When an internal audit team leader encounters difficulties due to the lack of a system of internal controls, the most appropriate course of action is to add a consulting component to the scheduled assurance engagement.
This approach allows the internal audit team to provide advice and recommendations on establishing internal controls while still fulfilling their assurance responsibilities. By integrating consulting activities, the auditors can help the business unit improve its control environment, which can then be assessed in the assurance engagement.
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The Institute of Internal Auditors (IIA) Practice Guide: Consulting Engagements IIA Standard 1130 - Impairment to Independence or Objectivity

When an internal auditor is unable to find supporting documentation for selected accounts during a test, the appropriate next step is to contact management to determine if the documentation is stored elsewhere. This ensures that all potential sources of evidence are explored before drawing any conclusions.
* IIA Standard 2310 - Identifying Information:
* This standard requires auditors to obtain sufficient, reliable, relevant, and useful information to support their findings. If documentation is missing, the auditor must investigate further to determine if the evidence exists in another location or form.
* Contacting Management:
* Before concluding that the test failed or expanding the sample, the auditor should first check with management to see if the documentation might be stored in an alternative location. This step ensures that the audit results are based on a thorough and complete examination of available evidence.
* IIA Practice Advisory 2330.A1-1:
* The advisory suggests that auditors should consider all sources of evidence and confirm with management if there are any alternative ways to obtain the necessary information.
* Option A (Conclude that the test failed): This conclusion would be premature without first attempting to locate the missing documentation.
* Option B (Select new accounts): This could lead to the same issue if the documentation is not missing but simply stored elsewhere.
* Option C (Expand the sample size): Expanding the sample is unnecessary if the issue is simply that the documentation is stored in a different place.
Detailed Explanation:Why Not Other Options?Conclusion: Option D is correct because it involves taking the logical next step of contacting management to locate the missing documentation, ensuring that the audit is thorough and the conclusions drawn are based on all available evidence, in line with IIA standards.

Comprehensive and Detailed Explanation:
The current ratio = Current Assets ÷ Current Liabilities. To increase it, either current assets must rise or current liabilities must decrease.
* Option A has no effect because it simply shifts funds between accounts.
* Option B increases current assets (inventory) without adding current liabilities, since the loan is long- term, thus improving the ratio.
* Option C (leasing) affects long-term liabilities, not current assets.
* Option D converts receivables to cash, which keeps current assets unchanged in total.
Therefore, the only option that improves the current ratio is purchasing inventory using long-term loans (B), since it raises current assets without raising current liabilities.

When the CAE determines whether the internal audit activity has confirmed the status of all management's corrective actions, it helps in assessing residual risk. Residual risk is the risk that remains after management's actions to mitigate inherent risk. By confirming the status of corrective actions, the CAE can evaluate whether the risks identified during the audit have been adequately addressed and what level of risk still exists, ensuring that the internal control environment is effective and that management's risk responses are appropriate.
COSO's Enterprise Risk Management Framework and The IIA's International Standards for the Professional Practice of Internal Auditing.

The initial step the CAE should take is to discuss the issue with the members of management responsible for the risk area. This discussion allows the CAE to understand the reasons for the lack of action, provide an opportunity for management to explain their position, and encourage them to implement the necessary mitigation measures. If this discussion does not lead to satisfactory action, the CAE would then escalate the issue to senior management or the board as appropriate.
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The Institute of Internal Auditors (IIA), International Standards for the Professional Practice of Internal Auditing (Standards)
"Internal Auditing: Assurance and Advisory Services" by Urton L. Anderson et al.