Free IIA-CIA-Part2 IIA Updates

To manage the risk associated with volatile crude oil prices, purchasing crude oil-related derivatives such as futures or options is an appropriate risk management technique. These financial instruments allow the organization to hedge against price fluctuations by locking in prices or securing the right to purchase at a specific price, thereby providing financial stability and predictability. Option A is not directly related to hedging crude oil price risks. Option B involves speculative trading, which can be risky. Option D may not be feasible or cost-effective compared to using derivatives.References: COSO's Enterprise Risk Management – Integrating with Strategy and Performance.

Top of Form

Nonsampling risk refers to the risk that the auditor reaches an incorrect conclusion due to errors not related to the sample itself but to other factors such as misinterpretation of data, incorrect application of procedures, or human error.

IIA Practice Advisory 2320-3:

This advisory explains that nonsampling risk occurs when an auditor misinterprets results or applies the wrong audit procedure. It differs from sampling risk, which is the risk that a sample is not representative of the population.

Misinterpretation of Sampling Results:

In this case, the senior IT auditor misinterprets the sampling results during the audit of inventory valuation. This is a classic example of nonsampling risk, where the error is due to the auditor’s misunderstanding or misapplication of the data, rather than an issue with the sampling process itself.

IIA Standard 2320 – Analysis and Evaluation:

This standard requires that auditors apply sufficient care and skill in analyzing and interpreting audit evidence. Nonsampling risk can occur if this standard is not met, resulting in incorrect conclusions.

Option A (Sampling risk): This refers to the risk that the sample does not accurately represent the population, which is not the issue here.

Option B (Control risk): This refers to the risk that a control will fail to prevent or detect errors or fraud, unrelated to this situation.

Option D (Residual risk): This refers to the risk that remains after controls are implemented, also unrelated to this scenario.

Detailed Explanation:Why Not Other Options?Conclusion: Option C is correct as it accurately describes the situation where the auditor misinterprets the sampling results, which is a form of nonsampling risk, according to IIA guidance.

Given the situation where a system error prevents the engagement supervisor from adding her electronic signature to the workpapers, the most appropriate response to provide evidence of supervisory review is to print, sign, and date each workpaper after the review is complete, and then scan the document into the database as evidence of review. This ensures that there is a clear and traceable record of the supervisory review process, which is crucial for maintaining the integrity and reliability of the audit documentation.

Printed Documentation: Printing the workpapers provides a physical copy that can be signed and dated, serving as a tangible record of the review.

Signature and Date: The supervisor's signature and date indicate the completion of the review process and provide accountability.

Scanning into Database: Scanning the signed documents back into the electronic workpaper database ensures that the evidence of review is stored in the system of record, maintaining consistency and accessibility.

This method upholds the standards of documentation and supervisory review, ensuring compliance with internal audit policies and procedures.

References:

The Institute of Internal Auditors (IIA) Standards

IIA Practice Advisory: Documenting Information

Administering control questionnaires to individuals with primary responsibilities in the process can yield valuable information about processes and controls. However, one significant drawback is that the information gathered may be limited regarding the actual functionality of the controls. This approach relies on the respondents' knowledge and perceptions, which may not accurately reflect the effectiveness of the controls in practice. Moreover, respondents might not fully understand the auditor’s intentions or may provide biased or incomplete information, thereby limiting the depth of insights into how controls function in real-world scenarios.References:

IIA Standard 2201: Planning Considerations

IIA Practice Guide: Assessing the Adequacy of Risk Management Processes