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WorksheetsFinal Test
Total questions: 50
Worksheet time: 25mins
During an interview with a data input clerk to discuss a computerized system used to track employee training requirements and compliance, an internal auditor identifies a potentially significant weakness in the system. The internal auditor should
Ask the clerk about the weakness and determine immediately whether the observation should be communicated
Ask indirect questions that will help get more factual information relating to the potential weakness
Conduct a second interview after determining whether the weakness actually exists
Not mention the weakness, directly or indirectly, to avoid making the clerk uncomfortable
Internal auditors should be active listeners to gain the most information in an internal audit interview. Which of the following best describes how an active listener behaves in an interview? The listener
Avoids looking directly at the speaker and interrupting his or her train of thought.
Listens with acceptance, empathy, and intensity.
Formulates arguments and conclusions as pieces of the speaker’s information fit together.
Judges and evaluates the information as it is presented.
In deciding whether recorded sales are valid, which of the following items of information is most reliable?
A copy of the customer’s purchase order.
A memorandum from the director of the shipping department stating that another employee verified the personal delivery of the merchandise to the customer.
The shipping document, independent bill of lading, and the invoice for the merchandise.
Accounts receivable records showing cash collections from the customer.
While performing an engagement relating to an organization’s cash controls, the internal auditor observed that cash deposits are not deposited intact daily. A comparison of a sample of cash receipts lists revealed that each cash receipt list equaled cash journal entry amounts but not daily bank deposits amounts, and cash receipts list totals equaled bank deposit totals in the long run. This information as support for the internal auditor’s observations is
Relevant but not sufficient or reliable.
Sufficient but not reliable or relevant.
Not sufficient, reliable, or relevant.
Sufficient, reliable, and relevant.
Ordinarily, what source of information should most affect the internal auditor’s conclusions?
Oral.
Inquiry.
Informal.
External.
Which of the following represents the general order of persuasiveness, from most to least, for the types of information listed below?
1. Inquiry of management
2. Observation of engagement client’s procedures
3. Physical examination
4. Documentation prepared externally
2, 4, 1, 3.
4, 3, 1, 2.
3, 2, 4, 1.
4, 1, 2, 3.
Controls should be designed to provide reasonable assurance that
Organizational objectives will be achieved economically and efficiently.
Management’s planning, organizing, and directing processes are properly evaluated.
The internal audit activity’s guidance and oversight of management’s performance is accomplished economically and efficiently.
Management’s plans have not been circumvented by worker collusion.
When are governance, risk management, and control processes considered adequate?
When management has planned and designed them to provide reasonable assurance of achieving the organization’s objectives efficiently and economically.
When management has planned and designed them to provide reasonable assurance of achieving the organization’s objectives efficiently and economically.
When management has planned and designed them to provide absolute assurance of achieving the organization’s objectives efficiently and economically.
When the company is profitable.
The internal audit activity is responsible for implementing
1. Risk management
2. Governance
3. Control
3 only.
None of the answers are correct.
1 only.
2 only.
Internal auditing is an assurance and consulting activity. An example of an assurance service is a(n)
Training engagement.
Advisory engagement.
Facilitation engagement.
Compliance engagement.
When assessing the risk associated with an activity, an internal auditor should
Update the risk management process based on risk exposures.
Determine how the risk should best be managed.
Provide assurance on the management of the risk.
Design controls to mitigate the identified risks.
An operational engagement relating to the production function includes a procedure to compare actual costs with standard costs. The purpose of this engagement procedure is to
Assess the reasonableness of standard costs.
Determine the accuracy of the system used to record actual costs.
Measure the effectiveness of the standard cost system.
Assist management in its evaluation of effectiveness and efficiency.
Which outcome can be derived from self-assessment methodologies?
People are motivated to take ownership of the control processes in their units and corrective actions taken by work teams are often more effective and timely.
Auditors’ responsibility for the risk management and control processes of the organization will be reinforced.
Formal, hard controls are more easily identified and evaluated.
Management will become involved in and knowledgeable about the self-assessment process by serving as facilitators, scribes, and reporters for the work teams.
Which group is charged with overseeing the establishment, administration, and evaluation of the processes of risk management and control?
Senior management.
Internal auditors.
External auditors.
Operating managers.
The function of internal auditing, as related to communicating results, is to
Identify inadequate controls that increase the likelihood of unauthorized expenditures.
Review the expenditure items and match each item with the expenses incurred.
Ensure compliance with reporting procedures.
Determine whether any employees are expending funds without authorization.
During the planning phase, a chief audit executive (CAE) is evaluating four audit engagements based on the following factors: the engagement’s ability to reduce risk to the organization, the engagement’s ability to save the organization money, and the extent of change in the area since the last engagement. The CAE has scored the engagements for each factor from low to high, assigned points, and calculated an overall ranking. The results are shown with the points in parentheses:
Which audit engagements should the CAE pursue if all factors are weighed equally?
