Operations Auditing _ Final Examination

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1. Operational auditing is primarily oriented toward

• a. future improvements to accomplish the goals of management.
• b. the accuracy of data reflected in management’s financial records.
• c. the verification that a company’s financial statements are fairly presented.
• d. past protection provided by existing internal control.

2. A typical objective of an operational audit is to determine whether an entity’s

• a. internal control structure is adequately operating as designed.
• b. operational information is in accordance with generally accepted government auditing standards.
• c. financial statements present fairly the results of operations.
• d. specific operating units are functioning efficiently and effectively.

3. During an operational audit engagement, an auditor compared the inventory turnover rate of a subsidiary with established industry standards to:

• a. evaluate the accuracy of internal financial reports.
• b. test controls designed to safeguard assets.
• c. determine compliance with corporate procedures regarding inventory levels.
• d. assess performance and indicate where additional audit work may be needed.

4. Determine whether the statements below are true or false. I. Efficiency relates to the use of inputs and other resources toward the achievement of goals and objectives in some form of productive activity. II. The ratio between the actual production (i.e., outputs) and the actual inputs (i.e., resources) constitutes the degree of efficiency of the organization’s operations.

• a. Both statements are true
• b. Both statements are false
• c. Only statement I is true
• d. Only statement II is true

5. Which of the following is the primary purpose of financial statement audit engagements?

• a. To assess the efficiency and effectiveness of the accounting department.
• b. To evaluate organizational and departmental structures, including assessments of process flows related to financial matters.
• c. To provide a review of routine financial reports, including analyses of selected accounts for compliance with generally accepted accounting principles.
• d. To provide an analysis of business process controls in the accounting department, including tests of compliance with internal policies and procedures.

6. To be sufficient, audit evidence should be:

• a. well documented and cross-referenced in the workpapers.
• b. based on references that are considered reliable.
• c. directly related to the engagement observation and include all of the elements of an engagement observation.
• d. convincing enough for a prudent person to reach the same conclusion as the auditor.

7. When making decisions about evidence for a given audit, the auditor’s goal is to obtain a sufficient amount of timely, reliable evidence that is relevant to the information being verified. In addition, the goal of audit efficiency is to gather and evaluate the information:

• a. no matter the cost involved in obtaining such evidence.
• b. even if cost is irrelevant to the auditor because they bill the client for costs incurred.
• c. at the lowest possible total costs.
• d. at the cost suggested in the engagement letter.

8. An auditor has been assigned to analyze the effectiveness of a set of rehabilitation programs. The programs have been operating for 10 years and have yet to be evaluated. The organization providing the program data asserts that the data are incomplete. The auditor should:

• a. perform the analysis anyway, assessing the effects of the incomplete data, but disclaim any assertion regarding data reliability.
• b. trace a randomly chosen set of records to source files to assess the accuracy and completeness of the data provided.
• c. not perform the analysis.
• d. postpone the analysis until data are complete.