November 2012 examination series
IIA Advanced Diploma and
IIA IT Auditing Certificate chief examiner report
IIA ADVANCED DIPLOMA
IIA IT AUDITING CERTIFICATE
NOVEMBER 2012 EXAMS
REPORT FROM THE SENIOR CHIEF EXAMINER
The results for all IIA Advanced Diploma Papers produced an average pass rate of
70.5%, compared with the 70.4% in June 2012 and 73.2% in November 2011.
Results
The percentage pass rates for each paper, to the nearest decimal point, for UK and
Ireland IIA Advanced Diploma students in the November 2012 examinations are
summarised below:
November 2012
Module
M1 Strategic Management
M2 Financial Management
M3 Risk assurance and Audit Management
M4 Advanced Internal Auditing Case Study
All candidates
58.7
65.7
79.6
80.9
First timers
65.5
69.6
86.4
89.3
Last three series
Module
M1 Strategic Management
M2 Financial Management
M3 Risk assurance and Audit Management
M4 Advanced Internal Auditing Case Study
Nov 2012
58.7
65.7
79.6
80.9
June 2012
59.7
60.3
76.3
82.6
Nov 2011
65.2
68.6
73.6
83.1
As a result of the November 2012 examination series, 44 candidates have completed
the examinations for the IIA Advanced Diploma.
Paper comments
M1 Strategic Management
The pass rate achieved by the 75 candidates who sat the paper was slightly lower
than that achieved in June. This was nevertheless a fairly typical performance well in
line with previous sittings with 4 candidates achieving distinctions (double the
number seen in June 2012) and 16 candidates achieving merits. Those scoring
fewer than 39 marks fell to just 7, compared to 9 in June 2012 and 11 in November
2011.
The pass rate was primarily due to higher quality answers to questions 3, 4 and 5,
with less satisfactory attempts across the remaining questions. Each of the optional
questions was tackled by a large proportion of the candidates.
The scenario for the compulsory section of the paper concerned a fictitious cider
brewing company. Parts (a) and (b) of Question 1 required a briefing paper for the
project team explaining and discussing the case for an internal analysis of ATB’s
resources and capabilities, as well as describing four analytical tools that could be
employed to assist in this process. Part (c) required a separate proposal to the board
covering how IT could help the company’s strategic competitiveness. Many
candidates did not use the scenario context sufficiently or attempt to apply their
arguments to the company. As a result, many answers were overly theoretical.
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Question 2 was completed by approximately 80% of the candidates. It asked for a
briefing paper to be prepared, and it was pleasing to note that most candidates
presented the paper as such. There was also a large proportion of introductions and
conclusions in candidate responses, enabling appropriate marks to be awarded for
presentation and formatting. Candidates demonstrated a sound understanding of
governance structures, processes for managing board and committee business and
decision making, and the key drivers for the poor board performance, but, again
some candidates missed out on marks by not sufficiently relating their answers to the
context of the question.
By a narrow margin, Question 3 proved to be the least popular of the optional
questions. It was generally well answered, and a significant proportion of candidates
achieved a good score and demonstrated a clear understanding of the relevant
syllabus areas and subject matter. Again, many candidates answered by providing
a variety of management theories rather than by applying the theory to the situation
described in the question context. As a result, many failed to earn all available
marks. A number of candidates seemingly spent a higher proportion of their time on
part (a) at the expense of their answers to parts (b) and (c).
Question 4 proved to have the highest mean result. Given the subject matter this was
not a surprise, although nevertheless we were very pleased at the final results.
Answers to Question 5 were pleasing with just over 80% of candidates exceeding the
pass rate. Of these, however, only a handful obtained a very high result, but there
were very few poor answers.
A number of candidates produced lengthy introductions – in some cases running to
up to two sides of narrative. This was excessive. Also, in a number of instances,
candidates produced no paragraphs, headings, bullet points or breaks in their
answers and delivered ‘wall to wall’ text. Only a minority of candidates used plans to
help structure their answer and to aid them in ensuring all aspects of the question
were being addressed before launching into prose.
M2 Financial Management
The 65.7% pass rate was shared between 44 successful candidates out of the 67
who sat the paper. This was a good result, an improvement on the June 2012 sitting,
and in line with the overall historic trend for this paper. There were some very good
scripts, with one candidate achieving a distinction and further 15 gaining a merit.
