles?

The three lines of roles are:

a. Provision of products and services to clients and managing risk.

b. Expertise, support, monitoring, and challenge on risk-related

matters.

c. Independent and objective assurance and advice on all matters

related to achieving objectives.

5. Explain in detail about the First- and Second-Line Roles from the
Three Lines Model?

First-line roles are most directly aligned with the delivery of

products and services to the organization's clients and include the
roles of support functions. Second-line roles assist with managing
risk.

First and second line roles may be blended or separated. Some

second-line roles may be assigned to specialists to provide
complementary expertise, support, monitoring, and challenge to
those with first-line roles.

Second-line roles can focus on specific risk management

objectives, such as compliance with laws, regulations, and
acceptable ethical behavior; internal control; information and
technology security; sustainability; and quality assurance.
Alternatively, second-line roles may span a broader responsibility
for risk management, such as enterprise risk management.
However, responsibility for managing risk remains part of first-line
roles and within the scope of management.

6. Describe the Key Roles of Governing Body in the Three Lines

Model?

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The governing body:

• Accepts accountability to stakeholders for oversight of the

organization.

• Engages with stakeholders to monitor their interests and

communicate transparently on achieving objectives.

• Nurtures a culture promoting ethical behavior and accountability.

• Establishes structures and processes for governance, including

any additional committees that are required.

• Delegates responsibility and provides resources to management

for achieving the organization’s objectives.

• Determines the organization’s appetite for risk and supervises

risk management oversight (including internal control).

• Maintains oversight of compliance with legal, regulatory, and

ethical expectations.

• Establishes and oversees an independent, objective, competent

internal audit function.

7. Discuss the Management’s First Line Role according to the Three

Lines Model?

Management’s first-line roles (providing products and services to

clients and managing risk) include:

• Leading and directing actions (including managing risk) and

applying resources to achieve the organization's objectives.

• Maintaining a continuous dialogue with the governing body and

reports on planned, actual, and expected outcomes linked to the
organization's objectives; and risk.

• Establishing and maintaining appropriate structures and

processes for managing operations and risk (including internal
control).

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a. The organization selects and develops control activities that

mitigate risks to achieve acceptable objectives.

b. The organization selects and develops general control activities

over technology to support achieving objectives.

c. The organization deploys control activities through policies that

establish expectations and procedures that implement policies.

168. What are the Principles of Information and Communication under

the COSO Model?

The three principles of information and communication are:

a. The organization obtains, generates, and uses relevant, quality

information to support internal control.

b. The organization internally communicates information,

including objectives and responsibilities for internal control,
necessary to support the functioning of internal control.

c. The organization communicates with external parties regarding

matters affecting the functioning of internal control.

169. What are the Principles of Monitoring Activities under the COSO
Model?

The two principles of monitoring activities under the COSO Model

are:

a. The organization selects, develops, and performs ongoing and

separate evaluations to ascertain whether the components of
internal control are present and functioning.

b. The organization evaluates and communicates internal control

deficiencies promptly to those parties responsible for taking
corrective action, including senior management and the board of
directors, as appropriate.

170. What Type of controls do both COSO and CoCo emphasize?

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Soft controls emphasize ideas and expectations (for example,

shared values, expectations, commitment, competence, and trust)
rather than specific tasks (for example, policies and procedures).

171. What are the Key Tenets of the Turnbull Report?

• Board’s responsibility for internal controls.

• Management’s responsibility for internal controls.

• Employees’ responsibility for internal controls.

• Adopting a risk-based approach.

• Ongoing monitoring of risks and controls.

172. What is the Role of the IAA in the Company’s Control System?

The internal audit activity must assist the organization in

maintaining effective controls by evaluating their effectiveness
and efficiency and promoting continuous improvement.

173. What are the Steps in the Evaluation of the Effectiveness of

Controls?

a. Identify objectives and any associated risks.

b. Determine the significance of any risks.

c. Make note of the responses to these risks.

d. Identify the key controls.

e. Assess how well a given control is designed.

f. Test the control to ascertain the effectiveness of the design.

174. What Three Criteria can help the IAA Measure the Efficiency of a
specific control?

a. The level of control must be “appropriate for the risk it

addresses.” For example, petty cash does not need as many
controls as cash received from customers.

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b. The costs of the control must not exceed the benefits it

provides. For example, the office supply cabinet does not need
24/7 surveillance and a biometric scanner for access, but a server
room certainly would.

c. No control should “create significant business concerns.” For

example, regardless of how efficiently a control manages a
particular risk, the company is in significant legal jeopardy if the
control breaks the law.

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SECTION A – ESSENTIALS OF INTERNAL AUDITING

QUALIFIED ACCOUNTANTS – WEIGHTAGE 35%
CISA HOLDERS – WEIGHTAGE 50%
SUB - SECTION V – GOVERNANCE, RISK MANAGEMENT, AND
CONTROL
TRUE / FALSE QUESTIONS AND ANSWERS
S.No Questions Answers
1. The three lines TRUE. The three lines model’s purpose
model is made up is to help organizations identify
of three lines of structures and processes that best
roles. assist in achieving objectives and
facilitate strong governance and risk
management.

2. Internal audit is a TRUE. The three lines model is made

party in three lines up of four parties:
model.
a. Management.
b. Internal Audit.
c. Governing Body.
d. External Assurance Providers.

3. The first-line roles FALSE. The second line roles are

are expert, expert, support, monitoring, and
support, challenge on risk-related matters.
monitoring, and
challenge on risk-
related matters.
4. The third-line roles FALSE. The first-line roles include
include providing providing clients with products and/or
clients with services and managing risk. In
products and/or contrast, independent and objective
services and assurance and advice on all matters
managing risk. related to achieving objectives are
third-line roles.

5. First and second FALSE. First and second line roles may
line roles cannot be blended or separated.

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be blended or
separated.
6. Management’s TRUE. Management’s first-line roles
first-line roles include:
include ensuring
compliance with • Leading and directing actions and
legal, regulatory, applying resources to achieve the
and ethical organization's objectives.
expectations. • Maintaining a continuous dialogue
with the governing body and reports
on planned, actual, and expected
outcomes linked to the
organization's objectives; and risk.
• Establishing and maintaining
appropriate structures and
processes for managing operations
and risk.

7. Responsibility for FALSE. Responsibility for managing

managing risk risk remains part of first-line roles and
remains part of within the scope of management.
third-line roles and
within the scope
of management.
8. Management’s TRUE. Management’s second-line
second-line roles roles include:
include providing
analysis and • The development, implementation,
reports on the and continuous improvement of risk
adequacy and management practices at a
effectiveness of process, systems, and entity level.
risk management. • The achievement of risk
management objectives.

9. Internal audit will TRUE. Internal audit will perform third-

perform third-line line roles, which provide independent
roles. assurance and advice on all matters
related to achieving objectives.

10. The external TRUE. The external assurance

assurance providers do this through:
providers provide
additional

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SECTION A – ESSENTIALS OF INTERNAL AUDITING

QUALIFIED ACCOUNTANTS – WEIGHTAGE 35%
CISA HOLDERS – WEIGHTAGE 50%
SUB - SECTION VI – FRAUD RISKS
STUDY POINTS

S.No Description
1. Define Fraud?

Fraud is any illegal act characterized by deceit, concealment, or

violation of trust. These acts are not dependent upon the threat of
violence or physical force. Frauds are perpetrated by parties and
organizations to obtain money, property, or services, to avoid
payment or loss of services, or to secure personal or business
advantage.

2. Explain the Main Types of fraud?

There are four main types of fraud:

a. Fraudulent financial reporting is intentional misstatements,

including the omission of information from financial statements
and the misapplication of accounting principles.

b. Misappropriation of assets includes theft, embezzlement, and

any action that causes the company to expend cash for goods
and services that do not benefit or provide value to the
company.

c. Corruption includes illegal gratuities, bribes, kickbacks,

conflicts of interest, or economic extortion.

d. Espionage, such as stealing proprietary information or

manipulating IT systems.

3. How can fraud Benefit the organization?

• Sale or assignment of fictitious or misrepresented assets.

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• Improper payments include illegal political contributions, bribes,

kickbacks, and payoffs to government officials, intermediaries
of government officials, customers, or suppliers.

• Intentional, improper representation or valuation of

transactions, assets, liabilities, or income.

• Intentional, improper transfer pricing (improper valuation of

goods exchanged between related organizations). By
deliberately structuring pricing techniques improperly,
management can improve the operating results of an
organization involved in the transaction to the detriment of the
other organization.

• Intentional, improper related-party transactions in which one

party receives some benefit not obtainable to unrelated parties
in an arms-length transaction.

• Intentional failure to record or disclose significant information

to improve the organization's financial picture to outside
parties.

• Prohibited business activities that violate government statutes,

rules, regulations, or contracts.

• Tax fraud.

4. How can fraud be Detrimental to the organization?

• Accepting bribes or kickbacks.

• Diverting a potentially profitable transaction that would typically

generate profits for the organization to an employee or outsider.

• Embezzlement or theft, such as misappropriating money or

property and falsifying financial records to cover up the act,
makes detection difficult.

• Intentionally concealing or misrepresenting events or data.

• Invoices submitted for services or goods not provided to the

organization.

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5. Explore the Conditions necessary for committing fraud?

The three conditions necessary for committing fraud are as

follows:

a. The person must be motivated to commit fraud.

b. The person must have the opportunity to commit fraud.

c. The person must be able to rationalize the fraud.

Collectively, these three elements are called the fraud triangle. If

the company can eliminate any of these three elements, the
likelihood of fraud is significantly reduced.

6. Discuss the Factors that Motivate the person to commit fraud?

• Internal pressure from top management to meet expectations

(for example, market or revenue expectations) and not meeting
these expectations could lead to job loss or demotion.

• External pressure from financers threatens the organization’s

financial stability (for example, not meeting various
requirements in a debt agreement).

• Pressure to pay for a personal lifestyle or vices (gambling or

drugs).

• Pressure to maximize performance-based bonuses or

compensation (a contingent compensation structure).

7. Describe the Factors that Create an Opportunity for a person to

commit fraud?

• Knowing the weaknesses in the company’s internal control

systems.

• Poor segregation of duties.

• Access to accounting records or assets.

• Lack of proper supervision.

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48. Who is Interrogated?

The main people who will be interrogated are those suspected of

committing the fraud, were part of it, or helped cover it up.

Other individuals who may have information about the situation,

but were not involved in the fraud itself, may be interviewed instead
of interrogated. Each person should be questioned individually, and
their statements should be corroborated with the evidence and
others’ statements.

After the interrogation, the suspected individual should not return

to work until the investigation is closed because they might destroy
evidence.

49. Discuss Confession?

A confession is a complete acknowledgment of wrongdoing by the

accused.

50. What is an Admission?

In admission, the accused party acknowledges committing a

particular act, but they do not confess that there was the intent, nor
does the accused party confess to the accusation.

Because of the legal issues involved in criminal investigations, it is

best to allow a specialist to make decisions about obtaining
confessions, admissions, and other similar evidence from the
accused.

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SECTION A – ESSENTIALS OF INTERNAL AUDITING

QUALIFIED ACCOUNTANTS – WEIGHTAGE 35%
CISA HOLDERS – WEIGHTAGE 50%
SUB - SECTION VI – FRAUD RISKS
TRUE / FALSE QUESTIONS AND ANSWERS
S.NO QUESTIONS ANSWERS
1. Fraud is FALSE. Fraud is intentionally committed.
unintentionally
committed.
2. There are three FALSE. There are four main types of fraud:
main types of
fraud. a. Fraudulent financial reporting.
b. Misappropriation of assets.
c. Corruption.
d. Espionage.

3. Fraudulent TRUE. Fraudulent financial reporting is

financial intentional misstatements, including the
reporting is omission of information from financial
intentional statements and the misapplication of
misstatements. accounting principles.

4. Espionage FALSE. Corruption includes illegal gratuities,

includes illegal bribes, kickbacks, conflicts of interest, or
gratuities, bribes, economic extortion.
kickbacks,
conflicts of
interest, or
economic
extortion.
5. There are three TRUE. The following elements are called the
conditions fraud triangle:
necessary for
committing fraud a. The person has to be motivated to commit
the fraud.
b. The person has to have the opportunity to
commit the fraud.

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c. The person has to have the ability to
rationalize the fraud.

6. Internal controls FALSE. Internal controls can reduce the

cannot reduce opportunity for employees to commit fraud.
the opportunity
for employees to
commit fraud.
7. Pressure to pay TRUE. Some common issues that motivate
for a personal fraud are:
lifestyle or vices
is a motivational • Internal pressure from top management to
factor to commit meet expectations and not meeting these
fraud. expectations could lead to job loss or
demotion.
• External pressure from financers threatens
the organization’s financial stability.
• Pressure to maximize performance-based
bonuses or compensation.

8. Poor segregation TRUE. Some of the factors and conditions that

of duties is an create an opportunity for fraud include:
opportunity
factor to commit • Knowing the weaknesses in the company’s
fraud. internal control systems.
• Access to accounting records or assets.
• Lack of proper supervision.
• Unethical “tone at the top.”
• A belief that the person will not get caught.

