The equity method is used when an investor owns between 20% and 50% of another company's stock, indicating significant influence over the investee. Since the investor organization is purchasing 40% of the stock, it qualifies for this method.
(A) Cost method.
Incorrect: The cost method is used when the investor has less than 20% ownership and no significant influence.
(B) Equity method. (Correct Answer)
The equity method is required when the investor has significant influence over the investee (typically between
20% and 50% ownership).
Under this method, the investor records a proportional share of the investee's profits and losses in its financial statements.
IIA Standard 2330 - Documenting Information recommends accurate financial reporting and appropriate accounting method selection.
(C) Consolidation method.
Incorrect: The consolidation method is used when the investor owns more than 50% of the stock, granting control over the investee.
(D) Fair value method.
Incorrect: The fair value method applies when investments are traded in active markets and do not grant significant influence.
IIA Standard 2330 - Documenting Information: Requires appropriate classification of financial investments.
GAAP & IFRS Accounting Standards: Mandate the equity method for ownership between 20% and 50% with significant influence.
Analysis of Each Option:IIA References Supporting the Answer:Thus, the correct answer is (B) Equity method, as 40% ownership implies significant influence, requiring the use of this method.

Working capital management focuses on short-term assets and liabilities to ensure a business has enough cash and liquid assets to meet its short-term obligations. Effective management of working capital directly impacts liquidity, allowing an organization to maintain operational stability.
Let's analyze each option:
Option A: Liquidity.
Correct.
Liquidity refers to an organization's ability to meet its short-term obligations, such as payroll, supplier payments, and operational expenses.
Working capital management ensures sufficient cash flow and current assets to cover immediate liabilities, making liquidity the primary concern.
IIA Reference: Internal auditors assess financial risk by evaluating liquidity management and cash flow strategies. (IIA Practice Guide: Auditing Liquidity Risk Management) Option B: Profitability.
Incorrect.
While working capital impacts profitability (e.g., through cost control and investment decisions), profitability is more related to revenue and cost management, not just liquidity.
Option C: Solvency.
Incorrect.
Solvency refers to a company's long-term financial stability and its ability to meet debts over time.
Working capital is a short-term financial measure and does not directly determine solvency.
Option D: Efficiency.
Incorrect.
Efficiency relates to resource utilization and operational effectiveness, which are indirectly affected by working capital management but are not its primary focus.
Thus, the verified answer is A. Liquidity.

Understanding Strategic Levels in an Organization:
Corporate-Level Strategy: Defines overall company direction, including mergers, acquisitions, and diversification.
Business-Level Strategy: Focuses on how the company competes in its industry (e.g., cost leadership, differentiation).
Functional-Level Strategy: Relates to specific departments (marketing, HR, IT) supporting business-level goals.
Why Option C (Business-Level Strategy) Is Correct?
The question "How does our organization compete?" directly relates to business-level strategy.
It focuses on competitive positioning within the industry, such as:
Cost leadership (competing on price)
Differentiation (unique product offerings)
IIA Standard 2110 - Governance requires auditors to evaluate strategic alignment with competitive positioning.
Why Other Options Are Incorrect?
Option A (Functional-Level Strategy):
Focuses on departmental decisions, not overall competition.
Option B (Corporate-Level Strategy):
Corporate strategy defines broad company direction, not specific competition strategies.
Option D (Department-Level Strategy):
Similar to functional strategy, it does not define how the company competes in the industry.
Business-level strategy answers "How does our organization compete?" by defining industry-specific competitive approaches.
IIA Standard 2110 supports governance over strategic positioning.
Final Justification:IIA References:
IPPF Standard 2110 - Governance (Strategic Planning & Competitive Advantage) Porter's Competitive Strategy Framework COSO ERM - Strategic Risk Management

Recovery Point Objective (RPO) Defined:
RPO is the maximum amount of data loss an organization can tolerate before it significantly impacts business operations.
It determines how frequently backups should be performed to minimize data loss in the event of a system failure, cyberattack, or disaster.
For example: If an organization has an RPO of 4 hours, backups must be performed at least every 4 hours to ensure minimal data loss.
IIA GTAG on Business Continuity Management states that RPO should align with business risk tolerance and data criticality.
A). The maximum tolerable downtime after the occurrence of an incident. (Incorrect) This defines the Recovery Time Objective (RTO), which refers to the time needed to restore operations.
RPO relates to data loss, not downtime.
C). The maximum tolerable risk related to the occurrence of an incident. (Incorrect) Risk tolerance is a separate concept related to risk management strategies, not data recovery.
D). The minimum recovery resources needed after the occurrence of an incident. (Incorrect) This refers to disaster recovery planning and resource allocation, not the specific metric of data loss tolerance.
Explanation of Incorrect Answers:Conclusion:The Recovery Point Objective (RPO) measures the maximum allowable data loss (Option B) before it significantly affects business continuity.
IIA References:
IIA GTAG - Business Continuity Management
IIA Standard 2120 - Risk Management

The IIA Standards require that significant governance, risk management, or control issues be communicated to senior management and the board, regardless of whether they arise from assurance or advisory engagements.
Option A is misleading, as it overstates the audit committee's role. Option C is incorrect because responsibility for final communication lies with the CAE, not the supervisor. Option D is also incorrect since the audit committee does not approve every report; that responsibility rests with internal audit leadership.
Reference:
IIA Standards - Standard 2440: Disseminating Results.