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WorksheetsInternal Audit
Total questions: 24
Worksheet time: 36mins
Working papers serve the following purpose for the internal
auditor:
A) Provide the
auditee a place to make responses to audit recommendations.
B) Make the audit
report more readable by providing a place to append exhibits.
C) Provide the
principal evidential support for the internal auditor's report.
D) Provide a place to
summarize overall audit recommendations.
During an audit of travel expenses, the accounting supervisor tells the auditor that each expense report is reviewed and approved before costs are reimbursed
to the traveler. Which of the following is the best course of action for the auditor to take?
A) Request the
supervisor to put the statement in writing.
B) Review a sample of
expense reports for proper approval.
C) Conserve audit
resources by accepting the statement and redirect audit work into another
area.
D) Corroborate this
information with the controller.
Which of the following activities is not included in determining the audit schedule?
A) Developing audit
programs.
B) Assessing risk
factors.
C) Planning workload
requirements.
D) Identifying
auditable locations.
Red flags are
conditions that indicate a higher likelihood of fraud. Which of the following would not be considered a red flag?
A)Management has delegated the authority to make purchases under a certain dollar limit to subordinates.
B) An individual has held the same cash-handling job for an extended period without any rotation of duties.
C) An individual handling marketable securities is responsible for making the purchases recording the purchases, and reporting any discrepancies and gains/losses to senior management.
D) The assignment of responsibility and accountability in the accounts receivable department is not clear.
Which of the following statements regarding the internal auditor's responsibility for detecting fraud in the environment described in the scenario above is not correct? The auditor should:-
A)Detect fraud if red flags are present in the environment.
B) Have sufficient knowledge to correctly identify indicators that fraud may have been committed.
C) Identify control weaknesses that could allow fraud to occur.
D) Evaluate the indicators of fraud sufficiently to determine if a fraud investigation should take place.
Which of the following statements is an audit objective?
A) Observe the deposit of the day's cash receipts.
B) Analyze the pattern of any cash shortages.
C)Evaluate whether cash receipts are adequately safeguarded.
D) Recompute each month's bank reconciliation.
The results of an audit of cash indicate the bookkeeper signs expense checks and reconciles the checking account.
The cash account was properly reconciled and no cash shortages were detected. Select the appropriate overall audit opinion?
A) In our opinion the system of internal control over cash is adequate.
B)Based on the audit results it is our opinion that the system of internal control over cash is inadequate.
C) The results of the audit indicate reconciliations have been properly completed.
D) In our opinion the physical cash handling procedures are adequate.
A risk associated with just-in-time (JIT) production is the:
A) Increased potential for early obsolescence of inventories of finished goods.
B) High cost of material handling equipment.
C) Potential for significant costs associated with reworking defective components.
D)Critical dependency on a few vendors.
A director of internal auditing uncovers a significant fraudulent activity which clearly involves the executive vice president to whom the director reports. Which of the following best describes how the director should proceed?
A) Carry out an examination for the purpose of determining the extent of the fraud.
B) Interview the executive vice president to obtain essential evidence.
C) Notify regulatory authorities and police.
D)Report the facts to the chief executive officer and the audit committee of the board of directors.
An internal auditor has detected probable employee fraud and is preparing a preliminary report for management. This report should include:-
A) A statement that an internal audit conducted with due professional care cannot provide absolute assurance that irregularities have not occurred.
B)The auditor's conclusion as to whether sufficient information exists to conduct an investigation.
C) The results of a polygraph test administered to the suspected perpetrator(s) of the fraud.
D) A list of proposed audit tests to help disclose the existence of similar frauds in the future.
In deciding whether recorded sales are valid, which of the following items of evidence would be considered most competent?
A) A copy of the customer's purchase order.
B) A memorandum from the director of the shipping department stating that another employee verified the personal delivery of the merchandise to the customer.
C) Accounts receivable records showing cash collections from the customer.
D)The shipping document, independent bill of lading, and the invoice for the merchandise.
Evidence that is both the best available and reliable is
A) Sufficient.
B)Competent.
C) Relevant.
D) Documentary.
Which of the following audit procedures provides the best evidence about the collectibility of notes receivable?