9. Fraud may be FALSE. Fraud may be carried out either for the
carried out only benefit or to the detriment (harm) of the
for the benefit of organization.
the organization.
10. A common risk TRUE. In management override of controls,
factor for management finds ways of circumventing
fraudulent internal controls to commit financial crimes.
financial
reporting is
management
override of
controls.

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SECTION B – PRACTICE OF INTERNAL AUDITING

QUALIFIED ACCOUNTANTS – WEIGHTAGE 43%
CISA HOLDERS – WEIGHTAGE 30%
SUB - SECTION I – MANAGING THE INTERNAL AUDIT
ACTIVITY
STUDY POINTS

S.No Description
1. Define Internal Auditing?

Internal auditing is an independent, objective assurance and

consulting activity designed to add value and improve an
organization’s operations. It helps an organization accomplish its
objectives by bringing a systematic, disciplined approach to
evaluating and improving the effectiveness of risk management,
control, and governance processes.

2. Describe the Internal Auditing Nature of Work?

The internal audit activity must evaluate and improve the

organization’s governance, risk management, and control
processes using a systematic, disciplined, and risk-based
approach. Internal audit credibility and value are enhanced when
auditors are proactive, and their evaluations offer new insights and
consider the future impact.

3. List the Operational Duties of CAE?

From an operational standpoint, the Chief Audit Executive (CAE)

has to make sure that:

a. Planned engagements are carried out promptly.

b. Resources needed to carry out the planned engagements are

correctly allocated.

c. Results of the engagements are adequately communicated to all

interested parties.

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4. Explain the requirements of Standard 2000 – Managing the

Internal Audit Activity?

The chief audit executive must effectively manage the internal

audit activity to add value to the organization.

5. When an internal audit activity is Effectively Managed?

The internal audit activity is effectively managed when:

• It achieves the purpose and responsibility included in the internal

audit charter.

• It conforms with the Standards.

• Its members conform with the Code of Ethics and the Standards.

• It considers trends and emerging issues that could impact the

organization.

6. When does an internal audit add value to the organization and its
stakeholders?

The internal audit activity adds value to the organization and its
stakeholders by considering strategies, objectives, and risks;
strives to offer ways to enhance governance, risk management,
and control processes; and objectively provides relevant
assurance.

7. State the Role of Management and Board for internal auditing to

remain a Relevant Function?

For internal auditing to remain relevant within an organization, the

management, and board must regard the IAA as a value-added
activity. In its inception, internal auditing looked at processes and
controls and judged their effectiveness.

However, increased pressure for profits and a rapidly evolving

business environment have meant that internal auditing is now a
much more active, rather than passive, contributor to a company’s
overall strategy for success.

8. Discuss the Operational Role of internal auditing?

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The operational role of internal auditing is to ensure that

engagements have been properly planned for, that the IAA has the
resources (human and financial) to carry out the engagements, and
that the results of the engagements are communicated to those
who can act. The CAE must effectively manage the IAA so that
management and the board will regard these functions as value-
added activities.

9. Illustrate the requirements of Standard 2040 - Policies and

Procedures?

The chief audit executive must establish policies and procedures

to guide the internal audit activity.

The form and content of policies and procedures depend on the

size and structure of the internal audit activity and the complexity
of its work.

The IAA's size, structure, and complexity will determine the

necessary extent, depth, and formalization of the policies and
procedures.

10. Explain an Audit Manual?

The audit manual covers everything from the Internal Audit Charter
to performance reviews and evaluations and guides planning the
engagement to the final report.

11. List the Table of Contents for a Sample Internal Audit Manual?

Part 1 – Policies, Standards, and Guidelines

• Introduction.
• Policies and Standards of Internal Audit (including Internal Audit
Charter).
• Internal Control Framework.
• Organizing Internal Audit (including structure, services, types of
audits, and budget).
• Performance Monitoring and Evaluation (including KPI).

Part 2 – Practices (Risk-based Approach and Methodologies)

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• Strategies and Annual Work Planning.

• Conducting Internal Audit Assignments.
• Preparing Internal Audit Report.
• Audit Tools and Techniques.
• Advisory Services and Approach.
• Quality Assurance and Improvement.
• Follow up on Audit Recommendations.
• Reporting to Audit Committee.
• Personnel and Training.

12. Who shall Establish Risk-Based Plans?

The chief audit executive must establish risk-based plans to

determine the priorities of the internal audit activity and ensure they
are consistent with the organization’s goals.

To develop the risk-based plan, the chief audit executive consults

with senior management and the board to understand the
organization’s strategies, key business objectives, associated
risks, and risk management processes. The chief audit executive
must review and adjust the plan, as necessary, in response to
changes in the organization’s business, risks, operations,
programs, systems, and controls.

13. Illustrate the Breakdown of the Overall Planning Process?

The overall planning process is broken down into four smaller

categories that the CAE is responsible for:

a. Goals.
b. Engagement work schedules.
c. Staffing plans and financial budgets.
d. Activity reports.

14. Elaborate on the Setting the Goals of the Internal Audit Activity?

The goals of the IAA should meet these criteria:

• Specific. Goals should be precisely defined.

• Measurable. The method of measuring the goals should be

defined. By making goals measurable, the CAE, the audit

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146. Can Internal Auditors Rely on the Work of Other Assurance

Providers?

The decision to rely on the work of other assurance providers

depends on various factors, including addressing areas that fall
outside of the competence of the internal audit activity, gaining
knowledge transfer from other assurance providers, or efficiently
enhancing coverage of risk beyond the internal audit plan.

147. Define Assurance Mapping?

Assurance mapping groups all assurance providers and then uses

the company’s risk management process to identify the “key” risks
that need to be assessed.

This process allows the company to identify and assess gaps in

the risk management process and reassures primary stakeholders
that risks are being managed and reported and that regulatory and
legal obligations are being met.

148. What is Included in Assurance Map?

The assurance map may include the following:

• The identity of the assurance providers.

• Risk.
• Level of assurance.
• Urgency or importance of the issue.
• Action to be taken.

149. Evaluate the Requirement of Standard 2020 - Communication and

Approval?

The chief audit executive must communicate the internal audit

activity’s plan and resource requirements, including significant
interim changes, to senior management and the board for review
and approval. The chief audit executive must also communicate
the impact of resource limitations.

150. Explore the Requirement of Standard 2060 – Reporting to Senior

Management and Board?

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The chief audit executive must report periodically to senior

management and the board on the internal audit activity’s purpose,
authority, responsibility, and performance relative to its plan and
conformance with the Code of Ethics and the Standards. Reporting
must also include significant risk and control issues, including
fraud risks, governance issues, and other matters that require
senior management's and the board's attention.

151. What shall be included in the chief audit executive’s reporting and
communication to senior management and the board?

The chief audit executive’s reporting and communication to senior

management and the board must include information about the
following:

• The audit charter.

• Independence of the internal audit activity.
• The audit plan and progress against the plan.
• Resource requirements.
• Results of audit activities.
• Conformance with the Code of Ethics and the Standards and
action plans to address significant conformance issues.
• Management’s response to risk that, in the chief audit
executive’s judgment, may be unacceptable to the organization.

152. What is the requirement of Standard 2120 – Risk Management?

The internal audit activity must evaluate the effectiveness and

contribute to improving risk management processes.

Determining whether risk management processes are effective is

a judgment resulting from the internal auditor’s assessment that:

• Organizational objectives support and align with the

organization’s mission.

• Significant risks are identified and assessed.

• Appropriate risk responses are selected that align risks with the
organization’s risk appetite.

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• Relevant risk information is captured and communicated

promptly across the organization, enabling staff, management,
and the board to carry out their responsibilities.

The internal audit activity may gather the information to support

this assessment during multiple engagements. When viewed
together, the results of these engagements provide an
understanding of the organization’s risk management processes
and their effectiveness.

Risk management processes are monitored through ongoing

management activities, separate evaluations, or both.

153. Elaborate on Establishing the Performance Measurement

Process?

To create effective performance measures, the chief audit

executive needs to establish a process for:

• Identifying critical performance categories such as stakeholder

satisfaction, internal audit processes, innovation, and
capabilities.

• Identifying performance category strategies and measurements.

Strategies should be pursued in compliance with IIA Standards,
other applicable professional standards, and applicable laws and
regulations and should ensure stakeholder satisfaction.
Performance measures can be an element of the internal audit
activity’s internal assessment process to comply with the IIA’s
Standards.

• Routinely monitoring, analyzing, and reporting performance

measures.

154. Evaluate the Steps to Establish an Effective Performance

Measurement Process?

• Define internal audit effectiveness. The IPPF, the internal audit

charter and mission, applicable laws and regulations, and audit
strategies and plans are useful sources for key performance
effectiveness and efficiency measures.

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• Identify key internal and external stakeholders. The IAA’s

stakeholders must be involved to establish the proper
performance measures. The stakeholders include the board,
executive management, external government bodies and
regulators, the external auditor, and the IAA.

• Develop measures of internal audit effectiveness. The

measures should be both quantitative and qualitative. The
company's stakeholders should be consulted whenever
effectiveness and efficiency metrics are created or modified.

• Monitor and report results. The format and frequency of

reporting consider the organization's size, nature, and
governance structure.

155. Differentiate between Quantitative and Qualitative Measures?

Quantitative performance metrics are often based on existing or

obtainable data and are easily understood (e.g., percentage of
completed vs. planned audits). They often require less effort to
collect and are readily comparable to the same metrics in other
organizations.

Qualitative metrics are often based on collecting unique

information through more time-intensive methods such as survey
research or interviews. They offer a broad view of performance on
various topics that can provide depth to quantitative metrics.

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SECTION B – PRACTICE OF INTERNAL AUDITING

QUALIFIED ACCOUNTANTS – WEIGHTAGE 43%
CISA HOLDERS – WEIGHTAGE 30%
SUB - SECTION I – MANAGING THE INTERNAL AUDIT
ACTIVITY
TRUE / FALSE QUESTIONS AND ANSWERS
S.No Questions Answers
1. Internal auditing is FALSE. Internal auditing is an independent,
a dependent, objective assurance and consulting activity
objective designed to add value and improve an
assurance and organization’s operations.
consulting
activity.
2. The internal audit TRUE. The internal audit activity must evaluate
activity must and contribute to improving the organization’s
evaluate and governance, risk management, and control
contribute to processes using a systematic, disciplined, and
improving the risk-based approach.
organization’s
governance.
3. The internal audit TRUE. The internal audit activity is effectively
activity is managed when:
effectively
managed when it • It achieves the purpose and responsibility
conforms to the included in the internal audit charter.
Standards. • Its members conform with the Code of Ethics
and the Standards.
• It considers trends and emerging issues that
could impact the organization.

4. The internal FALSE. The chief audit executive must establish

auditor must policies and procedures to guide the internal
establish policies audit activity.
and procedures to
guide the internal
audit activity.
5. The operational TRUE. The operational role of internal auditing is
role of internal to ensure that engagements have been properly

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auditing is to planned for, that the IAA has the resources
make sure that (human and financial) to carry out the
engagements engagements, and that the results of the
have been engagements are communicated to those who
properly planned. can act.

6. A large IAA is FALSE. A small IAA is managed much more

managed much informally with personal and daily contact.
more informally
with personal and
daily contact.
7. The policies and TRUE. The audit manual covers everything from
procedures of the the Internal audit charter to performance reviews
IAA and guidance and evaluations and guides planning the
for engagements engagement to the final report.
will be formalized
in an audit
manual.
8. The overall TRUE. The overall planning process is broken
planning process down into four smaller categories that the CAE is
is broken down responsible for:
into four smaller
categories. • Goals.
• Engagement work schedules.
• Staffing plans and financial budgets.
• Activity reports.

9. Goals can be FALSE. Goals should have specific completion

completed within dates because open-ended timeframes reduce
an unspecified the sense of urgency about objectives.
period.
10. The planning TRUE. The planning process and work schedules
process and work for engagements should include the following:
schedules for
engagements • Which engagements to perform.
should include • When engagements should be performed.
four • The time required for each engagement.
considerations. • Priority of the engagements.

11. Effectively FALSE. Appropriate means having the right mix

allocated means of staff. Alternatively, effectively allocated means
having the right the staff is used to optimize the plan.
mix of staff.

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the key risks in an reported on and that regulatory and legal
organization. obligations are being met.

129. The CAE needs to FALSE. The CAE needs to communicate the audit
communicate the plan to the board and senior management for
audit plan to the review and approval at least once a year.
board and senior
management for
review and
approval once
every five years.
130. The internal audit TRUE. Determining whether risk management
activity must processes are effective is a judgment resulting
evaluate the from the internal auditor’s assessment that:
effectiveness and
contribute to • Organizational objectives support and align
improving risk with the organization’s mission.
management • Significant risks are identified and assessed.
processes. • Appropriate risk responses are selected that
align risks with the organization’s risk appetite.
• Relevant risk information is captured and
communicated promptly across the
organization, enabling staff, management, and
the board to carry out their responsibilities.

131. Qualitative FALSE. Quantitative performance metrics are

performance often easily understood and based on existing or
metrics are often obtainable data. In contrast, qualitative metrics
easily understood are often based on collecting unique information
and based on through more time-intensive methods such as
existing or survey research or interviews.
obtainable data.

