Certified Internal Auditor (CIA) Part 2: Practice of Internal Auditing — Question 201

Which of the following should be the focus of the effect section of the preliminary observations document?

Answer options

• A. Residual risk.
• B. Inherent risk.
• C. Compensating controls.
• D. Control activities.

Correct answer: A

Explanation

The correct answer, A, Residual risk, refers to the risk that remains after controls are applied, which is crucial to assess in preliminary observations. Inherent risk (B) is the level of risk before any controls are applied, while compensating controls (C) and control activities (D) are specific strategies and actions that do not focus on the remaining risk itself.