A) Confirmation of note receivable balances with the debtors.
B) Examination of notes for appropriate debtors' signatures.
C) Reconciliation of the detail of notes receivable and the provision for uncollectible amounts to the general ledger control.
D)Examination of cash receipts records to determine promptness of interest and principal payments.
A manager prepared and signed checks payable to a fictitious supplier and deposited the checks into a personal bank account. Which of the following internal controls would most likely have prevented, or at least detected, the embezzlement?
A) Use of competitive bids for all purchases.
B) Payments to suppliers must be made by certified check.
C)A check signer other than the manager must sign checks only when approved invoices are presented with the completed, unsigned check.
D) The numerical sequence of checks must be accounted for by a responsible employee on a regular basis.
An internal auditor at a savings and loan concludes that a secured real estate loan is collectible. Which of the following audit procedures provides the most persuasive evidence about the loan's collectibility?
A) Confirming the loan balance with the borrower.
B) Reviewing the loan file for proper authorization by the credit committee.
C)Examining documentation of a recent, independent appraisal of the real estate.
D) Examining the loan application for appropriate borrowers' signatures.
Audit findings must be based on sufficient, competent, relevant, and useful evidence. Which of the following statements is true about evidence?
A) Physical observation provides the most reliable evidence of the existence of accounts receivable.
B) Purchase orders are relevant evidence that goods paid for have been received.
C)An appropriate conclusion about a population based on a sample requires that the sample be representative of the population.
D) A copy of an original document is as reliable as the original document.
A company recently experienced a substantially reduced net profit from sales of product-line A. Line A is produced
in a dedicated machine shop. The internal auditors have been assigned the task of determining the cause of the reduced net profit.The in-charge auditor should, as a first step:-
A) Test material vouchers for validity.
B)Evaluate the elements of cost and compare to prior periods.
C) Compare production records with cost standards.
D) Analyze scrap and surplus records
Which of the following procedures would provide the most relevant evidence to determine the adequacy of the allowance for doubtful accounts receivable?
A) Confirm the receivables.
B) Analyze the following month's payments on the accounts receivable balances outstanding.
C) Test the control over the write-off of accounts receivable to ensure that management approves all write-offs.
D) Analyze the allowance through an aging of receivables and an analysis of current economic data.
During the preliminary survey phase of an audit of the organization's production cycle, management stated that the sale of scrap was well controlled. Evidence to verify that assertion can best be gained by:-
A) Comparing current revenue from scrap sales with that of prior periods.
B) Interviewing persons responsible for collecting and storing the scrap.
C)Comparing the quantities of scrap expected from the production process with the quantities sold.
D) Comparing the results of a physical inventory of scrap on hand with perpetual inventory records.
Which of the following documents should the auditor examine to determine if only authorized purchases are being accepted by the receiving department?
A) A bill of lading.
B)A copy of the purchase order.
C) An invoice.
D) Policies and procedures for the receiving function.
Which of the following would indicate that fraud may be taking place in a marketing department?
A) There is no documentation for some fairly large expenditures made to a new vendor.
B) A manager appears to be living a lifestyle that is in excess of what could be provided by a marketing manager's salary
C) The control environment can best be described as "very loose."However, this attitude is justified by management
on the grounds that it is needed for creativity.
D)All of these answer choices.
What is the Primary Objective of an Internal Auditor
To provide Absolute assurance that Financial Statements are free from Mis-statements
To Detect and correct Fraud and Error in the Financial Statements
To Provide Reasonable Assurance that Financial Statements are free from Mis-statements
To act as Expert witness in Legal Proceedings
An internal auditing department has been piloting the use of electronic workpaper files. Full implementation is
expected in the near future. Select a disadvantage of electronic workpapers:
Each staff auditor must have a personal computer.
Critical workpapers must still be printed off.
Cross-referencing is more tedious.
Requires specific technical training.
During an audit, an IT auditor found no written procedures for an application system. What should the auditor do?
Cancel the audit immediately since it is hard to do an audit without documentation.
Reschedule the audit when the procedures are written.
Report the issue to management.
Document the procedures and audit against them.
