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When a significant risk is identified during a consulting engagement, the most appropriate response is to report the risk to senior management. Even if the engagement is consulting in nature, it is still crucial for the internal audit activity to ensure that significant risks are communicated to those responsible for managing them.

IIA References:

IIA Standard 2120: Risk Management requires that internal auditors evaluate the effectiveness of risk management processes and communicate significant risks to senior management. This applies regardless of whether the engagement is assurance or consulting.

The Practice Guide on Consulting Services advises that internal auditors must ensure that significant risks identified during consulting engagements are brought to the attention of senior management so that they can take appropriate action.

According to IIA Standard 2600: Communicating the Acceptance of Risks, the CAE must inform senior management and the board if management decides to accept a risk that may exceed the organization’s risk appetite. The branch manager's unilateral decision without consulting senior management constitutes a governance issue. Escalating the matter ensures proper oversight and adherence to the organization’s risk management framework. Options B, C, and D do not fulfill the CAE's responsibility to ensure appropriate communication and accountability at the senior management level.

When an internal auditor identifies a potential control deficiency based on a preliminary survey, such as the lack of established procedures for adding and approving new vendors, the next appropriate step is to gather more detailed information. Interviewing personnel involved in the accounts payable function allows the auditor to understand the context, confirm the accuracy of the questionnaire responses, and gain insights into the potential risks and impacts associated with the observed deficiency. This step is crucial before documenting the issue or planning further audit procedures to ensure the information is accurate and complete.References: The IIA's International Standards for the Professional Practice of Internal Auditing, Standard 2201 - Planning Considerations.

The step that would accomplish the objective of testing management's identification and prioritization of critical data collected by the organization is to document and test a data inventory and classification program by determining the data classification levels and framework. This involves verifying that management has established a comprehensive data inventory and that data classification processes are in place and effectively implemented. It ensures that data is appropriately categorized based on its criticality and sensitivity, aligning with the organization’s risk management framework and data governance policies.References: IIA's Global Technology Audit Guide (GTAG) on Data Privacy and Protection, which outlines best practices for data classification and management.

A significant governance issue that must be reported to the board is the absence of a formal risk management and control process, with risk management being solely the responsibility of operational managers. Effective governance requires a structured risk management framework overseen at the highest levels of the organization. The lack of such a process indicates a critical deficiency that can have severe implications for the organization's ability to manage and mitigate risks.

According to IIA guidance, the chief audit executive (CAE) has several appropriate options when the audit objectives are not complete despite the auditor having worked the full amount of budgeted hours. The CAE should determine if the work already completed is sufficient to conclude the engagement (2). The CAE should also provide feedback on areas of improvement for future engagements (3) and give instructions and directions to complete the audit (4). Allowing the auditor to decide whether to extend the audit engagement (1) is not typically an appropriate option as this decision should involve senior management or the CAE to ensure alignment with organizational priorities and resource allocation. References: = IIA Standard 2010 - Planning, IIA Standard 2020 - Communication and Approval, IIA Standard 2040 - Policies and Procedures.

Ensuring the quality of an audit engagement, especially a consulting engagement in a complex area like human resources, requires effective supervision and quality assurance measures. Peer review during fieldwork is a recognized method for maintaining high-quality audit work.

IIA Standard 2340 – Engagement Supervision:

This standard requires that engagements be properly supervised to ensure that objectives are achieved, quality is maintained, and audit work is consistent with IIA standards. Peer reviews during fieldwork can help identify issues early and improve the overall quality of the audit.

Fieldwork Peer Review:

Quality Assurance: Peer reviews involve having another auditor review the work performed during fieldwork. This process helps identify any potential issues or improvements in real-time, ensuring that the final work product meets the required standards.

Continuous Improvement: By incorporating peer reviews, the internal audit activity can ensure that best practices are followed, and any deviations from the standard audit process are corrected promptly.

IIA Practice Advisory 2340-1:

This advisory recommends peer reviews as a method to ensure quality and to provide feedback to auditors on their work, enhancing the effectiveness of the engagement.

Option A (Assign an experienced manager): While supervision is essential, peer reviews provide additional quality checks beyond just monitoring by a manager.

Option C (Standardized work program): This ensures consistency but may not be sufficient to ensure quality without additional review mechanisms.

Option D (CAE personally supervising): This is not the most efficient use of the CAE’s time. Peer review distributes the supervisory load and adds value through diverse perspectives.

Detailed Explanation:Why Not Other Options?Conclusion: Option B is correct as it aligns with best practices for quality assurance in internal auditing, particularly in ensuring the effectiveness and efficiency of the engagement through peer reviews during fieldwork.

According to the Institute of Internal Auditors (IIA) guidance, workpapers are crucial for documenting the evidence that supports audit findings and conclusions. They serve as the primary reference for any reported control deficiencies, providing detailed documentation and justification for the audit results. Workpapers must be thorough and clearly demonstrate the basis for audit observations and recommendations. While audit reports summarize findings, the detailed support for these findings is found within the workpapers.

To measure the performance related to the quality of audit recommendations, the internal audit activity should focus on whether the audit findings were relevant and useful to management. This directly assesses the practical impact and value of the audit recommendations, ensuring that they address significant issues and assist management in improving operations and controls. References: = IIA’s Practice Guide on Measuring Internal Audit Effectiveness and Efficiency.

If the chief audit executive (CAE) determines that management has chosen to accept a high-level risk that may be unacceptable to the organization, the CAE should first discuss the matter with senior management. If senior management does not address the concern, the CAE should escalate the issue to the board. This escalation process ensures that the highest levels of governance are aware of significant risks and can take appropriate action if necessary. It also aligns with the CAE's responsibility to ensure that risks are properly managed within the organization.References:

The Institute of Internal Auditors (IIA) - Standards for the Professional Practice of Internal Auditing, Standard 2600 - Communicating the Acceptance of Risks