WorksheetsSession IAP 9
Total questions: 25
Worksheet time: 13mins
A page from an internal auditor’s workpapers contains notes made in the prior period. They specify which controls are relevant in the current period and which controls will soon be obsolete. The notes relate to
Review for adequacy of control processes.
Review for effectiveness of control processes.
Review of results.
Preliminary survey.
The preliminary survey indicates that severe staff reductions at the engagement location have resulted in extensive amounts of overtime among accounting staff. Department members are visibly stressed and very vocal about the effects of the cutbacks. Accounting payrolls are nearly equal to prior years, and many key controls, such as segregation of duties, are no longer in place. The accounting supervisor now performs all operations within the cash receipts and posting process and has no time to review and approve transactions generated by the remaining members of the department. Journal entries for the last 6 months since the staff reductions show increasing numbers of prior-month adjustments and corrections, including revenues, cost of sales, and accruals that had been misstated or forgotten during month-end closing activity. The internal auditor should
Proceed with the scheduled engagement but add personnel based on the expected number of observations and anticipated lack of assistance from local accounting management.
Suspend further engagement work and issue the final communication of results because the conclusions are obvious.
Research temporary help agencies and evaluate the cost and benefit of outsourcing needed services.
Discuss these observations with management of the internal audit activity to determine whether further work would be an efficient use of internal auditing resources at this time.
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.
Uncertainty of the occurrence of an event that could affect the achievement of objectives.
Failure to adhere to organizational policies, plans, and procedures or to comply with relevant laws and regulations.
Failure to accomplish established objectives and goals for operations or programs.
The audit committee has raised a few issues that the internal audit activity will examine during an operational audit for the current year. When performing the preliminary survey, which of the following is not an appropriate technique?
All of the answers are appropriate techniques.
Performing interviews.
Determining the largest risk of financial statement misstatement.
Developing questionnaires.
If an auditor’s preliminary evaluation of internal controls results in an observation that controls may be inadequate, the next step is to
Prepare a flowchart depicting the internal control system.
Expand audit work prior to the preparation of an engagement final communication.
Note an exception in the engagement final communication if losses have occurred.
Implement the desired controls.
Documentation required to plan an internal audit engagement includes information that
Internal audit activity resources are efficiently and effectively employed.
Planned engagement work will be completed on a timely basis.
Resources needed to complete the engagement were considered.
Intended engagement observations have been clearly identified.
During which phase of the engagement does the internal auditor identify the objectives and related controls of the activity being examined?
Staff selection.
Final communication of results.
Work program preparation.
Preliminary survey.
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 evaluation of internal control.
The auditor’s assessment of management responses.
The organization’s recognized losses on derivatives.
During an operational engagement, an internal auditor compares the inventory turnover rate of a subsidiary with established industry standards to
Test the subsidiary’s controls designed to safeguard assets.
Assess the performance of the subsidiary and indicate where additional engagement work may be needed.
Determine if the subsidiary is complying with organizational procedures regarding inventory levels.
Evaluate the accuracy of the subsidiary’s internal financial reports.
In planning an assurance engagement, a survey could assist with all of the following except
Evaluating the adequacy and effectiveness of controls.
Obtaining engagement client comments and suggestions on control problems.
Identifying areas for engagement emphasis.
Obtaining preliminary information on controls.
During a preliminary survey of the accounts receivable function, an internal auditor discovered a potentially major control deficiency while preparing a flowchart. What immediate action should the internal auditor take regarding the weakness?
Report it to the level of management responsible for corrective action.
Perform sufficient testing to determine its cause and effect.
Schedule a separate engagement to evaluate that segment of the accounts receivable function.
Highlight the weakness to ensure that procedures to test it are included in the engagement work program.
As part of planning an engagement, the internal auditor in charge does all of the following except
Determine the period covered.
Conduct meetings with management responsible for the activity under review.
Distribute reports from meetings with management.
Determine to whom engagement results will be communicated.
