Comprehensive and Detailed Step-by-Step Explanation:

Cost-Benefit Analysis: Controls should be cost-effective. Spending significant resources on a process

that accounts for less than 1% of the budget indicates that the cost of the control (extensive reviews)

outweighs the potential benefits.

Reference: IIA Standard 2100: Nature of Work states that internal audits should assist management

in improving the cost-effectiveness of operations.

Other Options:

Option A: While inherent risk is a factor, the primary justification here is the cost-benefit imbalance.

Option C: Duplication of effort is inefficient, but it does not directly address cost considerations.

Thus, the correct answer is B. The cost of the control outweighs the benefit.

Comprehensive and Detailed Step-by-Step Explanation:

Reference to IIA Standards:

Standard 2130 - Control: Internal audit must assess whether controls ensure compliance and prevent

fraud.

Reasoning:

Option A directly addresses the root cause: payment for unrendered services. Requiring

acknowledgment of receipt ensures only valid invoices are paid.

Option B (observing invoice input) ensures data entry accuracy but does not address fraud.

Option C (verifying amounts) ensures correct payments for legitimate invoices but does not prevent

unauthorized payments.

Best Practice:

Verifying acknowledgment of services before payment is a preventive control, reducing fraud risk.

Comprehensive and Detailed Step-by-Step Explanation:

Reference to IIA Standards:

Standard 2130 - Control: Internal auditors must assess both the adequacy of control design and the

effectiveness of control operation.

Reasoning:

Option B is correct because a poorly designed control, even if operating effectively, cannot achieve

its objective due to inherent flaws in its structure or implementation.

Option A incorrectly suggests that operational testing overrides design inadequacies. Evaluating

control design is essential before assessing operational effectiveness.

Option C is incorrect because reliance on secondary controls to mitigate risk does not compensate

for an inadequate primary control design.

Control Design Importance:

Adequate design ensures that controls are appropriately structured to address specific risks,

providing a strong foundation for effective operation.

Comprehensive and Detailed Step-by-Step Explanation:

Reference to Internal Controls:

Preventive controls are designed to prevent errors, fraud, or irregularities before they occur by

ensuring that processes and activities are performed correctly from the start.

Standard 2130 - Control: Internal auditors assess the design and effectiveness of controls to prevent

risks from materializing.

Reasoning:

Option A is correct because segregation of duties (ordering, receiving, and paying) is a preventive

control, as it prevents a single person from having the authority to initiate, authorize, and complete a

transaction, reducing the risk of fraud or errors.

Option B (Directive) would focus on guiding behavior, such as setting policies or expectations.

Option C (Detective) refers to controls that identify and detect errors after they occur, such as audits

or reviews.

Impact of Segregation of Duties:

By ensuring duties are segregated, organizations minimize the risk of fraudulent activities and errors,

thus acting as a preventive measure.

Comprehensive and Detailed Step-by-Step Explanation:

Reference to IIA Standards:

Standard 2420 - Quality of Communications: Reports should be accurate, objective, clear, concise,

constructive, and complete.

Findings must be presented factually and free from assumptions or bias.

Reasoning:

Option A is correct because it presents the purpose, timing, and findings in a clear and professional

manner, allowing management to take informed action.

Option B lacks balance and shifts responsibility for identifying root causes to management without

actionable recommendations.

Option C includes a biased assumption, undermining the report’s objectivity and professionalism.

Impact of Quality Communication:

High-quality communications support decision-making by presenting findings and recommendations

constructively.

Comprehensive and Detailed Step-by-Step Explanation:

Reference to IIA Standards:

Standard 2200 - Engagement Planning: The engagement work program outlines the resources,

timelines, and procedures necessary to achieve the engagement’s objectives.

The work program must be approved to ensure alignment with objectives and resource

requirements.

Reasoning:

Option B is correct because an approved engagement work program confirms that the scope,

procedures, and resources were planned and allocated effectively.

Option A (staff skills audit) evaluates team competencies but does not confirm specific resource

allocation for an engagement.

Option C (post-engagement survey) evaluates the outcome of the audit but does not provide

evidence of initial resource planning.

Significance of the Work Program:

The work program ensures that the engagement is structured to meet objectives efficiently, with

adequate and relevant resources.

Comprehensive and Detailed Step-by-Step Explanation:

Engagement Work Program: A structured plan detailing the steps to achieve engagement objectives.

The program typically includes planning activities, objectives, and preliminary risk assessments to

guide the audit.

Reference: IIA Standard 2240: Engagement Work Program requires that work programs include

objectives and steps to identify and assess risks.

Other Options:

Option B: Fieldwork and testing are performed during the execution phase but are not part of the

program's creation.

Option C: Opinions and final communications are outputs of the audit, not components of the work

program.

Thus, the correct answer is A.

Comprehensive and Detailed Step-by-Step Explanation:

Reference to IIA Standards:

Standard 2330 - Documenting Information: Workpapers must be sufficient, reliable, relevant, and

useful to support audit findings and conclusions.

Practice Advisory: Clear and complete documentation enhances understanding and ensures

consistency in audit conclusions.

Characteristics of Quality Workpapers:

They should clearly articulate audit procedures, results, and conclusions in a way that another

auditor or stakeholder can understand and rely on them.

While electronic and indexed workpapers (Option B) are desirable for organization, they are not

defining characteristics of quality.

Comprehensive and Detailed Step-by-Step Explanation:

Trend Analysis: This involves comparing data across different periods to identify patterns,

fluctuations, or anomalies. Comparing the current average cost per employee to prior periods’ data

is a clear example of trend analysis.

Reference: IIA Practice Guide on Analytical Procedures highlights trend analysis as a key technique

for identifying inconsistencies over time.

Other Options:

Option A: The mean of actual salary amounts is a statistical calculation, not a trend analysis.

Option C: Comparing to another organization’s budget is benchmarking, not trend analysis.

Thus, the correct answer is B. Similar data for the department from two prior periods.

Comprehensive and Detailed Step-by-Step Explanation:

Reference to Best Practices in Procurement:

Clearly specifying needs at the outset ensures that procurement decisions align with organizational

objectives and operational requirements.

Reasoning:

Option A is correct because specifying needs at the beginning helps avoid over-purchasing, under-

purchasing, or acquiring unsuitable items, thus improving the overall effectiveness of the

procurement process.

Option B (comprehensive documentation) is important for transparency and compliance but does

not directly improve the effectiveness of procurement outcomes.

Option C (qualified professionals) ensures competence but is secondary to having clear, specified

needs driving the process.

Impact of Clear Needs Specification:

It ensures the procurement process delivers value, meets quality requirements, and aligns with

operational demands.