The spread of marks on each question was acceptable, including those for question
5, which, although by far the least popular question, returned a good average mark.
For Question 1, the 40 mark compulsory question, candidates produced quite a
range of results.
The characteristics of equity and debt capital and the link with gearing is something
candidates should have met in earlier studies as well as in Financial Management
and most answers illustrated a good understanding. However, there was a significant
minority who wrote about interest in respect of equity and assumed that debt capital
merely related to bank loans. The analysis and interpretation, including the
calculation, of ratios provided the greatest variance between candidates.
The final part of the question focused on macro-economic risks and it was usual to
see inflation and interest rates given. However, also included in this part of the
answer were comments about technology, legislative changes and so on which
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somewhat stretched the definition of ‘economic’. The syllabus focuses on the
following as macro-economic variables – inflation, trends in national income;
growth/recession, labour supply, balance of trade and foreign currencies,
government policy, and how this can impact on organisations.
It was good to see candidates using their analytical and evaluative skills in generally
appropriate ways.
Question 2 provided a variable standard of answers - some very good, but others
with limited analysis and discussion. Stronger answers provided calculations to
enhance their analysis. Answers were also enhanced when candidates posed
further questions that needed to be asked. The question, of necessity in an
examination situation, gave limited data and credit was given for answers that
suggested additional information that would enhance the quality of their analysis.
There was good knowledge of data error and manipulation, and the aspect of dealing
with risk minimisation was well answered by many candidates.
Question 3 was the most popular of the discretionary questions and was mostly well
answered.
In Part A the majority of candidates were able to identify potential sources of money
laundering and the manner in which it could enter the fictitious building society
through placement, layering and integration. Many candidates had structured their
answer to Part A under the perspectives identified in the question. Whilst this
provided a clear structure for the answers more than one point needed to be made
under each of these to increase marks.
In Part B candidates were able to identify a range of controls that needed to be in
place. Some explanations were brief and could have been improved by developing
the description and operation of the controls. Few candidates covered the more
strategic controls that should be in place, such as ensuring that directors were aware
of their individual and collective responsibility for ensuring money laundering was not
taking place in the building society, and how this was enshrined in their authority and
terms of employment, corporate objectives and ensuring that the overall transaction
system within the organisation was structured to be robust in identifying suspicious
transactions.
M3 Risk Assurance and Audit Management
The 79.6% pass rate for this paper was a slight increase over that in June 2012. Fifty
four candidates sat the paper and 5 distinctions were achieved. There were strong
answers to questions 2, 3 and 5. Question 1 provided the weakest result. Question 3
scored high on average with a pass rate of 79%.
Question 1 proved challenging for students and provided a 40% pass rate among 54
candidate attempts. On the whole Part A was not very well answered as candidates’
answers tended to be fairly superficial and did not refer to the question scenario.
Similarly the majority of candidates provided little of depth in their answers to Part B.
Part C provided the best answers. The majority of scripts were legible and easy to
mark; some very good scripts displayed depth and understanding. Other scripts
discussed the subject matter in general terms and therefore the maximum amount of
marks available were not achieved. Answers at Advanced Diploma level need to be
explicitly referred back to the scenario material in order to gain the maximum of
marks available.
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Generally, Question 2 was well answered by the 33 who attempted it, and candidates
demonstrated a good knowledge of specific and relevant risks related to the
scenario, and . its implications for the company in question. The main weakness in
answers to Part A was a lack of discussion in respect of the potential impact of legal,
political, ethical and reputational risks. In Part B most candidates suggested relevant
ways in which internal audit could provide the board with assurance over risk
mitigation but answers could have been improved by more focus on evaluating
internal audit’s contribution.
On the whole Question 3 was well understood by the 34 candidates who attempted it
and it was good to see candidates using a presentational format, accompanied by a
short written piece, which lent itself to a good score. On occasions candidates’
answer were too focused and ignored the more obvious requirements of the
question. Part B proved to be the most challenging part of the question for
candidates, but also some lack of strategic awareness of what an audit committee
requires from internal audit.