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SECTION B – PRACTICE OF INTERNAL AUDITING

QUALIFIED ACCOUNTANTS – WEIGHTAGE 43%
CISA HOLDERS – WEIGHTAGE 30%
SUB - SECTION II – PLANNING THE ENGAGEMENT
STUDY POINTS

S.No Description
1. Explain Long-Range Schedule?

A long-range schedule is an engagement-planning tool that

provides evidence of coverage of critical functions at planned
intervals. Risk analysis based on the judgment of the internal
auditor is often used in conjunction with the development of long-
range engagement work schedules.

2. Describe the Requirement of Standard 2200 - Engagement

Planning?

Internal auditors must develop and document a plan for each

engagement, including the engagement’s objectives, scope, timing,
and resource allocation. The plan must consider the organization’s
strategies, objectives, and risks relevant to the engagement.

3. What is included in the Engagement Program Prepared by the

Internal Auditor?

Before the engagement’s commencement, the internal auditor

prepares an engagement program that:

• States the objectives of the engagement.

• Identifies technical requirements, objectives, risks, processes,

and transactions to be examined.

• States the nature and extent of testing required.

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• Documents the internal auditor’s procedures for collecting,

analyzing, interpreting, and documenting information during the
engagement.

• It is modified, as appropriate, during the engagement with the

approval of the chief audit executive or their designee.

4. State the Factors CAE considers when requiring a Level of

Formality and Documentation?

The CAE should require a level of formality and appropriate

documentation for the organization. Factors to consider would
include:

• Whether the work performed and/or the engagement results will

be relied upon by others (e.g., external auditors, regulators, or
management).

• Whether the work relates to matters involved in potential or

current litigation.

• The experience level of the internal audit staff and the level of
direct supervision required.

• Whether guest auditors or external service providers internally

staff the project.

• The project’s complexity and scope.

• The size of the internal audit activity.

• The value of documentation.

5. What may be the Meeting Plan Between CAE and the Management
Team whose area of responsibility is being audited?

The topics of these meetings might cover:

• The objectives and scope of work of the planned engagement.

• The timing of the work.

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• The internal auditors who will be performing the work.

• The communication process throughout the engagement includes

the methods, time frames, and responsible individuals.

• Business conditions and operations, including recent

management or significant systems changes, are being reviewed.

• Any concerns or requests from management.

• Any concerns from the internal auditor.

• A description of the final reporting process and the follow-up that

will be conducted.

6. What does Standard 2201 – Planning Considerations say?

In planning the engagement, internal auditors must consider the

following:

• The strategies and objectives of the activity reviewed and how the
activity controls its performance.

• The significant risks to the activity’s objectives, resources, and

operations and how the potential impact of risk is kept to an
acceptable level.

• The adequacy and effectiveness of the activity’s risk management

and control systems compared to a relevant control framework or
model.

• The opportunities for significantly improving the activity’s risk

management and control processes.

7. List the Steps in Planning an Individual Engagement?

The seven steps in planning an individual engagement are:

a. Understanding the context and purpose of the engagement.

b. Gathering information to understand the area or process under

review.

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c. Conducting a preliminary assessment of relevant risks.

d. Forming engagement objectives.

e. Establishing engagement scope.

f. Allocating appropriate and sufficient resources.

g. Documenting the plan.

8. Elaborate on Understanding the Context and Purpose of the

Engagement?

The internal auditor needs to understand how the organization’s

mission, vision, strategic objectives, and other elements align with
those of the area or process under review. Internal auditors also
need to consider the organization’s:

• Structure and processes related to governance, risk

management, and control.

• Policies and procedures.

• Risk priorities.

9. Clarify Gathering Information to Understand the Area or Process

Under Review?

To gather information, internal auditors typically perform the

following actions:

• Review prior assessments of the area or process under review.

• Understand and map the process flow and controls in the area or
process under review.

• Interview relevant stakeholders.

• Brainstorm potential risk scenarios.

10. Assess Conducting a Preliminary Assessment of Relevant Risks?

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Utilizing process maps and brainstorming potential risk scenarios

are two techniques that help internal auditors identify risks and
controls relevant to the area or process under review for further
evaluation during the engagement. Because consulting
engagement planning typically occurs after the engagement
objectives and scope have already been determined, internal
auditors may not need to complete a preliminary risk assessment
during consulting engagements.

11. Describe Establishing Engagement Scope?

Establishing the engagement scope is where the auditor

determines what will and will not be part of the engagement. The
scope could include limiting the processes, areas, locations,
periods, etc., under review to complete the engagement within the
time and budget allowed.

12. What shall the Documented Plan Contain?

The documented plan must contain the engagement objectives,

scope, timeline, and resource allocations.

13. Mention the Role of Internal Auditors when Planning an

Engagement for Parties Outside the Organization?

When planning an engagement for parties outside the organization,

internal auditors must establish a written understanding with them
about objectives, scope, respective responsibilities, and other
expectations, including restrictions on the distribution of the
engagement results and access to engagement records.

14. Clarify the Role of Internal Auditors with Consulting Engagement

Clients?

Internal auditors must establish an understanding with consulting

engagement clients about objectives, scope, respective
responsibilities, and other client expectations. For significant
engagements, this understanding must be documented.

15. State the Consequences if the Engagement Scope Is Not Properly

Defined before the engagement starts?

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• Time constraints for when the engagement must be finished

and/or the number of hours budgeted.

• The knowledge, skills, and experience of the available resources

within the IAA.

Internal auditors should consider whether external resources (e.g.,

specialists or supplemental resources) or technology will be
necessary when the IAA does not have appropriate or sufficient
resources.

47. Elaborate on Meeting the Resource Requirements?

When an engagement requires skills that the staff does not already
have, the CAE will determine the most effective and efficient way to
obtain the needed skills, whether through training or external
resources. The CAE still has responsibility for the work performed
by any external resources.

48. What does Standard 2230 - Engagement Resource Allocation say?

Internal auditors must determine appropriate and sufficient

resources to achieve engagement objectives based on evaluating
the nature and complexity of each engagement, time constraints,
and available resources.

49. Explain Appropriate and Sufficient?

Appropriate refers to the mix of knowledge, skills, and other

competencies needed to perform the engagement.

Sufficient refers to the quantity of resources needed to accomplish

the engagement with due professional care.

50. List the Factors that Need to be Considered while allocating

Engagement Resources?

Internal auditors consider the following when determining the

appropriateness and sufficiency of resources:

• The number and experience level of the internal audit staff.

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• Knowledge, skills, and other competencies of the internal audit

staff when selecting internal auditors for the engagement.

• Availability of external resources where additional knowledge and

competencies are required.

• Training needs of internal auditors as each engagement

assignment serves as a basis for meeting the internal audit
activity’s developmental needs.

51. Clarify Staff Scheduling and Scheduling Aids?

The work schedule should be structured to allow the most effective

use of every staff member’s time. Stages of the work should be
scheduled to reduce or eliminate downtime while other steps of the
engagement are completed. If the engagement takes place in
multiple locations, care should be taken in scheduling and staffing
to minimize the costs and time lost due to travel.

Each engagement will have a time budget (normally prepared in

terms of hours or days) and a monetary budget, and all engagement
team members must be aware of these constraints. No procedures
should be skipped for lack of time or money. Instead, if it becomes
apparent that a budget item will be exceeded or if it seems that a
deadline will not be met, the auditor in charge should be informed
to determine the appropriate course of action.

If the timing of the engagement cannot be adjusted, or if the

engagement requires skills not in the IAA, the CAE might request
additional external staff. The CAE needs to assess the skills and
objectivity of external staff, and if they are added to the
engagement, they need to be closely supervised and their work
carefully reviewed.

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SECTION B – PRACTICE OF INTERNAL AUDITING

QUALIFIED ACCOUNTANTS – WEIGHTAGE 43%
CISA HOLDERS – WEIGHTAGE 30%
SUB - SECTION II – PLANNING THE ENGAGEMENT
TRUE / FALSE QUESTIONS AND ANSWERS
S.No Questions Answers
1. A long-range TRUE. A long-range schedule is an engagement-
schedule is an planning tool that provides evidence of coverage
engagement- of critical functions at planned intervals.
planning tool.
2. Internal auditors TRUE. Internal auditors must develop and
must develop document a plan for each engagement, including
and document a the engagement’s objectives, scope, timing, and
plan for each resource allocation. The plan must consider the
engagement. organization’s strategies, objectives, and risks
relevant to the engagement.

3. The internal FALSE. The chief audit executive should require

auditor should a level of formality and appropriate
require a level of documentation for the organization.
formality and
appropriate
documentation
for the
organization.
4. Internal auditors TRUE. Internal auditors must consider the
must consider following:
the opportunities
for significantly • The strategies and objectives of the activity
improving the being reviewed and how the activity controls
activity’s risk its performance.
management and
control • The significant risks to the activity’s
processes in objectives, resources, and operations and how
planning the the potential impact of risk is kept to an
engagement. acceptable level.

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• The adequacy and effectiveness of the
activity’s risk management and control
systems compared to a relevant control
framework or model.

5. The documented TRUE. The documented plan must contain the

plan must engagement objectives, scope, timeline, and
contain the resource allocations.
engagement
objectives.
6. Internal auditors TRUE. When planning an engagement for
must establish a parties outside the organization, internal
written auditors must establish a written understanding
understanding with them about objectives, scope, respective
with them about responsibilities, and other expectations,
objectives when including restrictions on the distribution of the
planning an engagement results and access to engagement
engagement for records.
parties outside
the organization.
7. If the FALSE. If the engagement scope is not properly
engagement defined before the engagement starts, the IAA
scope is not inadequately allocates resources to complete
properly defined the engagement.
before the
engagement
starts, the IAA
adequately
allocates
resources to
complete the
engagement.
8. Internal auditors FALSE. Internal auditors must conduct a
shall not conduct preliminary assessment of the risks relevant to
a preliminary the activity under review.
assessment of
the risks relevant
to the activity
under review.
9. Adequate criteria TRUE. Types of criteria may include:
are needed to
evaluate • Internal.
governance, risk • External.

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SECTION B – PRACTICE OF INTERNAL AUDITING

QUALIFIED ACCOUNTANTS – WEIGHTAGE 43%
CISA HOLDERS – WEIGHTAGE 30%
SUB - SECTION III – CONDUCTING INTERNAL AUDIT
ENGAGEMENTS
STUDY POINTS

S.No Description
1. What is a Preliminary Survey?

The preliminary survey, also called an on-site survey, is the first

step in the audit process. This survey allows the internal auditor
to collect and become familiar with the preliminary information
about the activity to be reviewed without details.

2. Explain the Objectives of the preliminary survey?

The preliminary survey should accomplish several objectives,

allowing the internal auditor to:

• Become familiar with the client’s

o Objective and goals.

o Organizational structure and key staff.
o Operations, facilities, key customers, and suppliers.
o Risk management, control, and governance systems.
o Information systems.

• Concentrate the audit work on significant matters.

• Identify low-risk areas and then reduce the audit time spent on
them.

• Create a cooperative tone for the engagement.

3. List the Factors the internal auditor should consider to maximize

the benefits of a preliminary survey?

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The auditor should:

• Read all relevant background information, including recent

financial and operational results.

• Prepare the questionnaires based on this information and

assess the risks within the area.

• Know where or from whom to obtain additional information and

make appropriate appointments.

• Document the information received in this process. Flowcharting

and narratives are two of the more common methods.

• Understand the objectives and goals of each part of the

operation.

• Identify the risks implicit in the areas under review.

4. State the Items included in the preliminary survey?

The preliminary survey will consist of the following:

• Reviewing previous audit reports and data.

• Conducting walk-throughs and interviews.

• Developing checklists and risk-and-control questionnaires.

• Performing observations.

• Reporting survey results.

5. What Purpose does the review of prior audit reports serve?

The review of prior audit reports is valuable because it:

a. Allows the auditor to become familiar with the audit subject.

b. This shows how other auditors approached the assignment.

c. Helps the auditor decide the scope of the current audit.

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d. Identifies problem areas.

e. Identifies areas that may need additional evaluation.

f. Reveals whether or not the action was taken on past

recommendations.

6. Discuss Walk-Throughs?

The auditor should have a walk-through of the premises or offices

to gather information directly from the staff of the engagement
client. Getting a sense of physical locations allows the auditor to
meet and question additional staff on the risk management,
control, and governance of their areas of responsibility. The walk-
through may also follow key processes and associated
documentation, allowing the auditor to confirm that controls
work.

7. Clarify Observation and its Treatment?

Observation: When the observation is not reportable because of

mitigating controls, or the item observed does not have a
significant financial, operational, or compliance impact.

Treatment: Document the record of work done and explain why

the observation is not reportable.

8. Explain Reportable Observation and its Treatment?

Reportable observation: When significant risks that were

observed are not reduced to an acceptable level by the existing
controls.

Treatment: Update the working papers to include the agreed-upon

action plan. Track the performance of that plan and have the
observation in only the body of the engagement communication.

9. Assess Significant Observation and its Treatment?

Significant observation: When the observation is important

enough to communicate to the auditee.

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Treatment: Update working papers to include the action plan and

observation in the executive summary of the engagement
communication.

10. Describe Incorrect Initial Observation and its Treatment?

Incorrect initial observation: When the information upon which

the initial observation was based is incorrect.

