Which of the following statements is correct regarding the assessment of risk in the annual audit planning process?
1. Activities requested by management should be considered higher risk than those requested by the audit committee.
2. Activities with lower budgets can be as high risk as those with higher budgets.
3. The potential financial or adverse exposure should always be considered in the assessment of risk.

The chief audit executive (CAE) notes during review of the final report of an assurance engagement that management has decided to accept the risks of two significant exposures identified by the audit. Which of the following actions by the CAE would be least prudent in these circumstances?

The chief audit executive of a medium-sized financial institution is evaluating the staffing model of the internal audit activity (IAA). According to IIA guidance, which of the following are the most appropriate strategies to maximize the value of the current IAA resources?
- The annual audit plan should include audits that are consistent with the skills of the IAA. - Audits of high-risk areas of the organization should be conducted by internal audit staff. - External resources may be hired to provide subject-matter expertise but should be supervised. - Auditors should develop their skills by being assigned to complex audits for learning opportunities.

Reviewing internal audit report drafts with clients is:
1.Required according to the Standards.
2.A form of courtesy.
3.Ethically mandated.
4.A form of validation.

An internal auditor provided the following statement about division A's performance during the month: "Because supplies of raw material X were scarce, division A's profits declined by 15 percent."
Which of the following can be validly concluded from the auditor's statement?
I.Division A's production level declined by 15 percent.
II.
Division A could have sold more products than it produced.
III.
Division A usually sells all of the products that it produces.