Certified Internal Auditor (CIA) Part 1: Business Acumen — Question 45

Internal control processes in an organization require that all investments exceeding $20, 000 receive authorization from both the president and treasurer. After conducting a sample of these transactions, an auditor determined that 10 of the 500 investments in the sample had not included both required authorizations. The sample has a five percent acceptable error rate. Based on this sample, which of the following actions should the auditor take?

Answer options

• A. Confirm all of the investments with the organization’s internal finance department.
• B. Contact the organization’s investment broker and confirm all investments.
• C. Complete a comprehensive review of the organization’s investment activity and compare variations over prior years.
• D. Determine that no further testing of investment authorizations is required.

Correct answer: D

Explanation

The correct answer is D because the error rate of 2% (10 out of 500) is below the acceptable threshold of 5%, indicating that the internal control process is functioning adequately. Options A, B, and C suggest additional confirmations and reviews that are unnecessary given the acceptable error rate has not been exceeded.