2 and 4 only.
3 and 4 only.
1 and 2 only.
1 and 3 only.
Updating the audit universe is useful in developing the internal audit plan. The audit universe
May not overlap with the organization’s strategic plan.
Consists of all possible audits.
Is typically updated every 5 years.
Reflects only past organizational strategies.
The chief audit executive of a manufacturer is updating the long-range engagement work schedule. Several possible engagements can be assigned to a given time slot. Information on potential monetary exposure and key internal controls has been gathered. Based on perceived risk, select the assignment of greatest merit.
Sales force travel expenses -- budget, US $1,200,000; 50 sales people; all expenditures over US $25 must be receipted.
Branch office petty cash -- ledger amount, US $75,000; 10 branch offices, equal amounts; replenishment of accounts requires three separate approvals.
Expendable tools inventory -- carrying amount, US $1,100,000; Stored with other inventory.
Precious metals inventory -- carrying amount, US $10,000; separately stored, access restricted by keycard and management approval.
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 will be approved by senior management.
To ensure that the internal audit plan supports the overall business objectives.
To emphasize the importance of the internal audit function.
To make recommendations to improve the strategic plan.
Which of the following represent(s) appropriate internal audit action in response to the risk assessment process?
1. The low-risk areas may be delegated to the external auditor, but the high-risk areas should be performed by the internal audit activity.
2. The high-risk areas should be integrated into an audit work schedule along with the high-priority requests of senior management and the audit committee.
3. The risk analysis should be used in determining an annual audit work schedule. Thus, the risk analysis should be performed only on an annual basis.
2 only.
3 only.
1 and 2 only.
1 only.
Audit risk at the assertion level consists of inherent risk, control risk, and detection risk. Which of the following statements is true?
The risk that material misstatement will not be timely prevented or detected by internal control can be reduced to zero by effective controls.
Detection risk is a function of the efficiency of an auditing procedure.
Cash has a greater inherent risk than an inventory of coal because it is more susceptible to theft.
The existing levels of inherent risk, control risk, and detection risk can be changed at the discretion of the auditor.
Risk is measured in terms of significance and likelihood. Excessive cash disbursements due to duplicate payments to vendors are events that most likely are placed in which area of a risk map?
High significance, low likelihood.
Low significance, low likelihood.
Low significance, high likelihood.
High significance, medium likelihood.
A chief audit executive is reviewing the following enterprise-wide risk map:
Which of the following is the correct prioritization of risks, considering limited resources in the internal audit activity?
Risk D, Risk B, Risk C, Risk A.
Risk A, Risk B, Risk C, Risk D.
Risk B, Risk C, Risk D, Risk A.
Risk B, Risk C, Risk A, Risk D.
Which of the following factors should an internal auditor consider when planning an audit of an activity?
The number of employees involved, the control system, and the recommendations of external auditors.
The qualifications of management, the significant risks, and the control system.
The objectives of the activity, the number of employees involved, and the control system.
The objectives of the activity, the significant risks, and the control system.
Internal auditors must make a preliminary assessment of risks when conducting an assurance engagement. This assessment may involve quantitative (objective) and subjective factors. The least subjective factor is
Changes in the auditee’s business forecast.
The auditor’s assessment of management responses.
The organization’s recognized losses on derivatives.
The evaluation of internal control.
In planning an assurance engagement, a survey could assist with all of the following except
Obtaining engagement client comments and suggestions on control problems.
Identifying areas for engagement emphasis.
Evaluating the adequacy and effectiveness of controls.
Obtaining preliminary information on controls.
In planning an engagement, the internal auditor establishes objectives to address the risk associated with the activity. Risk is the
Possibility that the balance or class of transactions and related assertions contains misstatements that could be material to the financial statements.
Failure to adhere to organizational policies, plans, and procedures or to comply with relevant laws and regulations.
Uncertainty of the occurrence of an event that could affect the achievement of objectives.
Failure to accomplish established objectives and goals for operations or programs.
For an upcoming engagement, an internal auditor’s objective is to determine whether costs are both documented and reasonable. This is most likely an engagement involving
Asset disposals.
Advertising agency billings.
Allowance for doubtful accounts.
Accounts payable.
Which of the following statements is an engagement objective?
Observe the deposit of the day’s cash receipts.
Evaluate whether cash receipts are adequately safeguarded.
Recompute each month’s bank reconciliation.
Analyze the pattern of any cash shortages.
While planning an engagement, an internal auditor establishes engagement objectives to describe what is to be accomplished. Which of the following is a key issue to consider in developing engagement objectives?
Risks associated with the activities to be reviewed.
The qualifications of the internal auditing staff selected for the engagement.
The recipients of the final engagement communication.
Recommendations of the engagement client’s employees.
Which of the following is an appropriate statement of an engagement objective?
To include information about stockouts in the final engagement communication.
To determine whether inventory stocks are sufficient to meet projected sales.