Treatment: Update the work record and the observation to reflect

the new information and support the appropriate conclusion
based on the correct information.

11. Who shall Communicate the Observations?

The internal auditor communicates those observations necessary

to support or prevent misunderstanding of the internal auditor’s
conclusions and recommendations. The internal auditor may
communicate less significant observations or recommendations
informally.

12. Clarify Reporting Survey Results?

Internal auditing demonstrates objectivity, impartiality, and

unbiased nature by reviewing survey results with management
and reporting positive and negative findings.

If the survey confirms that systems and their controls are

operating efficiently and effectively, the auditor may decide not to
perform engagement procedures.

On the other hand, the survey may reveal significant control

deficiencies even without conducting any testing. If the auditor
decides that no further audit work is necessary beyond the survey,
it is still advisable to issue an audit report to the executive director
and other concerned parties summarizing the survey results and
indicating that the audit has been canceled.

13. Evaluate the Treatment if the engagement Continues after the

preliminary survey?

Assuming the engagement continues after the preliminary survey,

the auditor should summarize and report the results to

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management. It is possible that enough information was gained

during the survey so that the auditor can recommend
improvements before additional substantive testing is done.
Before writing the engagement work program, the auditor’s
observations should be discussed with management.

For example, time budgets should be appraised for revision after

the preliminary survey and preparation of the audit program.

14. Discuss the Preparation for the Preliminary Meeting?

The preliminary meeting is the first opportunity to interact with the

engagement client, and the auditor needs to be well prepared for
it. Before this meeting, the auditor should have received the
results of the preliminary survey from the engagement client, and
that information will need to be reviewed, along with all other
relevant facts, to make the most of this first encounter.

15. State the Questions the auditor might ask to prepare for the
Preliminary Meeting?

To prepare for the preliminary meeting, the auditor might ask the
following questions:

• How many sections and people are there in the activity?

• What activities are carried out?

• Which activities are the most important and the most

troublesome?

• How are controls exercised, and what reports are received?

• What are the work standards, and what training is given?

• How are priorities set?

• How frequent are backlogs, and what are the reasons and cost
implications?

• Who are the main internal customers and suppliers? How do

they interact?

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consistent with the organization’s guidelines and any pertinent

regulatory or other requirements.

155. State the Requirement of the Sarbanes-Oxley Act for Working

Papers?

The Sarbanes-Oxley Act requires that the working papers related

to any audit report be prepared and maintained for at least seven
years. While this law pertains to external audits of financial
statements, it can also be used as a guide for keeping internal
audit papers.

156. Discuss the Requirements of Standard 2340: Engagement

Supervision?

Engagements must be adequately supervised to ensure

objectives are achieved, quality is assured, and staff
development.

The extent of supervision required will depend on the proficiency

and experience of internal auditors and the complexity of the
engagement. The chief audit executive is responsible 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.

157. List the Items Included in Engagement Supervision?

Supervision is a process that begins with planning and continues

throughout the engagement. The process includes:

• Ensuring designated auditors collectively possess the required

knowledge, skills, and other competencies to perform the
engagement.

• Providing appropriate instructions during the engagement

planning and approving the engagement program.

• Ensuring the approved engagement program is completed

unless changes are justified and authorized.

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• Determining engagement working papers adequately support

engagement observations, conclusions, and
recommendations.

• Ensuring engagement communications are accurate,

objective, clear, concise, constructive, and timely.

• Ensuring engagement objectives are met.

• Providing opportunities for developing internal auditors’

knowledge, skills, and other competencies.

158. Assess the Review of Engagement Working Papers?

All engagement working papers are reviewed to ensure they

support engagement communications and necessary audit
procedures are performed. Evidence of supervisory review
consists of the reviewer initialing and dating each working paper
after it is reviewed. Other techniques that provide evidence of
supervisory review include completing an engagement working
paper review checklist; preparing a memorandum specifying the
nature, extent, and results of the review; or evaluating and
accepting reviews within the working paper software.

Reviewers can make a written record (i.e., review notes) of

questions arising from the review process. When clearing review
notes, care must be taken to ensure that working papers provide
adequate evidence that questions raised during the review are
resolved. Alternatives concerning the disposition of review notes
are as follows:

• Retain the review notes as a record of the reviewer’s questions,

the steps taken in their resolution, and the results of those
steps.

• Discard the review notes after the questions are resolved and
the appropriate engagement working papers are amended to
provide the requested information.

159. When are the Staff Performance Appraisals Conducted?

Staff performance appraisals are generally conducted at the end

of each significant audit assignment. These evaluations provide

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both the staff auditors and audit management with immediate

performance feedback and allow for an exchange of ideas. In
contrast, the audit is still fresh in the mind. These evaluations can
also:

• Become another input source for promotions, compensation,

and/or employment termination.

• Help the CAE with determining the need for staff training.

• Help the CAE review methods for improving staff performance.

• Help the CAE assign staff to future assignments.

160. Mention the Items the Reviewer needs to Determine during an

Evaluation?

During an evaluation, the reviewer needs to determine whether or

not the auditor:

• Developed an understanding of the audit objectives and

procedures.

• Understood the auditee’s processes, systems, and workflows.

• Completed the work under the work plan.

• Maintained appropriate relations with the auditee.

• Prepared the working papers under the Standards.

• Performed due diligence in the documentation process to

report the findings and appropriately cross-referenced within
the working papers as appropriate.

• Properly utilized audit tools when appropriate.

• Added value to the audit team and the auditee.

• Demonstrated proficiency in the application of internal

auditing standards.

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• Developed a professional relationship with the auditee.

• Was ethically responsible during the audit.

• Demonstrated an appropriate level of technical competence in

the engagement.

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SECTION B – PRACTICE OF INTERNAL AUDITING

QUALIFIED ACCOUNTANTS – WEIGHTAGE 43%
CISA HOLDERS – WEIGHTAGE 30%
SUB - SECTION III – CONDUCTING INTERNAL AUDIT
ENGAGEMENTS
TRUE / FALSE QUESTIONS AND ANSWERS
S.No Questions Answers
1. The importance of TRUE. The preliminary survey is one of the
the preliminary first steps in the audit process, allowing the
survey cannot be internal auditor to start collecting information
overstated. and become familiar with the preliminary
information about the activity to be reviewed.

2. The preliminary TRUE. The preliminary survey should

survey should accomplish several objectives, allowing the
accomplish several internal auditor to:
objectives, allowing
the internal auditor • Concentrate the audit work on significant
to become familiar matters.
with the client’s • Identify low-risk areas and then reduce the
objectives and audit time spent on them.
goals. • Create a cooperative tone for the
engagement.

3. The auditor should FALSE. The auditor should read all relevant
not read all relevant background information.
background
information.
4. The preliminary TRUE. The preliminary survey will consist of
survey will consist the following:
of reviewing
previous audit • Conducting walk-throughs and interviews.
reports and data. • Developing checklists and risk-and-
control questionnaires.
• Performing observations.
• Reporting survey results.

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5. The review of prior TRUE. The review of prior audit reports is
audit reports is valuable because it:
valuable because it
identifies problem • Allows the auditor to become familiar with
areas. the audit subject.
• Shows how other auditors approached the
assignment.
• Helps the auditor decide the scope of the
current audit.
• Identifies areas that may need additional
evaluation.
• Reveals whether or not action was taken
on past recommendations.

6. The auditor should TRUE. The auditor should have a walk-

have a walk-through through of the premises or offices to gather
of the premises or information directly from the staff of the
offices. engagement client.

7. Observation is when FALSE. Reportable observation is when the

significant risks that existing controls do not reduce significant
were observed are risks to an acceptable level.
not reduced to an
acceptable level by
the existing
controls.
8. An incorrect initial FALSE. A significant observation is when the
observation is when observation is deemed necessary enough to
the observation is communicate to the auditee. Alternatively,
deemed necessary incorrect initial observation is when the
enough to information upon which the initial
communicate to the observation was based is incorrect.
auditee.
9. The internal auditor FALSE. The internal auditor may
may communicate communicate less significant observations
less significant or recommendations informally.
observations or
recommendations
formally.
10. The preliminary FALSE. The preliminary meeting is the first
meeting is the opportunity to interact with the engagement
second opportunity client, and the auditor needs to be well
prepared for it.

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the audit more audit more efficient because time is not spent
efficient. creating a working paper format from
scratch.

135. The chief audit TRUE. The chief audit executive must obtain
executive must the approval of senior management and/or
control access to legal counsel before releasing such records
engagement to external parties, as appropriate.
records.
136. In the case of fraud FALSE. In the case of fraud audits, the
audits, the working working papers should not be shared with
papers should be anyone outside of the immediate group of
shared with anyone people investigating the matter.
outside of the
immediate group of
people investigating
the matter.
137. The chief audit TRUE. After the engagement, the working
executive must papers should be kept for a specific period
develop retention established by the CAE. After the necessary
requirements for period has passed, the working papers should
engagement be destroyed.
records.
138. The Sarbanes-Oxley FALSE. The Sarbanes-Oxley Act requires that
Act requires that the the working papers related to any audit report
working papers be prepared and maintained for at least seven
related to any audit years.
report be prepared
and maintained for
at least five years.
139. Supervision starts TRUE. Supervision is a process that begins
in the planning with planning and continues throughout the
stages and engagement.
continues until the
report is issued.
140. The CAE is TRUE. The chief audit executive is
ultimately responsible for supervising the engagement,
responsible for whether performed by or for the internal audit
supervising the activity, but may designate appropriately
entire process. experienced members of the internal audit
activity to perform the review.

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141. Staff performance FALSE. Staff performance appraisals are
appraisals are generally conducted at the end of each
generally conducted significant audit assignment.
at the start of each
significant audit
assignment.

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SECTION B – PRACTICE OF INTERNAL AUDITING

QUALIFIED ACCOUNTANTS – WEIGHTAGE 43%
CISA HOLDERS – WEIGHTAGE 30%
SUB - SECTION IV – COMMUNICATING RESULTS AND
MANAGING PROGRESS
STUDY POINTS

S.No Description
1. Examine the Requirements of Standard 2400 – Communicating
Results?

Internal auditors must communicate the results of engagements.

The internal auditor must communicate engagement results
properly, and certain steps must be followed for communications
to be clearly understood by all interested parties.

2. What do the Interim and Final Reports Provide?

The interim and final reports provide observations, conclusions,

and recommendations that should be useful to the auditee.
These reports are also an essential basis for evaluating the IAA
by senior management and the board, and they can also be helpful
to external auditors, regulatory agencies, and judicial authorities.

3. List the Elements the internal auditor needs to consider To Ensure

the Effectiveness and Quality of Audit Reports?

• As stakeholders have diverse needs, written reports may need

to be structured for multiple types of recipients. More than one
type of report may be designed and issued.

• Effective internal audit communication must be accurate,

objective, clear, concise, constructive, complete, easy to read,
understandable, and timely.

• The internal audit report must include the engagement's

objectives, scope, and results.

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• Management’s action plans must be included. This part of the

report is often the most referenced segment. The
recommendations, the tone, and the expected timeframe for
completion must be in line with the significance and urgency of
the issue. More significant risks must be addressed more
quickly than less significant ones.

• It is essential to conduct a thorough review of the content to

validate factual accuracy and completeness of reporting and
ensure the engagement results and conclusions are supported
by sufficient, reliable, relevant, and valuable information and
based on appropriate analyses and evaluations.

• A concise executive summary may highlight good practices

observed during the engagement and any steps taken by
management to improve governance, risk management, and
internal controls.

• The distribution of the report must be confirmed and approved

by the CAE to ensure it is directed to the intended recipients and
the appropriate parties, who can ensure that the results are
given due consideration and recommended actions are
implemented.

4. State the Items to be Included in Topics of Discussion?

• Planned engagement objectives and scope of work.

• The resources and timing of engagement work.

• Key factors affecting business conditions and operations of the

areas being reviewed, including recent internal and external
environment changes.

• Concerns or requests from management.

5. Discuss the Requirements of Standard 2410 – Criteria for

Communicating?

Communications must include the engagement’s objectives,

scope, and results.

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The final communication of engagement results must include

applicable conclusions, practical recommendations, and action
plans. Where appropriate, the internal auditors’ opinion should be
provided. An opinion must consider the expectations of senior
management, the board, and other stakeholders and be supported
by sufficient, reliable, relevant, and useful information.

Opinions at the engagement level may be ratings, conclusions, or

other descriptions of the results. Such an engagement may be in
relation to controls around a specific process, risk, or business
unit. Formulating such opinions requires consideration of the
engagement results and their significance.

6. Explore the Requirement of Standard 2420 – Quality of

Communication?

Communication must be:

• Accurate.
• Objective.
• Clear.
• Concise.
• Constructive.
• Complete.
• Timely.

7. Describe Accurate, Objective, Clear, Concise, Constructive,

Complete, and Timely Communications?

Accurate communications are free from errors and distortions

and are faithful to the underlying facts.

Objective communications are fair, impartial, and unbiased,

resulting from a fair-minded and balanced assessment of all
relevant facts and circumstances.

Clear communications are easily understood and logical, avoiding

unnecessary technical language and providing essential and
relevant information.

Concise communications are to the point and avoid unnecessary

elaboration, superfluous detail, redundancy, and wordiness.

