An internal auditor failed to identify transactions between the parent organization and a subsidiary. What is the most likely reason for the failure?

Question

Options

• AThe auditor misunderstood the audit objectives.
• BThe auditor lacked professional skepticism.
• CThe auditor's fieldwork was not properly supervised.
• DThe auditor lacked an understanding of the organization.

• A
  12% (3)
• B
  4% (1)
• C
  4% (1)
• D
  80% (20)

Explanation

Identifying related-party transactions between a parent and subsidiary requires the auditor to first know that the subsidiary exists and understand how the two entities interact - without that foundational knowledge of the organization's structure, the auditor simply wouldn't know where to look. Option A is wrong because misunderstanding audit objectives would lead to testing the wrong things, not missing entities entirely. Option B (lack of skepticism) implies the auditor found something but didn't question it; here the transactions were missed altogether, which is a knowledge gap, not an attitude gap. Option C (supervision failures) could contribute to poor work quality, but supervision issues don't explain why an auditor would be unaware of a subsidiary's existence in the first place.

Memory tip: Think of it as a map problem - you can't navigate to a destination you don't know exists. Related-party failures almost always trace back to the auditor not knowing the landscape of the organization.

No community discussion yet for this question.