Internal Audit Quiz

What are the main purposes of internal audit? (3 marks)

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List the main differences of internal and external auditors (2 marks)

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Limitations of establishing internal audit function (4 marks)

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Which of the following describes how a new internal audit department could assist the directors of BBH in preventing and detecting fraud and error? (1) It could assess the main areas of fraud risk, as well as assess the adequacy and effectiveness of the system of internal control (2) It could evaluate the appropriateness of a company’s objectives and the board’s strategies to achieve those objectives (3) Having developed a system of internal control, it could undertake regular reviews of each hotel’s compliance with these controls (4) Where fraud is suspected, it could undertake an investigation to identify who is involved, the likely amounts stolen and obtain evidence for any police investigation

• A. 1, 2 and 3

• B. 1 and 3 only

• C. 1, 3 and 4

• D. 3 and 4 only

Which of the following are limitations of BBH establishing and maintaining an internal audit department? (1) That the internal auditors will be employees may impair their independence, as they may not report issues to those charged with governance for fear of losing their job (2) As there is no requirement for internal auditors to be qualified, there may be gaps in the experience and technical knowledge of the department (3) As BBH has not previously had such a department, there may be some resistance to employees having their work reviewed, especially if the department’s first task is a fraud investigation (4) As internal audit is required to be both objective and independent it can be difficult to find sufficient personnel to staff the department

• A. 1 and 2 only

• B. 1, 2 and 3

• C. 1, 2 and 4

• D. 2, 3 and 4

Which of the following conclusions could be drawn by the internal audit department if it undertakes the inventory counts? (1) If actual quantities are generally lower than recorded quantities, there may be obsolete inventory (2) If actual quantities for a specific hotel are lower than recorded quantities, this may indicate fraud (3) If actual quantities are higher than recorded quantities, employees may not have been adequately trained on how to record inventory movements (4) If there are no differences, there are no inventory issues

• A. 2 and 3 only

• B. 1 and 3

• C. 1 and 4

• D. 2, 3 and 4

Which of the following describes the internal audit assignment to determine benchmarks?

• A. Regulatory compliance

• B. Value for money

• C. Operational information systems

• D. Best value

Which of the following are additional functions that the internal audit department might be required to undertake? (1) Testing controls over cash receipts and cash counts (2) Reviewing the computer environment and controls (3) Monitoring compliance with laws and regulations (4) Reviewing employees’ eligibility for promotions

• A. 1 and 3 only

• B. 2 and 3 only

• C. 1, 2 and 3

• D. 1, 2 and 4

Explain the interrelation of features of audit evidence (1 mark)

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Which THREE of the following audit procedures are appropriate to verify management’s estimate of the realisable value of inventory? A. Trace a sample of goods received notes and goods despatch notes from before and after the year end to inventory records B. Inspect the inventory records for evidence of obsolete or slow-moving inventory C. For inventory that has been sold, agree proceeds to sales invoices and cash book receipts D. Confirm the

• A. A, B and C

• B. A and C

• C. B and D

• D. A and D