The most significant risk is inefficient audit coverage. Procurement and accounts payable are highly interdependent cycles. Auditing them in isolation, especially due to resource constraints rather than a risk-based integration, can miss cross-process controls, duplicate testing, or fail to see the end-to-end picture of obligations and payments. The other options present potential issues, but the core professional judgment failure is in audit planning design, not standards violation or scheduling logistics.

The QAIP’s fundamental purpose, as defined by the IPPF (Standard 1300), is to provide reasonable assurance that the internal audit activity adds value and improves the organization’s operations. It assesses conformance with the Standards and the efficiency and effectiveness of the audit activity. It is not primarily for staff evaluation (though it may inform development) or to prove an error-free record, and it assesses adherence to the IPPF, not just the CAE’s directives.

Observing a live test provides the most direct and reliable evidence of effectiveness. It allows the auditor to see if the plan works in practice, if staff know their roles, if systems come up as expected, and if recovery time objectives are met. Reviewing documentation, interviews, and tracing to contracts are important procedures, but they are inherently indirect and provide evidence of design or existence, not operational effectiveness.

The primary concern is impairment of future objectivity and independence. If internal audit personnel are part of the decision-making steering committee (an advisory/oversight role), they become part of the system’s implementation. Later, when they are asked to provide independent assurance on the design and effectiveness of the ERP controls, they would be auditing their own work. This creates a fundamental conflict. The CAE must carefully manage this by clarifying roles, perhaps providing only limited, defined advisory input with safeguards, and ensuring different auditors perform the subsequent assurance engagement.

The immediate next step is to report to an appropriate level of management outside the suspected area. This is a legal and procedural requirement to ensure the organization can take timely action (e.g., legal counsel, securing assets, suspension). Confronting the suspect is dangerous and could compromise the investigation. Expanding the scope is a decision for management/investigators after initial reporting. Waiting for the scheduled audit report is inappropriate given the serious and time-sensitive nature of a fraud discovery.

A real-time, automated input validation check is a preventive control that stops errors at the point of entry. It is the most effective among the options for preventing the error from occurring in the first place. The supervisor review (detective, after-the-fact) and monthly reconciliation (detective, delayed) are less efficient. The access control is important for security but does not directly prevent data entry errors; it only ensures the right person is making the potentially erroneous entry.

The CAE must communicate directly with the Audit Committee. The functional reporting line to the Audit Committee is designed for exactly this scenario—to provide an independent channel when administrative management (like the CFO) attempts to inappropriately influence audit work. This action upholds the Standards (1110, 1111, 1112) regarding organizational independence and communication with the board. Resigning is a last resort, and acceding to or privately handling the pressure violates core principles of objectivity and independence.

The auditor should be most concerned if the board has fully delegated its risk oversight responsibility. Effective governance requires the board to retain ultimate responsibility for overseeing the organization’s risk management framework. Delegating the *review* of the risk portfolio to management without active board oversight represents a significant governance weakness. The other options are generally positive practices: using multiple assessment methods, tracking residual risk, and applying consistent taxonomies are indicators of a mature process.

The first step should be to re-examine the evidence and criteria together. Effective communication and building consensus require ensuring both parties are working from the same facts and definitions. The auditor should explain the criteria used (e.g., the organization’s risk matrix) and how the evidence led to the ‘significant’ conclusion. This collaborative approach often resolves misunderstandings. Escalation is a later step if consensus fails. Changing the wording without justification compromises objectivity, and adding a dissenting opinion is not standard practice for resolving subjective disagreements on risk ratings.

The most significant risk is inefficient audit coverage. Procurement and accounts payable are highly interdependent cycles. Auditing them in isolation, especially due to resource constraints rather than a risk-based integration, can miss cross-process controls, duplicate testing, or fail to see the end-to-end picture of obligations and payments. The other options present potential issues, but the core professional judgment failure is in audit planning design, not standards violation or scheduling logistics.0