Session IAP 10

An internal audit function is charged with evaluating the compliance of the organization’s human resources function with applicable laws, regulations, and internal policies. Which objective(s) is (are) appropriate for this engagement plan?

1. Evaluate compliance with residency policy.

2. Ensure that applicant pools are representative of the population.

3. Assess the process used for responding to employee complaints.

4. Question recently hired employees to assess compliance with interviewing standards.

• 3 only.

• 1 and 2 only.

• 3 and 4 only.

• 1 and 3 only.

Which of the following is an appropriate statement of an engagement objective?

• To determine whether inventory stocks are sufficient to meet projected sales.

• To observe the physical inventory count.

• To search for the existence of obsolete inventory by computing inventory turnover by product line.

• To include information about stockouts in the final engagement communication.

The established scope of the engagement must be sufficient to satisfy the objectives of the engagement. When developing the objectives of the engagement, the internal auditor considers the

• Results of engagement procedures.

• Information included in the engagement work program.

• Probability of significant noncompliance.

• Resources required.

An engagement objective is to verify that the correct goods or services are received on time, at the right price, and in the right quantity. Based on this objective, the function to be reviewed is the

• Manufacturing department.

• Receiving department.

• Purchasing department.

• Payroll department.

For an upcoming engagement, an internal auditor’s objective is to determine whether costs are both documented and reasonable. This is most likely an engagement involving

• Advertising agency billings.

• Accounts payable.

• Asset disposals.

• Allowance for doubtful accounts.

While planning an engagement, an internal auditor establishes engagement objectives to describe what is to be accomplished. Which of the following is a key issue to consider in developing engagement objectives?

• The qualifications of the internal auditing staff selected for the engagement.

• Recommendations of the engagement client’s employees.

• Risks associated with the activities to be reviewed.

• The recipients of the final engagement communication.

If an engagement client’s operating standards are vague and thus subject to interpretation, the internal auditor must

• Seek agreement with management as to the criteria to be used to measure operating performance.

• Interpret the standards in their strictest sense because standards are otherwise only minimum measures of acceptance.

• Omit any comments on standards and the engagement client’s performance in relationship to those standards because such an analysis would be meaningless.

• Determine best practices in this area and use them as the standard.

An internal auditor is assigned to perform an engagement to evaluate the organization’s insurance program, including the appropriateness of the approach to minimizing risks. The organization self-insures against large casualty losses and health benefits provided for all its employees. It is a large national entity with over 15,000 employees located in various parts of the country. It uses an outside claims processor to administer its health care program. The organization’s medical costs have been rising by approximately 8% per year for the past five years, and management is concerned with controlling these costs. The internal auditor needs to determine the scope of the proposed evaluation of insurance coverage. Which of the following statements are true regarding the potential scope of the engagement?

1. The internal audit activity should concentrate on processing that occurs within the organization and not on evaluating the correctness of transactions processing by the health care processor.

2. The internal auditor should interview management prior to beginning the engagement to understand (1) its concerns and (2) the underlying assumptions made and rationale used when making the self-insurance decision.

3. The internal auditor should consider engaging an actuarial consultant to better understand the risks involved in order to help determine the scope of the engagement.

• 2 and 3.

• 1 and 2.

• 1 only.

• 2 only.

In evaluating the effectiveness and efficiency with which resources are employed, an internal auditor is responsible for

• Reviewing the reliability of operating information.

• Determining the extent to which adequate operating criteria have been established.

• Verifying the existence of assets.

• Verifying the accuracy of asset valuation.

Which statement most accurately describes how criteria are established for use by internal auditors in determining whether goals and objectives have been accomplished?

• Management is responsible for establishing the criteria.

• Appropriate accounting or auditing standards, including international standards, should be used as the criteria.

• Internal auditors should use professional standards or government regulations to establish the criteria.

• The industry in which a company operates establishes criteria for each member company through benchmarks and best practices for that industry.