TRIAL TEST CIA PART 3

A manufacturer has been expanding rapidly and is considering adding a new production line. Employees are currently working double shifts and receiving large amounts of overtime pay. Demand for all of the organization’s products is currently high, but management worries about demand fluctuations with changes in the economy and technological developments by competitors. Management is concerned with such issues as whether it is efficiently using its resources, whether it is expanding too rapidly or not rapidly enough, whether employee morale is decreasing, and whether future expansion should be financed internally or through debt. Of the following management requests, which is within the normal scope of work of the internal audit activity as stated in the Standards?

• Perform an independent evaluation of management’s planning process as a basis for making recommendations.
• Talk with banks to identify financing alternatives and negotiate contract alternatives that will be presented to management for evaluation.
• Analyze financing alternatives and present the alternatives to the audit committee.
• Undertake a make-or-buy decision analysis to determine whether the organization should subcontract for part of its manufacturing versus adding capacity. Report the recommendation to management for approval.

Control by management is the result of

• Planning, organizing, and directing of organizational activities.
• Ascertaining needs, identifying alternative courses of action, setting standards for measuring performance, and comparing outcomes with predetermined standards.
• Authorizing and monitoring performance and comparing actual performance with planned performance.
• Determining efficiency and economy of operations, including whether objectives have been met.

Policies and procedures must be established to guide the internal audit activity. Which of the following statements is false with respect to this requirement?

• The form and content of written policies and procedures depend on the size of the internal audit activity.
• All internal audit activities must have a detailed policies and procedures manual.
• Formal administrative and technical manuals may not be needed by all internal audit activities.
• A small internal audit activity may be managed informally through close supervision and memoranda.

Which of the items below most likely reflects differences between the policies of a relatively large and a relatively small internal audit activity?  The policies for the large activity should

• Define the scope of internal auditing.
• Contain the authority to carry out engagements.
• Be specific as to activities to be carried out.
• Be in considerable detail.

Coordination of internal and external auditing can reduce the overall costs. Who is responsible for actual coordination of internal and external auditing efforts?

• The chief audit executive.
• The external auditor.
• The board.
• Management.

Which of the following are responsibilities of the chief audit executive (CAE)?1. Coordinating activities with other providers of assurance and consulting services, 2. Understanding the work of external auditors, 3. Providing sufficient information to the external auditors to permit them to understand the internal auditors’ work.

• 1 and 2 only.
• 2 and 3 only.
• 1 and 3 only.
• 1, 2, and 3.

An audit committee should be designed to enhance the independence of both the internal and external auditing functions and to insulate these functions from undue management pressures. Using this criterion, audit committees should be composed of

• A rotating subcommittee of the board of directors or its equivalent.
• Only members from the relevant outside regulatory agencies.
• Members from all important constituencies, specifically including representatives from banking, labor, regulatory agencies, shareholders, and officers.
• Only external members of the board of directors or its equivalent.

Internal audit resources should be appropriate, sufficient, and effectively deployed. Consequently,

• Resource planning should be limited to expected activities.
• The chief audit executive should perform a periodic skills assessment.
• Only members of the internal audit staff should perform internal audit activities.
• The chief audit executive ultimately must ensure the adequacy of resources.

Johnny Hagert, Chief Audit Executive, is determining the sufficiency of the resource allocation for the internal audit activity’s risk-based audit plan that establishes its priorities. Mr. Hagert must consider all of the following except

• Communications received from senior management and the board.
• The audit universe.
• Knowledge of the internal audit staff.
• Consequences of not completing the engagement on time.

The audit committee strengthens the control processes of an organization by

• Assigning the internal audit activity responsibility for interaction with governmental agencies.
• Using the chief audit executive as a major resource in selecting the external auditors.
• Following up on recommendations made by the chief audit executive.
• Approving internal audit activity policies.