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IIA-CIA-PART2 · Question #167

At a construction company, an internal auditor is planning an audit of the company's process for designing and building grid connections The process involves customers making payments m three parts…

The correct answer is B. Controls that ensure construction orders are initiated after the second invoice is paid. To ensure that the company is not taking any unwanted credit risks, the internal auditor should test controls that ensure construction orders are initiated only after the second invoice, which represents 70% of the payment, is paid. This control is critical because it minimizes…

Performing the Engagement

Question

At a construction company, an internal auditor is planning an audit of the company's process for designing and building grid connections The process involves customers making payments m three parts:

  • The first payment of 10% after approval of the customer s application
  • The second payment of 70% prior to construction
  • The third payment of 20% after construction is complete

Which of the following key controls should the auditor test to ensure that the company is not taking any unwanted credit risks?

Options

  • AControls that ensure that grid connection design is finalized before construction is approved to
  • BControls that ensure construction orders are initiated after the second invoice is paid
  • CControls that ensure all three invoices are calculated correctly according to the total project cost
  • DControls that ensure that applications are verified for approval prior to initiating design and

How the community answered

(47 responses)
  • A
    9% (4)
  • B
    85% (40)
  • C
    2% (1)
  • D
    4% (2)

Explanation

To ensure that the company is not taking any unwanted credit risks, the internal auditor should test controls that ensure construction orders are initiated only after the second invoice, which represents 70% of the payment, is paid. This control is critical because it minimizes the financial risk to the company by ensuring that a significant portion of the payment is received before the majority of the work is undertaken. This practice helps protect the company from potential non- payment issues and reduces the financial exposure associated with the project.

Topics

#credit risk controls#payment controls#construction process audit#control testing

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