Internal Audit

Working papers serve the following purpose for the internal

auditor:

• A) Provide the

  auditee a place to make responses to audit recommendations.

• B) Make the audit

  report more readable by providing a place to append exhibits.

• C) Provide the

  principal evidential support for the internal auditor's report.

• D) Provide a place to

  summarize overall audit recommendations.

During an audit of travel expenses, the accounting supervisor tells the auditor that each expense report is reviewed and approved before costs are reimbursed

to the traveler. Which of the following is the best course of action for the auditor to take?

• A) Request the

  supervisor to put the statement in writing.

• B) Review a sample of

  expense reports for proper approval.

• C) Conserve audit

  resources by accepting the statement and redirect audit work into another

  area.

• D) Corroborate this

  information with the controller.

Which of the following activities is not included in determining the audit schedule?

• A) Developing audit

  programs.

• B) Assessing risk

  factors.

• C) Planning workload

  requirements.

• D) Identifying

  auditable locations.

Red flags are

conditions that indicate a higher likelihood of fraud. Which of the following would not be considered a red flag?

• A)Management has delegated the authority to make purchases under a certain dollar limit to subordinates.

• B) An individual has held the same cash-handling job for an extended period without any rotation of duties.

• C) An individual handling marketable securities is responsible for making the purchases recording the purchases, and reporting any discrepancies and gains/losses to senior management.

• D) The assignment of responsibility and accountability in the accounts receivable department is not clear.

Which of the following statements regarding the internal auditor's responsibility for detecting fraud in the environment described in the scenario above is not correct? The auditor should:-

• A)Detect fraud if red flags are present in the environment.

• B) Have sufficient knowledge to correctly identify indicators that fraud may have been committed.

• C) Identify control weaknesses that could allow fraud to occur.

• D) Evaluate the indicators of fraud sufficiently to determine if a fraud investigation should take place.

Which of the following statements is an audit objective?

• A) Observe the deposit of the day's cash receipts.

• B) Analyze the pattern of any cash shortages.

• C)Evaluate whether cash receipts are adequately safeguarded.

• D) Recompute each month's bank reconciliation.

The results of an audit of cash indicate the bookkeeper signs expense checks and reconciles the checking account.

The cash account was properly reconciled and no cash shortages were detected. Select the appropriate overall audit opinion?

• A) In our opinion the system of internal control over cash is adequate.

• B)Based on the audit results it is our opinion that the system of internal control over cash is inadequate.

• C) The results of the audit indicate reconciliations have been properly completed.

• D) In our opinion the physical cash handling procedures are adequate.

A risk associated with just-in-time (JIT) production is the:

• A) Increased potential for early obsolescence of inventories of finished goods.

• B) High cost of material handling equipment.

• C) Potential for significant costs associated with reworking defective components.

• D)Critical dependency on a few vendors.

A director of internal auditing uncovers a significant fraudulent activity which clearly involves the executive vice president to whom the director reports. Which of the following best describes how the director should proceed?

• A) Carry out an examination for the purpose of determining the extent of the fraud.

• B) Interview the executive vice president to obtain essential evidence.

• C) Notify regulatory authorities and police.

• D)Report the facts to the chief executive officer and the audit committee of the board of directors.

An internal auditor has detected probable employee fraud and is preparing a preliminary report for management. This report should include:-

• A) A statement that an internal audit conducted with due professional care cannot provide absolute assurance that irregularities have not occurred.

• B)The auditor's conclusion as to whether sufficient information exists to conduct an investigation.

• C) The results of a polygraph test administered to the suspected perpetrator(s) of the fraud.

• D) A list of proposed audit tests to help disclose the existence of similar frauds in the future.