Certified Internal Auditor (CIA) Practice Test

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Study for the Certified Internal Auditor Exam with comprehensive quizzes, flashcards, and multiple-choice questions. Each question includes detailed explanations to enhance understanding. Prepare confidently for your CIA certification!

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Why would a bank maintain a separate compliance function?

To manage high perceived risks.
To strengthen investment controls.
To ensure independence of management.
To meet shareholder expectations.

The correct answer is: To manage high perceived risks.

A bank maintains a separate compliance function primarily to manage high perceived risks that could affect its operations and reputation. The financial industry is subject to extensive regulations and compliance requirements, which are designed to prevent fraud, money laundering, and other illegal activities. By having a dedicated compliance function, the bank can proactively identify, assess, and mitigate risks that arise from regulatory changes or non-compliance with laws. This specialized function also ensures that there are individuals focused solely on compliance, allowing for a more thorough understanding of the regulatory landscape and the development of policies and procedures to adhere to these regulations. This structure helps in monitoring and reporting compliance issues, thereby minimizing the risk of penalties or damage to the bank's reputation. While strong investment controls and ensuring independence of management are important elements of a bank’s overall governance and risk management strategy, they do not specifically address the unique requirements and objectives that a dedicated compliance function serves in managing regulatory and compliance risks. Meeting shareholder expectations is an essential business consideration, but having a distinct compliance function more directly relates to the importance of managing regulatory compliance risk effectively.