Question 4 attracted 49 candidates, and was, on the whole, well answered with some
very good scores achieved. Candidates who did not score so highly often answered
their own interpretation of the question rather than what was asked. Part B asked
candidates for opinions on what was important and why this should be so; it did not
ask for how to assess what was important. In some cases candidates scored single
marks when more clarity in explanation or more detail could have merited a higher
score. It was clear that some candidates did not have the practical experience of
self-assessment regimes and made false assumptions about the basics of how these
practices work.
The scenario for Question 5, which attracted 46 candidates, provided information
regarding a recent fraud identified at a fictitious company resulting in significant
financial loss, and sought consideration of its root causes so that new control
processes could be embedded. This provided a suitable context for candidates to
demonstrate not only their understanding and knowledge of Internal Audit’s role in
relation to fraud, but also to discuss and apply their knowledge of key factors which
should be considered when Internal Audit are requested to undertake a consulting
engagement.
In Part A candidates needed to demonstrate that they understood the role of Internal
Audit. A number of candidates did not pick up on the most fundamental roles of
Internal Audit. Many candidates also focused their response on the review of policies
and procedures as opposed to assurance over the effectiveness of policies and
procedures in practice. A number of papers were very theoretical, impacting on the
candidates’ ability to demonstrate the application of their knowledge. Part B of the
question also saw a wide range of marks. The most successful candidates were able
to discuss the key factors that the Head of Internal Audit should consider, but in a
high number of cases, chose only to provide an outline of the proposed scope and
approach to the consulting engagement. This significantly reduced the overall marks
available.
M4 Advanced Internal Auditing Case Study
Although the pass rate for the paper was 80.9% compared to 82.6% on the previous
sitting in June 2012, the low number of candidates sitting the paper, 68 suggests that
this change is not statistically significant. The pass rate confirms that the
performance of candidates on M4 continues to be strong and no candidate scored
below 36 marks.
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The June 2012 Case Study was based on a fictitious company headquartered in
Japan, with its UK operations based in the UK West Midlands.
Question 1 focused on health and safety, governance and internal audit structures.
Part A was well answered with most candidates having prepared for this subject area
very well. Other candidates presented a narrative rather than the audit programme
requested, and others restricted their consideration to UK rather than global aspects.
Part B was less well answered, but the stronger scripts were able to reference and
assess the wide range of relevant material woven into the Case Study.
Question 2 required the preparation of draft terms of reference for an audit of the
quality assurance processes and a testing strategy, plus a discussion of the benefits
of Quality Assurance processes and how the product recall in the Case Study might
have been avoided. A number of candidates seemed to ignore the testing strategy,
and others focused on the product recall itself rather than discussing the benefits of
having QA processes.
The core subject matter of Question 3 was fraud, where Part A required a fairly
straightforward discussion of the expected controls and related risks and Part B
required a wider-based discussion on creating an environment to prevent it
happening. This was reasonably well answered but weaker candidates provided too
much detail on a small number of controls and risks and so their answers lacked the
breadth required to score well.
Question 4 again had 2 distinct areas of focus. First, the management of an auditor
who was not performing to the level required, and second, a discussion on the pros
and cons of more closely aligning the internal audit and risk management functions.
Common issues with all papers
The issues I raise here are common to all papers and have been common to all
sittings of the Advanced Diploma examinations. The major issues such as:

Time apportionment between questions in relation to marks achieved;

Answering the question that was asked rather than that which the candidate
would like to have been asked;

Excessive introductions and other descriptive passages that add nothing to
the marks;

Repetition of the question; and

Absence of answer plans
always occur and always will occur, because each cohort of candidates has a
substantial number of individuals who are new to the professional examination
experience. The tuition providers are, I am sure, aware of this, but in the
examination room it is up to each individual candidate to deliver.
One issue that also comes up often at Advanced Diploma is insufficient attention
paid to the context of the question asked – resulting in generic answers and
generalities. The Advanced Diploma is a prerequisite for the achievement of
Chartered Membership of the Institute. I recall that in the first training session in the
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November 2012 examination series
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first internal auditing course I followed, the lecturer stated that we would be “trained
to audit anything”. That statement holds true today. The tests that we set for the
Advanced Diploma are designed to give candidates the opportunity to show that they
can indeed audit anything. We present a situation and ask the candidate what they
would do about it.
