Certified Internal Auditor (CIA) Part 2: Practice of Internal Auditing — Question 284

While conducting a payroll audit, an internal auditor in a large government organization found inadequate segregation in the duties assigned to the assistant director of personnel. When the auditor explained the risk of fraud, the assistant director became upset, terminated the interview, and threatened to sue the organization for defamation of character if the audit engagement was not curtailed. The auditor discussed the situation with the chief audit executive (CAE). The
CAE should then:

Answer options

• A. Curtail the audit engagement to avoid potential legal action.
• B. Provide a report to senior management recommending a fraud investigation.
• C. Continue the original engagement program as planned but include a comment about the assistant director's reaction in the engagement final communication.
• D. Add additional testing to determine whether other indicators of fraud exist.

Correct answer: D

Explanation

The correct answer is D because adding extra testing can help uncover any additional signs of fraud, which is crucial given the existing concerns. Curtailing the audit (A) would not address the potential issues, while options B and C do not take proactive measures to investigate the risk of fraud further.