Learn the key criteria an internal auditor should focus on when a CFO solely authorizes a major $25M transaction, based on IIA CIA Exam Part 2 concepts. Understand why the essence and purpose of the transaction matters most in drawing audit conclusions.
Table of Contents
Question
During an assurance engagement, the internal auditor noticed that the chief financial officer (CFO) solely authorized a transaction to sell carbon credits with a total value of $25 million. Which of the following criteria is most likely to assist the auditor in drawing a conclusion?
A. The CFO’s explanation regarding the priority of the transaction.
B. The essence of the transaction authorized by the CFO.
C. The conditions of the letter of authorization issued to the CFO.
D. The internal auditor’s professional judgement of the situation.
Answer
B. The essence of the transaction authorized by the CFO.
Explanation
When an internal auditor comes across a situation where a very large transaction, in this case $25 million, was authorized by a single executive like the CFO, the most important criteria to consider is the fundamental nature, purpose and substance of that transaction. The auditor needs to critically evaluate what the transaction actually involves, what assets are being exchanged, the counterparties involved, and the core business rationale.
Looking at the CFO’s stated reasons and priorities for the transaction (choice A) is not sufficient, as the CFO may have biases or conflicts of interest that are influencing their justification after the fact. The conditions in the CFO’s authorization letter (choice C) are also not the main criteria, as a letter can outline procedures while still enabling a problematic transaction in terms of the underlying substance.
The internal auditor’s professional judgment (choice D) is certainly a factor, but judgment needs to be rooted in facts and evidence. The auditor’s instincts are not the primary criteria compared to the objective reality of the $25M carbon credit sale that was executed.
Focusing on the essence of the transaction enables the internal auditor to cut through any superficial explanations and paperwork to determine if this major deal is truly in the best interests of the company and follows sound governance. If the substance appears questionable, the auditor would then perform additional procedures to gather evidence and draw a conclusion on the appropriateness of this transaction that the CFO pushed through unilaterally. The fundamental nature of the $25M carbon credit sale is the most important criteria for the internal auditor to consider in this situation.
IIA-CIA-Part2 certification exam assessment practice question and answer (Q&A) dump including multiple choice questions (MCQ) and objective type questions, with detail explanation and reference available free, helpful to pass the IIA-CIA-Part2 exam and earn IIA-CIA-Part2 certification.