CIA P2

Which engagement-planning tool is general in nature and is used to ensure adequate audit coverage over time?

• The long-range schedule.

• The engagement program.

• The audit activity’s budget.

• The audit activity’s charter.

Answer explanation

The engagement program is limited in scope to a particular project.

The audit activity’s budget may be used to justify the number of audit personnel, but it is not used to ensure adequate audit coverage over time.

The audit activity’s charter is not an engagement-planning tool.

A chief audit executive (CAE) uses a risk assessment model to establish the annual audit plan. Which of the following would be an appropriate action by the CAE?

1-Maintain ongoing dialogue with management and the audit committee.

2-Ensure that the schedule of audit priorities remains unchanged.

3-Employ only quantitative methods to determine risk weightings.

4-Revise the risk assessment and audit priorities as warranted.

• 3 only

• 1 & 2 Only

• 1 & 4 Only

• 3 & 4 Only

Answer explanation

It is a best practice for risk assessment to be a dynamic process, changing over time and as new information, business strategies, and risks are identified. Ongoing consultation with members of management and the audit committee is a way for the internal audit activity to obtain such information and stay attuned to organizational developments that may impact existing audit priorities. In order to accommodate such emerging priorities, the work schedule may need to be altered.

When a risk assessment process has been used to construct an audit engagement schedule, which of the following should receive attention first?

• The external auditors have requested assistance for their upcoming annual audit.

• A new accounts payable system is currently undergoing testing by the information technology department.

• Management has requested an investigation of possible lapping in receivables.

• The existing accounts payable system has not been audited over the past year.

Answer explanation

Management’s request to investigate a possible fraud in the accounts receivable unit must take precedence over the other entities.

Which of the following is the best reason for the chief audit executive to consider the strategic plan in developing the annual audit plan?

• To ensure that the internal audit plan supports the overall business objectives.

• To ensure that the internal audit plan will be approved by senior management.

• To make recommendations to improve the strategic plan.

• To emphasize the importance of the internal audit activity.

Answer explanation

Considering the strategic plan in the development of the internal audit plan will ensure that the audit objectives support the overall business objectives stated in the strategic plan.

In assessing organizational risk in a manufacturing environment, which of the following would have the most long-range impact on the organization?

• Production scheduling.

• Inventory policy.

• Product quality.

• Advertising budget.

Answer explanation

This would be a long-range planning topic because it affects market positioning.

If a department outside of the internal audit activity is responsible for reviewing a function or process, the internal auditors should:

• Consider the work of the other department when assessing the function or process.

• Ignore the work of the other department and proceed with an independent audit.

• Reduce the scope of the audit since the work has already been performed by the other department.

• Yield the responsibility for assessing the function or process to the other department.

Answer explanation

Review and testing of the other department’s procedures may reduce necessary audit coverage of the function or process.

Who has primary responsibility for providing information to the audit committee on the professional and organizational benefits of coordinating internal audit assurance and consulting activities with other assurance and consulting activities?

• The external auditor.

• The chief audit executive.

• The chief executive officer.

• Each assurance and consulting function.

Answer explanation

The responsibility for ensuring that the internal audit activity’s professional and organizational responsibilities maximize the benefits that can be achieved from coordination with other assurance consulting activities lies with the chief audit executive (CAE), according to Standard 2050. Comments on this should be reported by the CAE to the audit committee.

A company would like to contract for janitorial services for one year with four option years. The specifications require the potential contractor to perform certain cleaning services at specified intervals. Which of the following is the best contract type for this requirement?

• Cost-reimbursable

• Indefinite delivery contracts

• Fixed-price.

• Time-and-materials.

Correlation is a term frequently used in conjunction with regression analysis and is measured by the value

of the coefficient of correlation, r. The best explanation of the value r is that it:

A. Is always positive.

B. Interprets variances in terms of the independent variable.

C. Ranges in size from negative infinity to positive infinity.

D. Is a measure of the relative relationship between two variables.

• A

• B

• C

• D

An internal auditor for a large automotive parts retailer wishes to perform a risk analysis and wants to use an appropriate statistical tool to help identify stores that would be out of line compared to the majority of stores. The most appropriate statistical tool to use is:

A. Lenier time series analysis.

B. Cross-sectional regression analysis.

C. Cross tabulations with chi-square analysis of significance.

D. Time series multiple regression analysis to identify changes in individual stores over time.

• A

• B

• C

• D