As part of a quality assurance initiative, an organization has engaged an external auditor to evaluate the internal IS audit function.
Which of the following observations should be of MOST concern?
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A. B. C. D.B.
The correct answer is D. Audit engagements are not risk-based.
Explanation:
Internal IS audit function is responsible for providing assurance on the effectiveness of the organization's information systems and controls. It is essential that the internal audit function is performing its duties in a professional and effective manner. As part of quality assurance initiative, the organization has engaged an external auditor to evaluate the internal IS audit function.
The external auditor will evaluate the internal audit function against industry standards, best practices, and internal policies and procedures. The observations made by the external auditor will help the organization identify areas for improvement and take corrective actions.
The observations listed in the answers are:
A. Audit reports are not approved by the audit committee. B. Audit reports do not state they are conducted in accordance with industry standards. C. The audit team is not sufficiently leveraging data analytics. D. Audit engagements are not risk-based.
Let's evaluate each observation to understand which one is of the MOST concern.
Observation A: Audit reports are not approved by the audit committee. This observation suggests that the internal audit reports are not reviewed and approved by the audit committee. This is a concern as the audit committee is responsible for overseeing the internal audit function and providing oversight of the organization's control environment. However, this observation is not of the MOST concern as it can be easily addressed by establishing a process to ensure audit reports are reviewed and approved by the audit committee.
Observation B: Audit reports do not state they are conducted in accordance with industry standards. This observation suggests that the internal audit reports do not state that the audits were conducted in accordance with industry standards. This is a concern as it may undermine the credibility of the internal audit function. However, this observation is not of the MOST concern as it can be easily addressed by updating the audit report template to include a statement indicating that the audit was conducted in accordance with industry standards.
Observation C: The audit team is not sufficiently leveraging data analytics. This observation suggests that the internal audit team is not effectively using data analytics in their audit engagements. This is a concern as data analytics can help the internal audit team identify anomalies, trends, and patterns that may be indicative of control weaknesses. However, this observation is not of the MOST concern as it can be easily addressed by providing the internal audit team with training on data analytics and providing them with the necessary tools and resources.
Observation D: Audit engagements are not risk-based. This observation suggests that the internal audit function is not performing its duties in a risk-based manner. This is the MOST concerning observation as a risk-based approach is essential for the internal audit function to provide assurance on the effectiveness of the organization's control environment. A risk-based approach ensures that audit resources are allocated to areas of highest risk and that audit objectives are aligned with the organization's strategic objectives. This observation may require a significant effort to address, including updating the internal audit methodology, providing training to the internal audit team, and redefining the role of the internal audit function within the organization.
In conclusion, the observation that should be of MOST concern is D. Audit engagements are not risk-based, as it suggests that the internal audit function may not be providing effective assurance on the effectiveness of the organization's control environment.