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Constructive communications are helpful to the engagement of

clients and the organization and lead to improvements where
needed.

Complete communications lack nothing essential to the target

audience and include all significant and relevant information and
observations to support recommendations and conclusions.

Timely communications are reasonable and practical, depending

on the issue's significance, allowing management to take
appropriate corrective action.

8. What should be the Writing Style of Engagement

Communications?

• Sentences should be brief.

• Longer sentences are appropriate for incredibly complex ideas

but should be phrased.

• The tone of language used needs to be appropriate.

• The writing needs step-by-step organization and a logical

sequence.

• The main point is best emphasized by placing it at the

beginning or end of the paragraph.

• Essential matters may be repeated or have additional graphical

presentations to help communicate important points.

• References require definitions, which can appear in footnotes.

• Exclude irrelevant matters.

• Eliminate unnecessary jargon or technical terms.

• The writing style should be consistent throughout.

• The writer should use the active voice whenever possible

instead of the passive voice.

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9. Define Error and Omission?

An error or omission is an unintentional misstatement or

omission of significant information in a final engagement
communication.

10. State the Requirement of Standard 2421 – Errors and Omissions?

If a final communication contains a significant error or omission,

the chief audit executive must communicate corrected
information to all parties who received the original
communication.

11. Elaborate on the Requirement of Standard 2431 – Engagement

Disclosure of Nonconformance?

When nonconformance with the Code of Ethics or the Standards

impacts a specific engagement, communication of the results
must disclose the following:

• Principle(s) or rule(s) of conduct of the Code of Ethics or the

Standard(s) with which full conformance was not achieved.

• Reason(s) for nonconformance.

• Impact of nonconformance on the engagement and the

communicated engagement results.

12. What Purpose do the Interim Reports Serve?

Interim reports are communications that are issued before the

final report.

They may be written or oral and are used to communicate the

following:

• Information that requires immediate action.

• A change in the scope of the engagement.

• The project status (if it is a long-term plan).

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An interim report does not eliminate the need for a final report.
However, interim communications may be used as a basis for
some items included in the final report, so the interim
communications may reduce the amount of time needed to
prepare the final report. Also, some items raised during the
engagement may be cleared so that the issue does not need to be
included in the final report.

13. List the Advantages of Oral Communication?

• Timeliness.

• Opportunities for immediate feedback.

• Clients can respond in real-time.

• Improved relationships (due to face-to-face interaction).

• Incorrect information or misunderstandings can be

immediately addressed.

14. Mention the Disadvantage of Oral Communication?

One drawback of a strictly spoken engagement is that there is no

permanent conversation record in the absence of notetaking or
recording, which might lead to later discrepancies and
disagreements.

15. Clarify Audit Reports for High-Risk, Medium-Risk, and Low-Risk

Observations?

For high-risk observations, it is prudent and typical for the CAE to

discuss items well before the formal written report verbally. In
addition to the verbal discussion, the CAE may also authorize the
issuance of an interim report to management to implement action
plans immediately before the final written report issuance.

For medium-risk observations, an interim report could be drafted

for management for more timely actions. The final written report
could also be issued following the procedure for regular internal
audit engagements on medium-risk observations.

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internal auditor’s assessment of the project’s risks or value to the

organization.

61. Discuss the Method of Tracking the Follow-Up Process?

The CAE must have a system to monitor how engagement results

communicated to management have been resolved. Tracking the
process helps ensure that the recommendations from different
engagements are implemented. According to the IIA’s Practice
Guide: a best practice for monitoring the follow-up on the action
plan is to create a tracking spreadsheet or other tracking system
that includes:

• Audit observations.

• Action plans.

• Responsible personnel.

• Target completion dates.

62. When can the Follow-Up Activities be Performed?

Follow-up activities can be performed at either:

• Specific time intervals. The CAE may schedule particular

assignments in the annual internal audit plan to perform a
follow-up for incomplete or expired action plans from the
previous year(s).

• On an ongoing basis. The follow-up process is usually

performed monthly or quarterly and consists of three elements:

o Collecting information.

o Verifying the completion of the action plan.

o Reporting results to the engagement client, senior

management, and periodically to the board.

63. Why did the client Overlook the Recommendations Proposed by

Internal Auditors?

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Clients might overlook recommendations because:

• More resources were needed for implementation than were

expected or were available.

• The expected costs of implementation may have increased.

• The expected benefits of implementation may have decreased.

• The client determined that the implementation would not have

worked.

• The client has misperceptions about the costs and benefits of

the recommendations.

64. Determine the Treatment in Case of Failure of Action Plan After

Implementation?

It is possible that the client accepts the recommendations and

implements them, but the outcome is deemed a failure. In this
case, the CAE must decide if another engagement is immediately
needed to determine the nature of the failure or if follow-up can
wait until the next scheduled engagement. If the failed
implementation happens in an area of high risk to the company,
corrective action will most likely be a priority.

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SECTION B – PRACTICE OF INTERNAL AUDITING

QUALIFIED ACCOUNTANTS – WEIGHTAGE 43%
CISA HOLDERS – WEIGHTAGE 30%
SUB - SECTION IV – COMMUNICATING RESULTS AND
MANAGING PROGRESS
TRUE / FALSE QUESTIONS AND ANSWERS
S.No Questions Answers
1. Internal auditors TRUE. The internal auditor must
must communicate communicate engagement results properly,
the results of and certain steps must be followed for
engagements. communications to be clearly understood by
all interested parties.

2. The interim and TRUE. The interim and final reports are an
final reports essential basis for evaluating the IAA by
provide senior management and the board, and they
observations, can also be helpful to external auditors,
conclusions, and regulatory agencies, and judicial authorities.
recommendations.
3. The internal audit FALSE. The internal audit report must
report may include include the engagement's objectives, scope,
the engagement's and results.
objectives, scope,
and results.
4. The distribution of FALSE. The distribution of the report must be
the report must be confirmed and approved by the chief audit
confirmed and executive to ensure it is directed to the
approved by the intended recipients and the appropriate
internal auditor. parties, who can ensure that the results are
given due consideration and recommended
actions are implemented.

5. Topics of TRUE. Topics of discussion may include:

discussion may
include planned • The resources and timing of engagement
engagement work.
objectives and • Key factors affecting business conditions
scope of work. and operations of the areas being
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52. Follow-up activities TRUE. Follow-up activities can be performed
can be performed at either:
at specific intervals
or on an ongoing • Specific time intervals. The CAE may
basis. schedule specific assignments in the
annual internal audit plan to perform a
follow-up for incomplete or expired action
plans from the previous year(s).

• On an ongoing basis. The follow-up

process is usually performed monthly or
quarterly.

53. Clients might TRUE. Clients might overlook

overlook recommendations because:
recommendations
because the • More resources were needed for
expected costs of implementation than were expected or
implementation were available.
may have • The expected benefits of implementation
increased. may have decreased.
• The client determined that the
implementation would not have worked.
• The client has misperceptions about the
costs and/or benefits of the
recommendations.

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SECTION C – BUSINESS KNOWLEDGE FOR INTERNAL

AUDITING
QUALIFIED ACCOUNTANTS – WEIGHTAGE 22%
CISA HOLDERS – WEIGHTAGE 20%
SUB - SECTION I – BUSINESS ACUMEN
STUDY POINTS

S.No DESCRIPTION
1. Describe Planning?

Planning generally refers to the process that provides guidance

and direction regarding what an organization needs to do
throughout its operations. It determines the answers to a business
operation's “who, what, when, where, and how” questions.
Planning is the first activity management must undertake when
creating yearly budgets and making other critical decisions
affecting the company’s future.

2. What purpose does the company plan serve?

A company’s plan serves as its guide for the activities and

decisions made by individuals throughout the entire organization.
The planning process defines the company’s objectives and goals
and sets the stage for prioritizing how to develop, communicate,
and accomplish them.

3. State the Ultimate Objective of Companies?

For most companies, if not all, the ultimate objective is to achieve

superior performance in comparison with the performance of
their competitors. When superior performance is achieved,
company profitability will increase. When profits are growing,
shareholder value will grow. A publicly-owned for-profit company
must have maximizing shareholder value as its ultimate goal.

4. Explain the relationship between profits and shareholder value?

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The profits of the company are directly proportional to

shareholders’ value. The higher the profits, the higher
shareholder’s value.

5. Describe the result of attaining superior performance?

The result of attaining superior performance will be a competitive

advantage. Competitive advantage is a company's benefit over its
competitors that it gains by offering consumers higher value than
they can get from its competitors.

6. How is competitive advantage derived?

Competitive advantage is derived from attributes that enable an

organization to outperform its competitors, such as access to:

• Natural resources.
• Highly-skilled personnel.
• A favorable geographic location.
• High entry barriers.

7. What is meant by Strategic Planning?

Strategic planning is the formulation of strategies. The strategies

managers pursue create the activities that can set the company
apart from its competitors and cause it to outperform them
consistently.

8. Discuss the Internal and External Factors in the context of

strategic planning?

Strategic planning is neither detailed nor focused on specific

financial targets. Instead, it examines the company's strategies,
objectives, and goals by examining the internal and external
factors affecting the company.

• Internal factors include current facilities, products, market share,

corporate goals and objectives, long-term targets, technology
investment, and anything else within the company's direct
control.

• External factors include the economy, labor market, domestic

and international competition, environmental issues,

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technological developments, developing new markets, and

political risk in other countries (or the home country).

9. List the steps involved in the Strategic Planning Process?

The formal strategic planning process consists of five steps, as

follows:

a. Defining the company’s mission, vision, values, and goals or

developing its mission statement. The company’s mission
statement provides the context for formulating its strategies.

b. Analyzing the organization’s external competitive environment

to identify opportunities and threats.

c. Analyzing the internal operating environment to identify the

organization's strengths, weaknesses, and limitations.

d. Formulating and selecting strategies consistent with the

organization’s mission and goals will optimize its strengths and
correct its weaknesses and limitations of external opportunities
while countering external threats.

e. Developing and implementing the chosen strategies.

10. List the Components of a Mission Statement?

The mission statement includes four components:

a. A statement of the company’s mission, or “reason to be.”

b. Its vision, or a statement of a desired future state.

c. A statement of the organization’s values.

d. A statement of its major goals.

11. How will you define a Mission?

The company’s mission is a reason to be of its existence. A

company’s mission is what the company does. A company’s
mission statement should be comprehensive because customer

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demands can shift quickly, and a given need can be served in

multiple ways.

12. Define the Vision?

The vision is what the company wants to achieve or become, and

it should be challenging. A good vision statement should
challenge the company by stating an ambitious future state that
will:

• Motivate employees at all levels.

• Drive the strategies the company’s management will formulate

and implement to achieve the vision.

13. Analyze the Organizational Values?

Organizational values describe how managers and employees

should behave and do business. A company’s values are the
foundation of its organizational culture. The organizational
culture consists of the values, norms, and standards that govern
how the company’s employees work to achieve the company’s
mission and goals.

14. Define Goal?

A goal is a precise and measurable future state the company

wants to achieve. The goal-setting aims to specify what needs to
be done to attain its mission and vision. Well-constructed goals
provide a means for managers’ performance to be evaluated.

15. What are the Characteristics of Goals / Objectives?

Goals / Objectives shall be:

S – Specific.
M – Measurable.
A – Attainable.
R – Realistic.
T – Time Bounded.

16. What exists in the External Environment?

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b. Semi-structured data has some format or structure but does

not follow a defined model. Examples include XML files, CSV files,
and most server log files.

c. Structured data is organized frequently in a database. Examples

include the data in CRM or ERP systems.

232. Explain the Five V’s of Data?

a. Volume: The amount of data that exists. Data analytics is best

suited to process immense amounts of data.

b. Velocity: The speed at which data is created. Data analytics is

designed to handle the rapid influx of new data.

c. Variety: The types of data. Data analytics can capture and

process diverse and complex forms of information.

d. Veracity: The accuracy of data. Poor-quality data leads to

inaccurate analysis and results, commonly called “garbage in,
garbage out.” Controls and governance over data are essential to
ensure that data is accurate.

e. Value: The benefit that the organization receives from data.

Without the necessary data analytics processes and tools, an
organization is more likely to be overwhelmed by data than helped
by it.

An investment in big data and data analytics should provide

measurable benefits.

233. List the Challenges of Managing Data Analytics?

General challenges of managing data analytics include:

• Data capture.

• Data curation.

• Data storage, security, and privacy protection.

• Data search.

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• Data sharing.

• Data transfer.

• Data analysis.

• Data visualization.

• The growth of data and especially of unstructured data.

• The need to generate insights promptly for the data to be useful.

• Recruiting and retaining Big Data talent. Demand for data

engineers, data scientists, and business intelligence analysts
has increased, causing higher salaries and difficulty filling
positions.

234. Explain Data Governance?

Data governance encompasses all of the policies and procedures

that define how a company creates, transforms, stores, protects,
and uses data—it can make obtaining, cleaning, and normalizing
the data significantly easier. With well-defined data governance
parameters, the IAA can more easily get high-quality data requiring
less work.

