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Under GIAS Stаndаrd 12.1, “Internаl Quality Assessment,” a newly appоinted CAE discоvers that the functiоn has not disclosed significant nonconformance with GIAS Requirements. If the nonconformance affects the function’s overall scope or operation, to whom must it be disclosed, and why?3
Essаy Prоblem 2: Gоvernаnce аnd independence judgment (10 pоints)ScenarioGulfview Hospitality Group (Gulfview) operates 24 hotels along the Gulf Coast under franchise agreements with two national brands. Three years ago, Gulfview lacked an ERM program and a dedicated risk officer. After consecutive hurricane losses and a substantial increase in insurance premiums, the Board asked the CAE to help establish an initial ERM function.The Board approved an 18-month implementation plan and amended the internal audit charter. The approved role permitted the CAE to facilitate risk workshops, recommend a risk taxonomy and scoring methodology, and supervise the formation of the ERM function. The Board meeting minutes stated that senior management would retain responsibility for risk responses and that the Board would obtain independent assurance over the ERM function during the implementation.At the beginning of the current year, the ERM function consisted of the following:Gulfview has an ERM Director and two analysts that are grouped in a separate cost center for accounting purposes. In addition, its systems are separate and distinct from internal audit. The ERM function reports to the CAE. The ERM function also maintains the enterprise risk register, administers the scoring methodology, and monitors key risk indicators. Internal audit staff do not perform those activities.Business executives are designated as risk owners, and the Board’s Enterprise Risk Management Committee (ERMC) normally approves risk responses. The CAE chairs the ERMC as a nonvoting facilitator. Until six months ago, the CAE resolved disputed residual-risk ratings and approved response plans for several significant risks. The ERMC now assigns those decisions to Gulfview's COO.The ERM Director prepares the quarterly enterprise risk report. The CAE edits and approves the report and presents it to the Board; the ERM Director does not attend. The CAE separately presents internal audit results to the Board.This year's internal audit plan includes an engagement titled "Assurance over the ERM process." An internal audit director who has not worked in ERM will lead the engagement, but the CAE is scheduled to approve its scope, supervise the work, and approve the final communication. No party outside internal audit has been assigned to oversee the engagement.An external provider assessed ERM at the end of the original 18-month transition. Gulfview has obtained no independent assurance over ERM since that review. The internal audit charter still describes the CAE's role as temporary, and the Board has not formally reconsidered the arrangement or its safeguards since the transition expired.The newly hired CFO proposes making ERM Director and function reporting into the CAE permanent and retitling the CAE as “CAE/CRO.” The internal audit and risk management staff would continue to operate separately, the CAE/CRO would retain functional access to the Board’s Audit Committee, and the newly combined CAE/CRO role would report administratively to the CFO. The CFO argues that the separate ERM and internal audit staff eliminate the need for any independent provider to provide assurance over ERM function.RequirementsPart A (4 points) Select three CAE or internal audit activities from the scenario and:Identify which principle(s), standard(s) or guidance from the Authority Bank listed below they do not comply or align withDescribe how and why they do not comply in the context of Authority Bank item selectedNot every Authority Bank item will apply. The same Authority Bank item may support more than one activity. You do not need to provide page numbers, standard numbers from memory beyond those listed below, or verbatim quotations. For full credit, name the principle, standards or guidance and apply it to the scenario facts.Authority Bank:GIAS Principle 2, Maintain Objectivity, including Standards 2.1–2.3GIAS Principle 3, Demonstrate Competency, including Standard 3.1GIAS Standard 6.2, Internal Audit CharterGIAS Standard 7.1, Organizational IndependenceThe IIA’s 2026 Statement of Position, Three Lines Model: Assurance and Advice in Support of Effective Governance, including its provisions addressing independence, assurance and advice, and safeguards to maintain clarity and objectivityThe IIA’s 2026 Statement of Position, The Role of the Internal Audit Function in Enterprise Risk Management, including its provisions addressing internal audit’s assurance, advisory, and administrative activities; involvement across ERM; and safeguards to preserve independence and objectivity.Part B (3 points) Evaluate the consequences for organizational independence, individual objectivity, and the reliability of information currently provided to Gulfview's Board. Distinguish between an internal audit function performing second-line ERM activities and a CAE supervising a structurally separate risk management function. Identify the safeguards already present, the safeguards that are missing or ineffective, and the independent oversight required for the proposed assurance engagement over ERM.Part C (3 points) Recommend whether the CAE should accept, reject, or seek the CAE/CRO role modifications to the CFO's proposal. Specify the matters to present to the Board for decision and support your recommendation with applicable Authority Bank items.Scope note: Do not design engagement procedures or defend audit findings.
An оrgаnizаtiоn's risk mаnagement department cоnducts a comprehensive annual enterprise risk assessment and presents results directly to the Board. The Board relies on this as its primary source of risk information, with no separate reporting from internal audit. Under the IIA Three Lines Model, what governance gap does this arrangement most directly create?