The CFO’s request is specifically about control operating effectiveness for a new, automated system. The most appropriate approach is a two-step process: first, evaluate if the control design is adequate (design assessment), and then test if those controls are functioning as intended (operating effectiveness). This is efficient and directly addresses the request. Transaction testing (A) is less efficient for automated systems and doesn’t first assess design. Reviewing project documents (C) doesn’t test controls. Benchmarking (D) might be informative but doesn’t provide direct evidence on the company’s specific control effectiveness.

The core issue is a conflict of interest, regardless of price reasonableness. An employee making decisions that benefit an immediate family member violates ethical standards and typical conflict of interest policies. This creates a profound risk of fraud (e.g., future overbilling, inferior quality) and erodes organizational trust and control culture. While the control threshold (B) and manual review (C) are relevant secondary points, they are not the *most significant* issue. Option D is incorrect; the appearance of impropriety and policy violation constitutes harm, even if financial loss isn’t immediately evident.

While a duplicate payment test is a valid analytical procedure, it is more suited to accounts payable and procurement cycles. In the context of T&E expenses, exact duplicates (same vendor, date, amount) are relatively rare and less likely to be the primary indicator of personal misuse or fraud. Procedures A, B, and D are more directly effective for T&E: A identifies departmental outliers, B spots suspicious trends, and D finds control violations (late submission) that could be associated with hiding inappropriate expenses. The duplicate test is not ‘wrong,’ but it is the *least* effective among the options for the stated objective.

The IPPF (Standard 2120) clarifies that while management is responsible for risk management, internal auditing’s core role is to provide objective assurance on the effectiveness of these processes. This includes assessing the design and operation of the risk management framework. Internal auditors do not set risk appetite (A) or manage risks (C), as that would impair their independence and objectivity. Stating they have no role (D) is incorrect, as providing assurance on risk management is a fundamental audit activity.

Professional audit standards require auditors to obtain sufficient, reliable, and relevant evidence. The process owner’s meeting is a key part of that process. If new, credible, and documented evidence is presented that alters the original assessment, the auditor has a professional obligation to consider it, update the workpapers, and amend the report conclusions if warranted. Ignoring valid new information (A) is unprofessional. Escalating a normal discussion (C) is premature. Withdrawing a finding without proper evaluation (D) compromises audit integrity.

Internal audit can add significant value in an advisory role by sharing its broad perspective on risks and controls without assuming management responsibility. Providing insights on control design leverages audit’s expertise while keeping the role consultative. Taking ownership of testing (A), making project decisions (C), or conducting training (D) are management activities. Performing them would impair audit’s independence because it would later be difficult to provide objective assurance on a system or process for which audit was responsible.

While a code of conduct (A), CEO certification (C), and training (D) are important elements of an ethics program, they can be procedural. The strongest indicator of a genuine ethical culture is observed behavior: employees feeling psychologically safe to speak up about issues. This demonstrates trust in the reporting mechanisms, confidence in fair treatment, and a shared belief that ethical conduct is valued over silence or conformity. It moves beyond policy documents to tangible organizational behavior.

The most significant risk is the systemic breakdown of a key IT general control. Bypassing testing for ‘urgent’ needs sets a dangerous precedent, erodes the control culture, and exposes live business systems to unvetted changes. This can lead to system crashes, data corruption, security vulnerabilities, and operational disruption. While cost (A), segregation of duties (C), and audit trails (D) are relevant concerns, they are secondary to the fundamental risk of uncontrolled changes impacting business operations and data integrity.

When potential fraud, especially of a significant nature like financial statement fraud, is identified, the auditor must proceed with extreme care to avoid compromising a potential investigation. The immediate step is to follow organizational protocols, which typically involve discreetly informing the CAE, who then consults with legal counsel and possibly security. This ensures the organization handles the matter legally and properly. Confronting the suspect (A) is reckless. Notifying the supervisor (B) may be premature and could trigger evidence destruction. Including it in a standard report (D) publicly alerts the suspect.

The CFO’s request is specifically about control operating effectiveness for a new, automated system. The most appropriate approach is a two-step process: first, evaluate if the control design is adequate (design assessment), and then test if those controls are functioning as intended (operating effectiveness). This is efficient and directly addresses the request. Transaction testing (A) is less efficient for automated systems and doesn’t first assess design. Reviewing project documents (C) doesn’t test controls. Benchmarking (D) might be informative but doesn’t provide direct evidence on the company’s specific control effectiveness.0