235. Describe the Staffing Considerations for Data Analytics?

One of the challenges for the internal audit activity in

implementing data analytics is ensuring that the IAA has the
necessary skills. In an extensive internal audit department,
auditors do not have to be data analytics experts. Huge
organizations may even have a dedicated analytics expert on staff.
Still, every auditor should be aware of data analytics to know when
it would be helpful.

When hiring new internal auditors, organizations should look for

critical thinkers who can work as auditors and data analysts. For
auditors already on staff, the CAE should cultivate those with the
interest and skills in analytics. Training should be budgeted and
ongoing to ensure the internal audit activity develops and
maintains a practical data analytics skillset.

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236. Explain the Purpose of Sensitivity Analysis?

Sensitivity analysis can determine how much a model's prediction

will change if one input changes. It can determine which input
parameter is most important for achieving accurate predictions.
Sensitivity analysis is known as “what-if” analysis.

Sensitivity analysis may reveal some risk areas the company was
unaware of.

237. Elaborate on Monte Carlo Simulation?

Monte Carlo simulation analysis can be used to find solutions to

mathematical problems that involve changes to multiple variables
at the same time. It can be used to develop an expected value
when the situation is complex, and the values cannot be expected
to behave predictably. It uses repeated random sampling and can
generate probabilities of various scenarios coming to pass that
can be used to compute a predicted result.

238. How is a Continuous Auditing Objective Achieved?

Continuous auditing is achieved through ongoing risk and control

assessments enabled by technology-based audit techniques such
as generalized audit software, spreadsheet software, or scripts
developed using audit-specific software, specialized audit utilities,
CAATs, commercially packaged solutions, and custom-developed
production systems.

239. What Benefits can be accrued by enabling Continuous

Monitoring?

Continuous monitoring can:

• Enhance the ability to identify and curtail control problems

promptly.
• Reduce incidences of error and fraud.
• Enhance operational efficiency.
• Improve bottom-line results through a combination of cost
savings and a reduction in overpayments and lost revenue.
• Improve customer satisfaction through enhanced customer
service quality and integrity.

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240. Describe Data Analysis Software and its Benefits?

Data analysis software can assist the internal auditor in managing

and using all available data.

Benefits include:

• Can analyze entire data populations covering the entire scope of

the audit engagement.

• Makes data imports easy to perform and also maintains data

integrity.

• Allows for accessing, joining, relating, and comparing data from

multiple sources.

• Provides the commands and functions that support the scope

and type of analysis needed in audit procedures.

• Generates the audit trail of analysis conducted that is

maintained to facilitate review.

• Supports centralized access, processing, and management of

data analysis.

• Requires minimum IT support for data access or analysis, and

this ensures auditor independence.

• Provides the ability to automate audit tasks to increase audit

efficiency, repeatability, and support for continuous auditing.

241. What is meant by Business Intelligence?

Business intelligence combines architectures, analytical and

other tools, databases, applications, and methodologies that
enable interactive access—sometimes in real time—to data such
as sales revenue, costs, income, and product data. Business
intelligence provides historical, current, and predicted values for
internal, structured data regarding products and segments.
Further, business intelligence allows managers and analysts to
analyze to make more informed strategic decisions and thus
optimize performance.

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242. List the Components of Business Intelligence?

A business intelligence system has four main components:

a. A data warehouse containing the source data.

b. Business analytics is the collection of tools used to mine,

manipulate, and analyze the data in the DW. Many Business
Intelligence systems include artificial intelligence capabilities, as
well as analytical capabilities.

c. A business performance management component to

monitor and analyze performance.

d. A user interface, usually in the form of a dashboard.

243. Explain Dashboard?

A dashboard is an information management tool. It is a screen in

a software application, browser-based application, or desktop
application, and it organizes and displays information relevant to
a given objective or process or for senior management in one
place. It may show patterns and trends in data across the
organization.

244. What is the Future of Data Analytics?

Data analytics will become even more potent with technologies

like machine learning, allowing computers to recommend action
courses. Under such conditions, a computer could look at the
company’s data, decide where the most significant risk of fraud
exists, and suggest which controls would mitigate that risk. An
internal auditor armed with such information could improve the
organization’s controls with precision. Such a future is not here
yet, but it is clear that the value of internal audit hinges on its ability
to utilize data analytics to enhance its capabilities.

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SECTION C – BUSINESS KNOWLEDGE FOR INTERNAL

AUDITING
QUALIFIED ACCOUNTANTS – WEIGHTAGE 22%
CISA HOLDERS – WEIGHTAGE 20%
SUB - SECTION I – BUSINESS ACUMEN
TRUE / FALSE QUESTIONS AND ANSWERS
S.No Questions Answers
1. Planning is the TRUE. Planning is the process that provides
first activity guidance and direction regarding what an
management organization needs to do throughout its
must undertake operations.
when creating
yearly budgets
and making other
critical decisions.
2. A company’s TRUE. A company’s plan serves as its guide for
plan serves as its the activities and decisions made by
way for individuals throughout the entire organization.
individuals' The planning process defines the company’s
activities and objectives and goals and sets the stage for
decisions prioritizing how to develop, communicate, and
throughout the accomplish them.
organization.
3. Profits and FALSE. The profits of the company are directly
Shareholders’ proportional to shareholders’ value. The higher
value are the profits, the higher shareholder’s value.
inversely related.
4. The company's TRUE. For most companies, if not all, the
ultimate ultimate objective is to achieve superior
objective is to performance in comparison with the
achieve superior performance of their competitors.
performance.
5. The result of FALSE. The result of attaining superior
attaining performance will be a competitive advantage.
superior Competitive advantage is a company's benefit
performance will over its competitors by offering consumers
be an absolute higher value than they can get from its
advantage. competitors.

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6. Competitive FALSE. Competitive advantage is derived from

advantage is attributes that enable an organization to
derived by outperform its competitors, such as access to:
working day in
and day out. • Natural resources.
• Highly-skilled personnel.
• A favorable geographic location.
• High entry barriers.

7. Strategic FALSE. Strategic planning is neither detailed

planning is nor focused on specific financial targets but
focused on instead looks at the company's strategies,
specific financial objectives, and goals.
targets.
8. Strategic FALSE. Strategic planning considers both the
planning internal and external factors affecting the
considers only company.
the internal
factors affecting
the company.
9. External factors FALSE. Internal factors include current
include anything facilities, products, market share, corporate
within the direct goals and objectives, long-term targets,
control of the technology investment, and anything else
company itself. within the company's direct control.
10. The formal TRUE.
strategic
planning process a. Developing its mission statement.
consists of five b. Analyzing the organization’s external
steps. competitive environment.
c. Analyzing the internal operating
environment.
d. Formulating and selecting strategies
consistent with the organization’s mission
and goals.
e. Developing and implementing the chosen
strategies.

11. A mission is a FALSE. A vision is a statement of the desired

statement of the future state.
desired future
state.

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194. Monte Carlo TRUE. Monte Carlo simulation analysis can be
simulation can used to find solutions to mathematical
develop an problems that involve changes to multiple
expected value variables at the same time.
when the
situation is
complex, and the
values cannot be
expected to
behave
predictably.
195. Business TRUE. Business intelligence combines
intelligence architectures, analytical and other tools,
provides databases, applications, and methodologies
historical, that enable interactive access—sometimes in
current, and real time—to data such as sales revenue,
predicted values costs, income, and product data.
for internal,
structured data
regarding
products and
segments.
196. Information is FALSE. Data is facts and figures, whereas
facts and figures. information is data that has been processed,
analyzed, interpreted, organized, and put into
context, such as in a report, so that it is
meaningful and useful.

197. A dashboard is a TRUE. A dashboard is an information

component of a management tool. It is a screen in a software
business application, a browser-based application, or a
intelligence desktop application, and it organizes and
system. displays in one place information relevant to a
given objective or process for senior
management; it may show patterns and trends
in data across the organization.

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SECTION C – BUSINESS KNOWLEDGE FOR INTERNAL

AUDITING
QUALIFIED ACCOUNTANTS – WEIGHTAGE 22%
CISA HOLDERS – WEIGHTAGE 20%
SUB - SECTION II – INFORMATION SECURITY
STUDY POINTS

S.No DESCRIPTION
1. What are the Goals of controls for Information Systems?

There are four goals:

• Promoting effectiveness and efficiency of operations to achieve

the company’s objectives.

• Maintaining the reliability of financial reporting by checking

accounting data's accuracy and reliability.

• Assuring compliance with all laws and regulations the company

is subject to and adherence to managerial policies.

• Safeguarding assets.

2. What does Physical Security represent?

Physical security includes physical access control and security of

the equipment and premises. These controls aim to reduce the
risk of losing organizational assets and harming employees' risk.
Controls should be identified, selected, and implemented based on
a thorough risk analysis.

3. List the Examples of Physical Security controls?

• Alarm system.
• Smoke detectors.
• CCTV cameras.
• Guards.
• Walls and fences.

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4. How is Physical Access to Servers provided?

Physical access to servers and networking equipment should be

limited to authorized persons.

Card access effectively allows a magnetically encoded card to be

inserted into or placed near a reader. The card access provides an
audit trail that records the date, time, and identity of the person
who entered. The limitation of card access is that anyone can use
a lost or stolen card until it is deactivated.

5. What are Biometric Access Systems?

Biometric access systems can be used when physical security

needs to be rigorous. Biometric access systems use physical
characteristics such as blood vessel patterns on the retina,
handprints, or voice authentication to authorize access. There is a
low error rate with such systems. Biometric access systems are
usually combined with other controls.

6. What is the auditor's role in evaluating controls and security?

The auditor’s role is to evaluate the effectiveness of the existing

controls and security. If weaknesses are found in any of the
controls, the auditor should report and document the exposures.

7. List the techniques to assess security risks?

Techniques for assessing security risks include:

• Analyzing past incidents.

• Reviewing industry-wide incident statistics.

• Auditing processes and procedures for possible gaps.

• Mapping all possible situations, even worst-case scenarios.

8. Define the Scope of Logical Security and Logical Access Control?

Logical security focuses on who can use which computer

equipment and who can access data.

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Logical access controls identify authorized users and control the

actions that they can perform.

9. What strategies are adopted to restrict access to authorized

users?

To restrict data access only to authorized users, the combination

of the following strategies can be adopted:

a. Something you know – requires remembrance.

b. Something you are – requires physical traits.
c. Something you have – requires devices.

10. Elaborate on the Something You Know Strategy?

User IDs and passwords are “something you know” ways of

authenticating users. Security software can encrypt passwords,
require changing passwords frequently, and require passwords to
conform to a particular structure (e.g., minimal length, no
dictionary words, restrict the use of symbols). Procedures should
be established for issuing, suspending, and closing user accounts.
Access rights should be reviewed periodically.

11. Elaborate on the Something You Are Strategy?

Biometrics is the standard form of “something you are”

authentication. Biometrics can recognize physical characteristics
such as:

• Iris or retina of the eyes.

• Fingerprints.
• Vein patterns.
• Faces.
• Voices.

Biometric scanners provide a high level of security.

12. Elaborate on the Something You Have strategy?

Some high-security systems require a physical device to certify an

authorized user’s identity. The most common authentication
example is a fob, a tiny electronic device that generates a unique

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code to permit access. It changes the code at regular intervals for

increased security. If a fob is lost, it can be deactivated remotely.

13. Define the Two-Factor Authentication?

Two-factor authentication requires two independent,

simultaneous actions before access to a system is granted. The
following are examples of two-factor authentication:

• After entering passwords into the system, it requires additional

information known only to the authorized user, such as a mother’s
maiden name or a social security number. This security feature
can be undermined if the secondary information can be obtained
easily by an unauthorized third party.

• Passwords can be linked to biometrics.

• In addition to entering the password, a verification code is

emailed or sent via text message that must be entered within a
few minutes to complete the login.

• A biometric scan and a code from a fob are combined to allow

access.

14. Describe the points the auditor should consider when evaluating
the effectiveness of a logical data security system?

The auditor should consider the following:

• Does the system ensure that only authorized users have access
to data?

• Is each person's access level appropriate to that person’s needs?

• Is there a complete audit trail whenever access rights and data

are modified?

• Are unauthorized access attempts denied and reported?

15. What are the Other User Access Considerations?

There are other security controls related to user access and

authentication to prevent abuse or fraud:

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• Automatic locking or logoff policies. Any inactive login for a

specific time can automatically be logged out.

• Logs of all login attempts, whether successful or not. Automatic

logging of all login attempts can detect activities designed to gain
access to an account by repeatedly guessing passwords.
Accounts under attack could be proactively locked to prevent
unauthorized access.

• Accounts that automatically expire. If a user needs access to a

system only for a short time, the account should be set to
automatically expire at the end of that period, preventing open-
ended access.

16. List the types of controls for computer systems?

Controls for computer systems are of two types:

1) General controls.

2) Application controls.

17. Explain the General Controls?

General controls relate to the general environment within which

transaction processing takes place. General controls ensure the
company’s control environment is stable and well-managed.
General controls include:

• Administrative controls, including segregation of duties.

• Computer operations control.

• Controls over the development, modification, and maintenance

of computer programs.

• Software controls.

• Hardware controls.

• Data security controls.

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should be included, and there should also be a mechanism for

anonymously reporting violations.

• A system-specific security policy details the procedures for

configuring and maintaining systems and which security
protocols must be implemented.

