CIA CIA Internal Controls & Audit 1 — Questions and Answers
Question 1: Which internal control component in the COSO framework establishes the tone at the top and influences the control consciousness of employees?
- Control Environment (Correct answer)
- Risk Assessment
- Control Activities
- Monitoring Activities
Correct answer: Control Environment
The Control Environment sets the foundation for all other COSO components by reflecting leadership's commitment to integrity and ethical values.
Question 2: In an internal audit, what is the primary purpose of a 'walkthrough'?
- To verify that controls are designed and operating as documented (Correct answer)
- To test a large sample of transactions statistically
- To interview external auditors about findings
- To assess the organization's strategic objectives
Correct answer: To verify that controls are designed and operating as documented
A walkthrough traces one or a few transactions through the entire process to confirm that controls are properly designed and functioning as described.
Question 3: Which type of control is designed to detect errors or fraud AFTER they have occurred?
- Detective control (Correct answer)
- Preventive control
- Corrective control
- Directive control
Correct answer: Detective control
Detective controls such as reconciliations and audits identify problems that have already occurred, unlike preventive controls which stop errors before they happen.
Question 4: Segregation of duties in internal controls primarily aims to prevent which risk?
- Collusion and fraud through unauthorized access and concealment (Correct answer)
- Excessive employee overtime and workload
- Regulatory non-compliance with tax filings
- Inaccurate financial forecasting
Correct answer: Collusion and fraud through unauthorized access and concealment
Segregation of duties separates authorization, custody, and record-keeping functions so that no single employee can commit and conceal a fraudulent act alone.
Question 5: An auditor identifies that management consistently overrides established internal controls. According to IIA standards, this should be reported as:
- A significant deficiency or material weakness requiring escalation to the board (Correct answer)
- A minor observation in the next annual report
- An acceptable practice if done infrequently
- A compliance issue handled only by external auditors
Correct answer: A significant deficiency or material weakness requiring escalation to the board
Management override of controls is a serious red flag and must be escalated to those charged with governance, such as the audit committee or board.
Question 6: Which audit sampling method gives every item in the population an equal chance of being selected?
- Random sampling (Correct answer)
- Judgmental sampling
- Stratified sampling
- Cluster sampling
Correct answer: Random sampling
Random sampling ensures each item has an equal probability of selection, making it statistically unbiased and broadly representative of the population.
CIA CIA Internal Controls & Audit 1
Which internal control component in the COSO framework establishes the tone at the top and influences the control consciousness of employees?