Certified Internal Auditor (CIA) Part 3: Business Knowledge for Internal Auditing — Question 165

An internal auditor reviews consolidated financial statements for a group of organizations. Which of the following risks should the auditor consider?

Answer options

• A. The statements may conceal poor performance of a subsidiary within the group.
• B. The statements will not reflect business areas under common control.
• C. The statements will not indicate total wealth controlled by the parent company.
• D. The statements may be misleading due to inclusion of transactions between members of the group.

Correct answer: A

Explanation

The correct answer is A because consolidated financial statements can mask the poor performance of a subsidiary, leading to an inaccurate representation of the group's overall financial health. Options B and C are incorrect as consolidated statements should reflect all business areas and total wealth under the parent company. Option D, while relevant, does not directly address the risk of concealing poor performance, which is the primary concern for the auditor.