Certified Internal Auditor (CIA) Part 3: Business Knowledge for Internal Auditing — Question 262

Which of the following statements is correct regarding risk analysis?

Answer options

• A. The extent to which management judgments are required in an area could serve as a risk factor in assisting the auditor in making a comparative risk analysis.
• B. The highest risk assessment should always be assigned to the area with the largest potential loss.
• C. The highest risk assessment should always be assigned to the area with the highest probability of occurrence.
• D. Risk analysis must be reduced to quantitative terms in order to provide meaningful comparisons across an organization.

Correct answer: A

Explanation

Option A is correct because it highlights how management's judgment levels can influence risk assessments for auditors. Options B and C incorrectly imply that risk assessments should solely focus on potential loss or probability, which can vary based on context. Option D suggests a quantitative approach is necessary, but qualitative factors can also play a significant role in risk analysis.