There is clear blue water between the Diploma and Advanced Diploma levels. The
Diploma is a test of knowledge and understanding; the Advanced Diploma is a test
of the application of that knowledge and understanding. This means that the
questions are specific and that the answers should also be very specific to the
scenario that is set.
Tuition Provider Input
We actively seek comments from tuition providers following each examination
session, particularly when they are objectively focused and not speculative.
Moderators consider the comments offered and respond to them, and we use the
input to feed into our setting of future questions. We are very grateful to them
particularly as we appreciate that they submit them before they have had the benefit
of assessing their students’ actual performance after results publication.
Providers continue to comment on a blurring of the demarcation between the
examination papers and also the choice of some rather more peripheral syllabus
areas. The examinations team is obliged to cover the whole Advanced Diploma
syllabus, and that will mean that from time to time examination content may have
proportionately fewer mainstream questions. This is compensated by the Institute’s
on-going and regular review of the syllabus. Chartered auditors will be expected to
deal with all areas of the syllabus in their professional lives and we must therefore
reflect this in the examination questions. It is a fact that the syllabus contents for the
papers can be blurred at the edges, just as in the real world. Students and tuition
providers may rest assured that the examinations team ensures that every question
set on every examination paper is fully in line with its agreed, published syllabus for
the relevant examination session.
Conclusion
It is rewarding for all concerned that the November 2012 session of the IIA Advanced
Diploma in Internal Auditing and Management has produced good results in terms of
the administration of the examination systems, the quality and standard of the
question setting and the marking and review processes. Well-prepared candidates
have grasped the opportunity to display their understanding of advanced concepts
some of which were fairly challenging, and their application of this knowledge to
management in general, to information systems, and also to internal audit
management. The students, again, produced some excellent scripts and this is
borne out by the examination results.
The examinations represent a rigorous challenge to students because we are keen
that those who succeed should be justifiably proud of their success and of their
candidature for chartered membership of a professional institute that is highly
respected for the quality of its members and the valuable contribution they are able
to make to their employers.
Our independent external review process is also an important part of the approach to
standards and quality and provides extremely valuable feedback to the examinations
team, which we take very seriously. Similarly, the comments we receive occasionally
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from the students themselves provide a valuable contribution to our constant efforts
for quality and excellence.
Finally, I feel I must commend the efforts of the fine team of examiners and
moderators, all volunteers, which the Institute is fortunate to be able to call upon
sometimes at very short notice. It is they who set the scene for enabling the students
to show what they have learnt, and to do credit not only to themselves but also to
their learning institutions, who in their turn have made great efforts to assist the
students to develop professionally.
I am grateful for the efforts of everyone involved with the examinations process.
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IIA IT Auditing Certificate
Results
The percentage pass rates for each element of the qualification, to the nearest
decimal point, for UK and Ireland ITAC students in the November 2012 examinations
are summarised below:
November 2012
Module
Multiple-Choice Assessment
Candidate Assignment
All candidates
100%
100%
First timers
100%
100%
Multiple-Choice Assessments
This sixth sitting of the ITAC multiple-choice examination has been very successful
with the assessment being sat by 10 candidates all of whom passed. This is the first
100% success rate that has been achieved, including 3 merits.
It should be noted that the pass mark for this assessment is 65 with a merit grade
being awarded at 75 and a distinction at 85 and above.
As usual we reviewed the 28 multiple-choice questions where 50% or fewer
candidates achieved the correct answer. There were no resulting adjustments to the
marks of the questions although one question is to have a minor word revision for
clarity and two questions are being considered for potential minor revision.
Six new questions, written in 2012, are being finalised prior to March 2013.
Candidate assignment assessments
I am pleased to report that the submissions from all 7 candidates were successful, all
with clear passes. Three candidates achieved Distinction (over 42 marks), 2
achieved Merit (36 to 41 marks) and 2 achieved a Pass (30 to 35 marks).
Because of the low volume, all assignments were moderated. There were no
sufficiently significant issues to require adjustment of overall marks.
The subject matter that the candidates had chosen for their assignments was very
interesting and those who achieved distinctions were of a very high quality.
IIA IT Auditing Certificate completions
I am very pleased to report that this fourth sitting has resulted in nine members
completing the IT Auditing Certificate.
Paul Charlton PG Dip (Audit), CFIIA, CMIIA, QiCA
Senior Chief Examiner
February 2013
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