Certified Internal Auditor (CIA) Part 2: Practice of Internal Auditing — Question 191

An audit observation states the following: "Despite the rules of the organization, there is no approved credit risk management policy in the subsidiary. The subsidiary is concluding contracts with clients who have very high credit ratings. The internal audit team tested 50 contracts. and 17 showed clients with a poor credit history." Which of the following components are missing in the observation?

Answer options

• A. Cause and effect.
• B. Effect and criteria.
• C. Condition and cause.
• D. Criteria and condition.

Correct answer: B

Explanation

The correct answer is B, as the observation identifies the effect of entering contracts with clients of poor credit history but does not provide criteria or standards for acceptable credit ratings. Options A and C are incorrect because they mention cause and effect or condition without addressing the criteria needed to evaluate the situation. Option D is also incorrect as it suggests that the criteria are present when they are not.