59. What is the Three Lines of Defense Model?

The three lines of defense model “provides a simple and effective

way to enhance communications on risk management and control
by clarifying essential roles and duties.” The three lines of defense
model is not specific to IT controls but is a crucial resource for
internal auditors implementing information technology and
cybersecurity controls.

60. Define the First Line of Defense – Operational Management?

Operational managers are responsible for identifying risks and

taking corrective actions to address control deficiencies. For
cybersecurity, IT managers and officers such as the Chief
Information Officer, Chief Technology Officer, and Chief Security
Officer are collectively responsible for identifying threats to the
organization’s information assets and the controls that protect
those assets. Common first-line defense activities include:

• Keeping systems and software up-to-date.

• Implementing firewalls and intrusion detection systems.
• Using encryption wherever possible.
• Creating and implementing physical and user-access security
controls.
• Creating an inventory of information assets.

61. Define the Second Line of Defense – Risk Management and

Compliance Functions?

The second line of defense is a separate risk management

function that monitors the first line of defense (i.e., the operational
management) that may intervene to modify or develop the internal
controls. For cybersecurity, the second line of defense would
include the IT risk management and IT compliance functions,
which are responsible for assessing cybersecurity risks against
the organization’s risk appetite, creating cybersecurity awareness

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at all levels of the organization, assessing and monitoring security

risks from outside vendors, and overseeing the first line of
defense. A common second line of defense activities includes:

• Conducting cybersecurity risk assessments.

• Implementing cybersecurity policies and training.

• Monitoring and responding to any security incidents.

• Writing, implementing, and testing disaster recovery plans.

62. Define the Third Line of Defense – Internal Audit?

The third line of defense is internal audit, which provides the

organization with the highest possible independence and
objectivity level. Internal auditors are responsible for auditing
cybersecurity risks and controls across the organization. They,
therefore, provide an essential layer of additional oversight over
the controls in the first defense line. The internal auditors will
usually work closely with the second line of defense and can
usually rely on—with verification—the work of the second line of
defense. Any observed deficiencies should be reported to senior
management and the board. A common third line of defense
activities includes:

• Auditing IT controls.

• Tracking any control deficiencies or security events for proper

remediation.

• Ongoing risk assessment of outside parties in conjunction with

first and second lines of defense.

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SECTION C – BUSINESS KNOWLEDGE FOR INTERNAL

AUDITING
QUALIFIED ACCOUNTANTS – WEIGHTAGE 22%
CISA HOLDERS – WEIGHTAGE 20%
SUB - SECTION II – INFORMATION SECURITY
TRUE / FALSE QUESTIONS AND ANSWERS
S.No Questions Answers
1. Physical FALSE. Physical security includes physical
security access control and security of the equipment
includes and premises.
physical access
security of the
premises.
2. Physical access FALSE. Physical access to servers and
to servers and networking equipment should be limited to
networking authorized persons.
equipment
should not be
limited to
authorized
persons.
3. Biometric TRUE. Biometric access systems use physical
access characteristics such as blood vessel patterns on
systems use the retina, handprints, or voice authentication to
physical authorize access. There is a low error rate with
characteristics such systems. Biometric access systems are
to authorize usually combined with other controls.
access.
4. If weaknesses FALSE. If weaknesses are found in any of the
are found in any controls, the auditor should report and document
of the controls, the exposures.
the auditor
corrects the
exposures.
5. Logical access FALSE. Logical security focuses on who can use
controls focus which computer equipment and who can access
on who can use data.
which

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computer
equipment and
who can
access data.
6. User IDs and FALSE. User IDs and passwords are the most
passwords are common something you know authentication.
the most
common
something you
are
authentication.
7. Biometrics is TRUE. Biometrics can recognize physical
the most characteristics such as the iris or retina of the
common form eyes, fingerprints, etc.
of something
you are
authentication.
8. Biometric FALSE. Biometric scanners provide a high level
scanners of security.
provide a
reasonable
level of
security.
9. Linking TRUE. Two-factor authentication requires two
passwords to independent, simultaneous actions before
biometrics is an access to a system is granted.
example of two-
factor
authentication.
10. Software and TRUE. General controls relate to the general
hardware environment within which transaction processing
controls are takes place. General controls ensure the
general company’s control environment is stable and
controls. well-managed.

11. Application TRUE. Input, processing, and output controls.

controls are
divided into
three main
categories.
12. Processing FALSE. Input controls are designed to provide
controls are reasonable assurance that input entered into the
designed to system has proper authorization, has been

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to a spoofed website where they would be asked
to enter that information.

71. The three lines TRUE. The three lines model is applied to
model is not cybersecurity and is a key resource for internal
specific to IT auditors implementing information technology
controls. and cybersecurity controls.

72. The first line is FALSE.

the risk
management • First Line: Management.
and compliance • Second Line: Risk Management and
functions. Compliance Functions.
• Third Line: Internal Audit.

73. Implementing TRUE. Common first-line activities include:

firewalls and
intrusion- • Keeping systems and software up-to-date.
detection • Using encryption wherever possible.
systems is a • Creating and implementing physical and user-
common first- access security controls.
line activity. • Creating an inventory of information assets.
• Recruiting and retaining the necessary IT staff
and specialists.

74. Conducting FALSE. Common second-line activities include:

cybersecurity
risk • Conducting cybersecurity risk assessments.
assessments is • Implementing cybersecurity policies and
a common training.
third-line • Monitoring and responding to any security
activity. incidents.
• Writing, implementing, and testing disaster
recovery plans.

75. The first line FALSE. The third line provides the organization's
provides the highest possible level of independence and
organization's objectivity.
highest
possible level
of
independence
and objectivity.

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SECTION C – BUSINESS KNOWLEDGE FOR INTERNAL

AUDITING
QUALIFIED ACCOUNTANTS – WEIGHTAGE 22%
CISA HOLDERS – WEIGHTAGE 20%
SUB - SECTION III – INFORMATION TECHNOLOGY
STUDY POINTS

S.No DESCRIPTION
1. What are the Internal Control goals for an Information System?

Internal control goals for an information system are the same as

those for the overall organizational internal controls:

• Promote effectiveness and efficiency of operations to achieve

the company’s objectives.

• Maintain the reliability of financial reporting by checking the

accuracy and reliability of accounting data.

• Assure compliance with all laws and regulations that the

company is subject to and adherence to managerial policies.

• Safeguard assets.

2. What is meant by the systems development life-cycle approach?

The development process must be structured, documented, and

controlled when creating a new computer system. The systems
approach to problem-solving, which can be applied to developing
large, highly structured application systems, involves the systems
development life-cycle approach (SDLC).

The SDLC assumes that any information system has a limited life
because organizational priorities change, technology becomes
obsolete, and a new lifecycle must begin when the current system
is no longer adequate.

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3. Elaborate on the Framework of systems development life-cycle

approach?

The systems development life-cycle approach involves planning,

analysis, design, and implementation, and it provides a
framework for planning and controlling the detailed activities
involved in systems development.

1. Statement of Objectives. This proposal outlines the need

for the new system, indicates its support within the organization,
and gives an overview of various timing issues.

2. Systems Investigation and Feasibility. A study should

include an analysis of the existing system to determine whether
a new system is needed or whether the existing system can be
fixed. In addition, any control deficiencies in the existing system
that previous audits identified should also be considered.
Toward this goal, three feasibility studies are needed:

a. Technical feasibility. This study determines if the

necessary hardware and software are currently available. If not,
it further examines whether the appropriate hardware and
software can be developed in the required time.

b. Economic feasibility. A cost-benefit study assesses

whether or not expected cost savings, increased revenue or
profits, reductions in required investment, and other benefits
will make the investment in the new system worthwhile. The
auditor should also evaluate cost estimates to see if they are
reasonable.

c. Operational feasibility. This study is designed to determine

how well the proposed system will work once it is in operation.

3. Systems Analysis. In this initial phase, the analyst assesses

the system to get a clear overview of what is needed, what is not,
and what should be allowed to remain.

a. To understand the existing system’s strengths and

weaknesses, the analyst first conducts an organizational
analysis or a systems survey to learn as much as possible
about the company, its management, employees, business,

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other systems it interacts with, and its current information

system.

b. Next, the analyst identifies users’ information requirements

and functional requirements. Information requirements might
include input and output needs, database requirements, and
specific system operation characteristics.

Functional requirements refer to everything not necessarily

tied to the hardware, software network, data, and human
resources, including user interface requirements for data entry,
processing, storage, and control requirements.

c. System requirements must be identified and fulfilled.

d. Through a cost-benefit analysis, the analyst evaluates

alternative designs for the proposed system.

e. For the final step, the analyst issues a systems analysis

report that documents the system specifications and the
conceptual design of the proposed system.

4. Systems Design and Development. For this next phase,

software architects and developers take the recommendations
from the analysis report and create the new system.

a. The development team draws up detailed design

specifications, working backward from the desired outputs to
the required inputs.

b. Next, the team assesses the processing requirements to

determine the necessary ones to convert the available inputs
into the desired outputs. The team must also study the
workflow, decide which programs and controls are needed, and
draw up a list of hardware, backups, security measures, and
data communications.

c. Storage components need to be evaluated so that the

development team fully grasps the data requirements, namely
how much will be created and how much will be stored. During
this stage, the team will also design the database and the
appropriate data dictionaries.

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d. The team prepares the systems design report. It includes

everything necessary to implement the proposed system,
including input requirements, processing specifications, output
requirements, control provisions, and cost estimates.

e. Documentation comes next. Designated team members

write the manuals, forms, and other related materials.

f. An essential part of system documentation is the creation of a

flowchart. This graphical depiction, which illustrates the
processes and the flow of documents, helps all those involved
understand how the system works.

g. Once all the technical architecture is in place, programmers

are brought in to write the code. This is the program
development stage.

5. Systems Implementation. In this phase, the system goes

“live” or deployed. Several key events must be carefully
coordinated, and employees must receive adequate training in
the new system. This can be a stressful time for the company,
as the transition from old to new will invariably encounter
unexpected setbacks and, on occasion, employee resistance.

The system conversion can be done in several ways:

a. Parallel operation. The old and new systems run

concurrently to ensure everything functions correctly. This
method is the least risky but consumes considerable
resources to run two fully operational systems simultaneously.

b. Phased or modular conversion. Only parts of a new

application or a few locations at a time are converted, allowing
the transformation to occur gradually.

c. Pilot conversion. The new system is tested in one

department or worksite before full implementation.

d. Plunge or direct conversion. Changing from the old to the

new system happens at once. This is the quickest but riskiest
conversion method.

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A disaster recovery plan specifies the following:

• Which employees will participate in disaster recovery, and what

are their responsibilities. One person should be designated for
disaster recovery, and another should be second in command.

• Appropriate hardware, software, and facilities to be used.

• The priority of applications that should be processed.

• A disaster recovery plan may also be called a contingency plan.

68. What is a Hot Site, Cold Site, and Warm Site?

A hot site is a backup facility with a computer system similar to

the one used regularly. The hot site must be fully operational and
immediately available, with all necessary telecommunications
hookups for online processing.

A cold site is a facility where power and space are available to

install processing equipment, but it is not immediately available. If
an organization uses a cold site, its disaster recovery plan must
include arrangements to get computer equipment installed and
running quickly.

A warm site is in between a hot site and a cold site. It has the
computer equipment and necessary data and communications
links installed, just as a hot site does. However, it does not have
live data. If the use of the warm site is required because of a
disaster, current data will need to be restored to it.

69. What Disaster Recovery Plan should include?

A disaster recovery plan should include the following:

• An introduction emphasizing the importance of contingency and

disaster recovery plans to the organization's long-term success.

• Periodic risk assessment to review and re-prioritize critical

business functions.

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• A list of the recovery options and strategies, including each

action plan and the priorities for what business units should be
recovered first.

• A detailed list of the backups, where the backups are stored, and
how to recover the backups.

• A list of the personnel responsible for the disaster recovery

operations, including a hierarchy of who is in charge and current
contact information.

• Emergency procedures for any problems that may arise during

the disaster recovery process.

• A requirement to test recovery plans regularly.

• The name of the person in charge of keeping the disaster

recovery plan current.

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SECTION C – BUSINESS KNOWLEDGE FOR INTERNAL

AUDITING
QUALIFIED ACCOUNTANTS – WEIGHTAGE 22%
CISA HOLDERS – WEIGHTAGE 20%
SUB - SECTION III – INFORMATION TECHNOLOGY
TRUE / FALSE QUESTIONS AND ANSWERS
S.No Questions Answers
1. An information TRUE. Goals for an information system include:
system aims to
promote the • Maintain the reliability of financial reporting.
effectiveness • Assure compliance with all laws and
and efficiency of regulations.
operations. • Safeguard assets.

2. Rapid TRUE. Rapid Application Development refers to

application any number of free and commercial software
development tools that allow programmers to develop
allows quick applications quickly using pre-built components.
development of
applications.
3. The systems TRUE. The systems development life-cycle
approach to approach assumes that any information system
problem-solving has a limited life because organizational priorities
involves the change, technology becomes obsolete, and a new
systems lifecycle must begin when the current system is
development no longer adequate.
life-cycle
approach.
4. Economic FALSE. Technical feasibility determines if the
feasibility necessary hardware and software are currently
determines if the available. If not, it further examines whether the
necessary appropriate hardware and software can be
hardware and developed in the required time.
software are
currently
available.
5. Economic TRUE. Economic feasibility assesses whether or
feasibility is a not expected cost savings, increased revenue or
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cost-benefit profits, reductions in required investment, and
study. other benefits will make the investment in the
new system worthwhile.

