IIA Updated IIA-CIA-Part2 Exam Questions and Answers by richie

Discovery sampling is a statistical sampling method that is specifically designed for detecting fraud or other irregularities. It is most appropriate when the auditor expects that deviations or fraud may be rare but significant if found.

Discovery Sampling:

Discovery sampling is used when the auditor is trying to identify at least one occurrence of a particular event, such as fraud. The sample is designed so that if a single error is found, it suggests that more may exist within the population, warranting further investigation.

Application in Fraud Detection:

Discovery sampling is effective in fraud detection because it focuses on identifying whether any instances of fraud exist within a population. This approach is well-suited for situations where even a small number of fraudulent transactions could have a significant impact.

IIA Practice Guide on Statistical Sampling:

The IIA suggests that discovery sampling is appropriate when the goal is to find the presence of an error or fraud, particularly in populations where such occurrences are expected to be infrequent.

Option B (Stop-or-go sampling): This method is used to control the risk of over-auditing when errors are expected to be low, but it is not specifically designed for fraud detection.

Option C (Haphazard sampling): This is a non-statistical sampling method and is not appropriate for systematic fraud detection.

Option D (Stratified attribute sampling): This method divides the population into subgroups but is not specifically aimed at discovering fraud.

Detailed Explanation:Why Not Other Options?Conclusion: Option A is correct because discovery sampling is the most appropriate statistical method for testing a population for fraud, as it is designed to detect even a small number of significant deviations, consistent with IIA guidance.

Step by Step Comprehensive Detailed Explanation with References:

Introduction:

Internal auditors use process mapping to document and understand the steps involved in a process.

Purpose of Narrative Memoranda:

Narrative memoranda are written descriptions that outline the steps of a process, often used when the process is straightforward.

Options Analysis:

Option A: Detailed risk assessment is usually more comprehensive and may require flowcharts or other detailed diagrams.

Option B: Identifying individuals who perform key roles typically requires organization charts or responsibility matrices.

Option C: Narrative memoranda are best suited for explaining simple processes in a clear and concise manner.

Option D: Documenting outputs that support other activities might require more detailed mapping techniques.

Conclusion:

Narrative memoranda are effective for explaining simple processes, providing a straightforward and understandable framework.

Internal Audit Standards and Practice Guides.

In a compliance audit, the objective is to assess adherence to laws, regulations, or regulatory requirements. For banking compliance, this means verifying whether business continuity plans comply with mandatory regulations (Option B). Options A, C, and D relate to efficiency, best practices, or operations — not compliance.

A drawback of using Internal Control Questionnaires (ICQs) is that they can be less efficient than conducting observations and inspections when many control procedures need to be covered. ICQs can be time-consuming to complete and may not provide the depth of understanding that direct observation and inspection can achieve. They often require follow-up to clarify responses, which can further increase the time and resources needed to obtain the necessary assurance.

The Institute of Internal Auditors (IIA) Practice Guide on "Audit Evidence Collection"

IIA Standard 2310 – Identifying Information: "Internal auditors must identify sufficient, reliable, relevant, and useful information to achieve the engagement’s objectives."