Certified Internal Auditor (CIA) Practice Test

What control procedure is expected in an engagement evaluating risk management and insurance?

1. Periodic internal review of the in-force list for adequacy of insurance coverage.

2. Approvals for all new insurance policies by the organization's CEO.

3. Implementation of repetitive standard journal entries for insurance expense.

4. Cutoff procedures for insurance expense reporting.

The correct answer is: Periodic internal review of the in-force list for adequacy of insurance coverage.

The control procedure that involves a periodic internal review of the in-force list for the adequacy of insurance coverage is essential in evaluating risk management and insurance. This review allows an organization to assess whether their current insurance policies adequately cover potential risks it faces. By regularly reviewing the insurance coverage in force, the organization can identify any gaps in coverage, overlaps, or changes in risk exposure due to evolving business operations, markets, or regulations. This process is critical because it ensures that the organization is not underinsured or overinsured, both of which can lead to financial instability or unnecessary expenses. Engaging in this periodic review supports effective risk management by mitigating the chances of facing unprotected losses. The other procedures mentioned are not as directly relevant. Approvals for new insurance policies by the CEO, while important, do not address the ongoing evaluation of the existing insurance portfolio. Implementation of repetitive standard journal entries for insurance expense relates more to accounting practices rather than risk management assessment. Lastly, cutoff procedures for insurance expense reporting focus primarily on the timing of accounting entries rather than evaluating the appropriateness or adequacy of insurance coverage itself.