CIA Question of the Day: Relying on Tests of Controls

Quiz Yazan Ibrahim
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CIA exam practice question — CIA Question of the Day: Relying on Tests of Controls

CIA exam practice question: daily practice for the Certified Internal Auditor (CIA) exam — domain: Part 1: Essentials of Internal Auditing.

Question

An internal auditor is planning payroll audit procedures. Payroll is processed by an automated system and management has implemented access controls and automated reconciliation routines. Which consideration most supports reducing substantive payroll testing by relying on tests of controls?

  • A. Prior-year substantive testing found no misstatements and management states there have been no control changes since then
  • B. Payroll controls have operated effectively over a sufficient period and directly address the accuracy assertion for payroll amounts
  • C. Management's formal written assertion that payroll controls are operating effectively
  • D. Existence of detective reconciliations that occasionally identify and correct payroll discrepancies
Show the answer and explanation

Correct answer: B. Payroll controls have operated effectively over a sufficient period and directly address the accuracy assertion for payroll amounts

Option 2 is best because reliable, relevant evidence that controls have operated effectively over time and specifically address the financial assertion (accuracy of payroll amounts) provides a basis for reducing substantive procedures. Option 1 is weaker: prior-year substantive results plus management's statement are not sufficient evidence of current effective operation if controls or environment could have changed. Option 3 is not adequate because management assertions are not independent audit evidence. Option 4 is insufficient because detective reconciliations that only occasionally catch errors do not prevent or sufficiently reduce the risk of misstatement; prevention and consistent operation of controls matter more when deciding to rely on controls.

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