Certified Internal Auditor (CIA) Part 2: Practice of Internal Auditing — Question 251

An audit observation states the following:

"Internal policy prohibits employees from entering into contracts with financial obligations without proper approval. A project manager signed a change to an important service agreement without obtaining the proper approval. As a result: the organization is receiving $5,000 per month less for its services."

Which of the following should be added to the observation?

Answer options

• A. The reason for not following the internal policy.
• B. A description of what constitutes proper approval.
• C. The annual impact of the changed agreement on cash flows.
• D. Details regarding when the change to the agreement was signed.

Correct answer: A

Explanation

The correct answer is A because understanding the reason for not adhering to the internal policy is crucial for assessing the situation and preventing future occurrences. Options B and C, while useful, do not directly address the immediate issue of policy violation. Option D provides context but doesn't help explain the violation itself.