6. Operational TRUE. Operational feasibility determines how

feasibility well the proposed system will work once it is in
determines how operation. For example, it can determine how
well the willing management, employees, customers, and
proposed suppliers are to operate, use, and support the new
system will work system.
once it is in
operation.
7. Pilot conversion TRUE. The system conversion can be done in
is a way of several ways:
system
conversion. • Parallel operation.
• Phased or modular conversion.
• Pilot conversion.
• Plunge or direct conversion.

8. Prototyping is a TRUE. Prototyping is a useful systems

useful systems development approach because it is an iterative
development process; that is, it progresses through a
approach when structured series alternating between input and
user feedback.
requirements are
unclear.
9. Operating FALSE. Parallel operation is the least risky, but
parallel running two fully operational systems consumes
conversion is the considerable resources simultaneously.
riskiest
approach as it
consumes
considerable
resources.
10. In phased TRUE. Only parts of a new application or a few
conversion, only locations at a time are converted, allowing the
parts of a new conversion to occur gradually.
application or
only a few
locations at a
time are
converted.

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new application
system.
76. An ERP system FALSE. An ERP system is beneficial in
can prepare assembling the data needed to complete an
annual corporate annual corporate tax return, but it cannot prepare
tax returns. the entire tax return on its own. Preparing a tax
return still requires human judgment.

77. COBIT's maturity FALSE. The COBIT maturity model focuses only
model focuses on capability. It does not focus on performance.
on both
capability and
performance.
78. Test recovery TRUE. A disaster recovery plan should include
plans are part of the following:
a disaster
recovery plan. • Periodic risk assessment.
• Recovery options and strategies.
• List of the backups.
• Emergency procedures.

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SECTION C – BUSINESS KNOWLEDGE FOR INTERNAL

AUDITING
CISA HOLDERS – WEIGHTAGE 20%
(APPLICABLE FOR CISA MEMBERS ONLY)
SUB - SECTION IV – FINANCIAL MANAGEMENT
STUDY POINTS

S.No DESCRIPTION
1. Explain the Objective of Financial Reporting?

Financial reporting aims to provide financial information about the

reporting entity useful to existing and potential investors, lenders, and
other creditors in making decisions about providing resources to the
entity.

2. Discuss the Uses of Financial Information?

• Investment and credit decisions – Will the company be able to repay

its loans? Will the company be able to pay a dividend or other return
on investment?

• Assessing cash flows – Will the company be able to meet its short-
term obligations as they come due? Are the incoming cash flows from
investments proportional to the risk involved in them?

• Enterprise assets and claims on those assets – What assets does

the company own? How liquid are they? What claims do other
companies or individuals have on those assets?

3. List the Information that General-Purpose Financial Reports should

provide?

Financial reporting should provide information that fulfills the

following requirements:

• General-purpose financial reports should provide information about

the financial position of a reporting entity or information about the
entity’s economic resources and the claims against the reporting

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entity to help users assess the reporting entity’s liquidity and

solvency, its needs for additional financing and how successful it is
likely to be in obtaining that financing.

• General-purpose financial reports should provide information about

the effects of transactions and other events that change a reporting
entity’s economic resources and claims against them. Information
about the entity’s financial performance helps users understand the
return it has produced on its economic resources, indicating how
well management has fulfilled its responsibilities to efficiently and
effectively use its resources.

• Financial reports should be prepared on an accrual basis.

• General-purpose financial reports should also provide information

about changes in a reporting entity’s economic resources and claim
against them not resulting from financial performance, such as
issuing new ownership shares.

4. Discuss the Methods of Recording Transactions in the accounting

records?

There are two basic methods of recording transactions in the

accounting records:

a. Under the cash method, nothing is recorded in the accounting

records until cash is transacted. This means that each journal entry
will have either a debit or a credit to cash in it. The cash basis is not
a generally accepted accounting principle.

b. Accrual accounting depicts the effects of events on an entity’s

economic resources. It claims to them in the periods in which those
effects occur, even if the resulting cash receipts and payments occur
in a different period. For example, expenses are recognized as
liabilities when incurred, even if they will not be paid until some time.
Generally accepted accounting principles require the use of the
accrual method.

5. Contrast between Accrual and Deferral Entries?

Accrual entries are recorded when an event has occurred, but no

money has been transacted yet, usually resulting in a payable or a
receivable.

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Deferral entries are recorded when money has been exchanged, but
the goods or services have not yet been exchanged.

6. Explain the Qualitative Characteristics of Accounting Information?

According to the Conceptual Framework for Financial Reporting, the

qualitative characteristics of useful financial information are
segregated into fundamental qualitative characteristics and
enhancing qualitative characteristics.

7. Describe the Fundamental Qualitative characteristics?

The fundamental qualitative characteristics of useful financial

information are:

• Relevance.

• Faithful representation.

8. Define Relevance?

Relevant financial information is information capable of making a

difference in user decisions. Financial information is capable of
making a difference:

• If it has predictive value (it can be used to predict future outcomes),

• If it has confirmatory value (it provides feedback that confirms or

changes previous evaluations), or

• If it has both predictive and confirmatory value.

9. Explore Materiality?

Materiality is an entity-specific aspect of relevance, and what is

material depends on the context of an individual entity’s financial
report. Therefore, no uniform quantitative threshold for materiality can
be specified. However, if omitting information or misstating it could
influence user decisions, that information is material.

10. What is Faithful Representation?

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Financial information must faithfully represent the economic

phenomena that it purports to represent. Faithful representation has
three characteristics:

a. The financial information is complete.

b. The financial information is neutral.
c. The financial information is free from error.

11. What are Enhancing Qualitative characteristics?

The enhancing qualitative characteristics of useful financial

information that is relevant and faithfully represented are:

• Comparability.
• Verifiability.
• Timeliness.
• Understandability.

12. Define the Comparability?

Financial information is more beneficial for decision-making if it has

comparability. Financial information has comparability if it has the
following traits.

• It can be compared with similar information about other entities,

meaning the accounting principles companies apply to record
financial transactions are standardized.

• It can be compared with similar information about the same entity

for another period or on another date, meaning accounting principles
within a company have been applied consistently.

13. Define Verifiability?

Verifiability means that different observers agree that a particular

depiction of an event is faithful. Verification can be direct the amount,
or another representation is verified by direct observation, such as
counting cash, or indirectly by checking inputs and recalculating the
outputs using the same methodology.

14. Define Timeliness?

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Timeliness means the information is available to decision-makers in

time to help influence their decisions. Older information is generally
less helpful. However, more prior information may help assess trends.

15. What is meant by Understandability?

Understandable information has been classified, characterized, and

presented clearly and concisely. Making information understandable
does not mean excluding information that is inherently complex and
difficult to understand, however, because the reports would be
incomplete and potentially misleading if that were done.

16. Define the Going Concern assumption?

Financial statements are generally prepared assuming the entity is a

going concern and will continue operation for the foreseeable future.
The financial statements may need to be prepared differently if the
entity needs to liquidate or materially reduce its operation scale. If the
financial statements are prepared on another basis, that basis is
disclosed.

17. Explain the Elements of Financial Statements?

Assets are resources controlled by the entity due to past events and
from which future economic benefits are expected to flow to the
entity.

Liabilities are present obligations of the entity arising from past

events, the settlement of which is expected to result in an outflow from
the entity of resources embodying economic benefits.

Equity or Net Assets is the residual interest in the entity's assets after
deducting its liabilities. In a sense, equity is the liability that the entity
has to the owners of that entity.

Income increases in economic benefits during an accounting period

in the form of inflows or enhancements of assets or decreases in
liabilities that result in increases in equity, other than contributions
from owners. Income includes both revenue and gains.

Expenses include expenses and losses:

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• The dual-rate method encourages user department managers to

make decisions that are in the best interest of the organization as a
whole, as well as in the best interest of each department.

Limitation

The cost is higher than the single-rate method because of the need to
classify all of the service department's costs into fixed and variable
costs.

500. Describe the Methods for Allocating Costs of Multiple Shared Service
Departments?

The following three different methods of allocating costs of multiple

shared service departments are used when service departments use
the services of other service departments:

a. The direct method – The reciprocal services provided by the

different shared service departments to each other are ignored. The
company allocates all shared service departments’ costs directly to
the operating departments. The allocation is made on a reasonable
and equitable basis to the operating departments for each service
department. When calculating the usage ratios for the different
operating departments under the direct method, count only the
usage of the shared service departments by the operating
departments. The usage of shared service departments in the other
service departments is excluded because service departments will
not be allocated any costs from other service departments.

b. The step-down method - is also called the step or the sequential

method. In this, the services the shared service departments provide
to each other are included, but only one allocation of the costs of
each service department is made. After the costs of a particular
service department have been allocated, that service department will
not be allocated any additional costs from other service
departments.

c. The reciprocal method is the most complicated and advanced

of the three methods of shared services cost allocation because it
recognizes all of the services provided by the shared service
departments to the other shared service departments. The
reciprocal method is the most theoretically correct because of this
detailed allocation between and among the shared service

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departments. However, a company must balance the additional

costs of allocating costs this way against the benefits received.

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SECTION C – BUSINESS KNOWLEDGE FOR INTERNAL

AUDITING
CISA HOLDERS – WEIGHTAGE 20%
(APPLICABLE FOR CISA MEMBERS ONLY)
SUB - SECTION IV – FINANCIAL MANAGEMENT
TRUE / FALSE QUESTIONS AND ANSWERS
S.No Questions Answers
1. Investment and TRUE. Examples of the decisions that are made
credit decisions with the financial information are:
are made with
financial • Assessing cash flows.
information. • Enterprise assets and claims on those assets.

2. Financial reporting TRUE. Financial reporting aims to provide

aims to provide financial information about the reporting entity
financial useful to existing and potential investors, lenders,
information about and other creditors in making decisions about
the reporting providing resources to the entity.
entity useful to
existing and
potential
investors.
3. Financial reports FALSE. Financial reports should be prepared on an
should be accrual basis.
prepared on a
cash basis.
4. Accrual entries are FALSE. Deferral entries are recorded when money
recorded when has been exchanged, but the goods or services
money has been have not yet been exchanged. In contrast, accrual
exchanged, but entries are recorded when an event has occurred,
the goods or but no money has been transacted yet, usually
services have not resulting in a payable or a receivable.
yet been
exchanged.
5. An entity’s FALSE. An entity’s financial performance is
financial reflected by its past cash flows.
performance is
reflected by its

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present cash
flows.
6. The qualitative TRUE. The qualitative characteristics of useful
characteristics of financial information are segregated into
financial fundamental qualitative characteristics and
information are enhancing qualitative characteristics.
divided into two
types.
7. Relevant financial TRUE. Relevant financial information is
information is information capable of making a difference in user
information decisions.
capable of making
a difference in
user decisions.
8. To be relevant, TRUE. Materiality is an entity-specific aspect of
financial relevance, and what is material depends on the
information context of an individual entity’s financial report.
should also be
material.
9. Faithful TRUE. The financial information is as follows:
representation has
three a. Complete.
characteristics. b. Neutral.
c. Free from error.

10. Comparability is TRUE. The enhancing qualitative characteristics

an enhancing of useful financial information that is relevant and
qualitative faithfully represented are:
characteristic of
useful financial • Comparability.
information. • Verifiability.
• Timeliness.
• Understandability.

11. Consistency is the FALSE. Consistency is related to comparability,

same thing as but it is not the same thing.
comparability.
12. Verification can be TRUE. Verifiability means that different observers
direct or indirect. agree that a particular depiction of an event is
faithful.

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361. The time value of FALSE. The time value of money is a concept that
money states that states that cash received today is more valuable
cash received than cash received in the future.
today is less
valuable than cash
received in the
future.
362. The rate used to TRUE. The discount rate, also called the interest
calculate an rate, is the rate of discounting or compounding
amount's present applied to an amount of money to calculate its
or future value is present or future value.
called a discount
rate.
363. Present value is FALSE. Future value is the accumulated money
the accumulated you get after investing the original sum at a certain
money after interest rate and for a given period.
investing the
original sum at a
certain interest
rate and for a
given period.
364. The factor (1 + r) N FALSE. The factor (1 + r) N is a future value factor.
is a present value
factor.
365. An annuity is a FALSE. An annuity is a series of even cash flows
series of uneven used to determine the future value of equal
cash flows. cashflows.

366. Annuity due is an FALSE. An ordinary annuity is one where the

annuity where the cashflows occur at the end of each period. Such
cashflows occur payments are said to be made in arrears
at the end of each (beginning at time t = 1).
period.
367. (1 + r) −N is the TRUE. (1 + r) −N is called the present value factor,
reciprocal of the which is intuitively the reciprocal of the future
future value value factor.
factor.
368. Payments are TRUE. Annuity due is an annuity where payments
made at the start immediately at the beginning of time, at time
beginning of each t = 0.
period in an
annuity due.

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