IIA-CIA-PART1 · Question #80
A subsidiary of the organization was preparing for an initial public offering (IPO). Af the request of the audit committee, the chief audit executive (CAE) and all senior audit staff were actively…
The correct answer is D. The CAE should disclose objectivity limitations to the audit committee and suggest alternatives. Option D is correct because the CAE and senior staff directly participated in the IPO preparation - collecting data, conducting assessments, and advising - which creates a self-review threat to objectivity. Per IIA Standards, when objectivity is impaired, the CAE must disclose…
Question
A subsidiary of the organization was preparing for an initial public offering (IPO). Af the request of the audit committee, the chief audit executive (CAE) and all senior audit staff were actively involved in the process by helping collect and validate financial data, conducting assessments, and participating in meetings with IPO advisors. Six months later, it became obvious that the IPO had to be canceled. Newly appointed audit committee members requested an assurance engagement that v/ould assess the IPO preparation process. Which of the following would be the best course of action for the chief audit executive (CAE) to take?
Options
- AThe decision to involve auditors in the IPO was made by former audit committee members;
- BThe CAE should reject the assignment, as such engagements are beyond the scope of auditors who
- CThe engagement should be undertaken by audit assistants and other junior staff members who
- DThe CAE should disclose objectivity limitations to the audit committee and suggest alternatives,
How the community answered
(33 responses)- A6% (2)
- B3% (1)
- C15% (5)
- D76% (25)
Explanation
Option D is correct because the CAE and senior staff directly participated in the IPO preparation - collecting data, conducting assessments, and advising - which creates a self-review threat to objectivity. Per IIA Standards, when objectivity is impaired, the CAE must disclose that impairment to the appropriate authority and recommend alternatives (such as engaging external auditors), rather than proceeding as if no conflict exists.
Why the distractors fail:
- A is wrong because shifting blame to former audit committee members doesn't eliminate the objectivity impairment - the conflict exists regardless of who authorized the involvement.
- B is wrong because the scope objection is a red herring; assessing an IPO preparation process is within internal audit's purview. The real problem is objectivity, not competence or scope.
- C is tempting but flawed: the CAE and senior staff - who would supervise and review the work - were deeply involved. An engagement led by junior staff under compromised senior oversight still lacks objectivity and raises quality concerns for such a high-stakes review.
Memory tip: Think "Disclose + Redirect." Whenever auditors audit their own work, the IIA answer is never to hide, deflect, or work around the conflict - always disclose the limitation transparently and redirect to an unimpaired alternative. If you see an answer that does both, it's almost certainly correct.
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