To search for the existence of obsolete inventory by computing inventory turnover by product line.
To observe the physical inventory count.
During an assessment of the risk associated with sales contracts and related commissions, which of the following factors would most likely result in an expansion of the engagement scope?
A decrease in sales returns, along with an increase in product sales.
An increase in sales returns, along with an increase in commissions.
A decrease in sales commissions, along with a decrease in product sales.
An increase in product sales, along with an increase in commissions.
Which of the following is not likely to be an assurance engagement objective related to auditing governance activities?
Assess compliance with ethics policies.
Determine customer satisfaction with shareholder communications.
Determine the operating effectiveness of the whistleblower process.
Evaluate the design adequacy of board education and training.
Which of the following is not an engagement objective related to the purchasing function?
Run background checks on unauthorized vendors.
Determine whether receiving reports are independently verified.
Determine whether goods received are properly reflected in purchasing records.
Determine whether purchases eligible for competitive bids are properly reviewed and authorized.
The audit manager for a financial audit is planning an engagement. Auditors will travel to a remote location to learn about the industry and business. The auditors will need to be able to work independently. Prior to allocating engagement resources, the audit manager should
Verify compliance with the applicable regulations for the industry.
Request a budget increase for the operation activities.
Evaluate the experience and competencies of the audit staff.
Tour the plant facilities and warehouse.
In assessing risks of material misstatement for purchases, an internal auditor vouches a sample of entries in the voucher register to the supporting documents. Which assertion would this test of controls most likely support?
Completeness.
Classification.
Accuracy.
Occurrence.
An internal auditor traces copies of sales invoices to shipping documents to determine that
Customer shipments were billed.
Shipments to customers were also recorded as receivables.
The subsidiary accounts receivable ledger was updated.
Sales that are billed were also shipped.
An internal auditor has set an engagement objective of determining whether the planned rate of return on investment in international operations has been achieved. Which of the following engagement procedures will best meet this objective?
Analytical review.
Observation.
Inspection of documents.
Inquiry.
An internal auditor observes that controls over the perpetual inventory system are weak. An appropriate engagement response is to
Recommend that a physical inventory count be scheduled.
Perform turnover ratio tests.
Apply gross profit analyses by product lines and compare the results with prior years’ information for reasonableness.
Increase the testing of the inventory controls.
An auditor selects a sample of recorded cash receipts and vouches them to accounts receivable and customer orders. This procedure is relevant to which assertion?
Occurrence.
Completeness.
Existence.
Cutoff.
One of the primary roles of an engagement work program is to
Assess the risks associated with the activity under review.
Provide for a standardized approach to the engagement.
Document an internal auditor’s evaluations of controls.
Serve as a tool for planning and conducting engagement work.
Writing an engagement work program most likely occurs at which stage of the engagement?
As the engagement is performed.
At the end of each engagement when the standard work program should be revised for the next engagement to ensure coverage of noted problem areas.
During the planning stage.
Subsequent to evaluating risk management and control systems.
A work program for a comprehensive assurance engagement to evaluate a purchasing function should include
A focus on risks affecting the financial statements as opposed to controls.
Procedures to accomplish engagement objectives.
Procedures arranged by relative priority based upon perceived risk.
A statement of the engagement objectives for the operation under review with agreement by the engagement client.
An auditor’s flowchart of a client’s accounting system is a diagrammatic representation that depicts the auditor’s
Assessment of the control environment’s effectiveness.
Assessment of the risks of material misstatement.
Identification of weaknesses in the system.
Understanding of the system.
Which of the following tools would best give a graphical representation of a sequence of activities and decisions?
Control chart.
Histogram.
Run chart.
Flowchart.
Internal auditors must base conclusions on
Appropriate analyses.
Recommendations.
Findings.
Reports.
In beginning an engagement, an internal auditor reviews written procedures that detail segregations of responsibility adopted by management to strengthen internal controls. These written procedures should be viewed as which attribute of an observation?
Condition.
Criteria.
Effect.
Cause.
A recommendation in a final engagement communication should address what attribute?
Criteria.
Cause.
Statement of condition.
Effect.
Final engagement communications should, at a minimum, contain the purpose, scope, and results of the engagement. Engagement observations and recommendations should be based on four attributes: criteria, condition, cause, and effect. The cause can best be described as
Factual evidence that the internal auditor found.
Resultant evaluations of the effects of the observations and recommendations.
Reason for the difference between the expected and actual conditions.
The risk or exposure because of the condition found.
The dean at a prestigious private performing arts college was reading about the 20 amazing students graduating with honors in the spring. The dean wants to gather the following information from the students’ families:
1. Why did the students choose this college?
2. How did the students go through the decision-making process?
What method would the college’s audit manager most likely suggest for gathering this information?
Having the students complete a rating scale survey.
Observing the activities of the students.
Interviewing the students’ families via telephone.
Sending a questionnaire to the students’ families.