Fact Pattern: You are an internal auditing supervisor who is reviewing the working papers of a staff internal auditor’s overall examination of the firm’s sales function. The pages are not numbered or cross-referenced. Furthermore, the working papers were dropped and reassembled at random before they were brought to you. You decide to put the working papers in the proper order according to the Standards. The first stage of this activity is to identify each page as a part of
(1) the preliminary survey,
(2) the review of the adequacy of control processes,
(3) the review for effectiveness of control processes, or
(4) the review of results.
The second page the supervisor selects documents an interview with a salesperson discussing the overall sales cycle. This page belongs with which activity?
Review for effectiveness of control processes.
Review for adequacy of control processes.
Review of results.
Preliminary survey.
Levels of production stoppages over the past year at a large laminating business were abnormally high due to machine malfunctions. Would it be appropriate for the internal auditing function to develop a survey examining attitudes toward line operations, rotation of work zones, training, maintenance schedule, etc., for the machine operators to complete?
No, the examined areas are irrelevant to the malfunctions.
Yes, the examined areas are relevant to the malfunctions.
No, the survey is inappropriate without corroboration.
Yes, the survey is reliable without corroboration.
An internal auditor conducts a preliminary survey and identifies a number of significant engagement issues and reasons for pursuing them in more depth. The engagement client informally communicates concurrence with the preliminary survey results and asks that the internal auditor not report on the areas of significant concern until the client has an opportunity to respond to the problem areas. Which of the following engagement responses is not appropriate?
Work with the engagement client to keep the engagement on schedule and address the significant issues in more depth, as well as the client’s responses, during the course of the engagement.
Consider the risk involved in the areas involved, and, if the risk is high, proceed with the engagement.
Consider the engagement to be terminated with no communication of results needed because the engagement client has already agreed to take constructive action.
Keep the engagement on schedule and discuss with management the need for completing the engagement on a timely basis.
Data-gathering activities such as interviewing operating personnel, identifying standards to be used to evaluate performance, and assessing risks inherent in a department’s operations are typically performed in which phase of an audit engagement?
Engagement program development.
Preliminary survey.
Examination and evaluation of evidence.
Field work.
During a preliminary survey, an auditor found that several accounts payable vouchers for major suppliers required adjustments for duplicate payment of prior invoices. This would indicate
A need for additional testing to determine related controls and the current exposure to duplicate payments made to suppliers.
Insufficient controls in the receiving area to ensure timely notice to the accounts payable area that goods have been received and inspected.
The possibility of unrecorded liabilities for the amount of the overpayments.
The existence of a sophisticated accounts payable system that correlates overpayments to open invoices and therefore requires no further audit concern.
Which of the following is least likely to be placed on the agenda for discussion at a pre-engagement meeting?
Objectives and scope of the engagement.
Expected starting and completion dates.
Client personnel needed.
Sampling plan and key criteria.
The internal auditors of a financial institution are performing an engagement to evaluate the institution’s investing and lending activities. During the last year, the institution has adopted new policies and procedures for monitoring investments and the loan portfolio. The internal auditors know that the organization has invested in new types of financial instruments during the year and is heavily involved in the use of financial derivatives to appropriately hedge risks. If the internal auditors were to conduct a preliminary review, which of the following procedures should be performed?
Interview management to identify changes made in policies regarding investments or loans.
Review minutes of board meetings to identify changes in policies affecting investments and loans.
Review reports of engagements performed by regulatory and external auditors since the last internal audit engagement.
All of the answers are correct.
The planning process for an internal audit engagement most likely includes
Creating the operating and financial budget for the internal audit activity.
Establishing engagement objectives.
Establishing policies and procedures for the internal audit activity.
Identifying sufficient information to achieve engagement objectives.
An assurance engagement in the quality control department is being planned. Which of the following is least likely to be used in the preparation of a preliminary survey questionnaire?
The permanent engagement file.
An analysis of quality control documents.
Management’s charter for the quality control department.
The prior engagement communications.
Which of the following activities represents the greatest risk to a post-merger manufacturing organization and is therefore most likely to be the subject of an internal audit engagement?
Combining imprest funds.
Combining marketing functions.
Combining legal functions.
Combining purchasing functions.
In advance of a preliminary survey, a chief audit executive sends a memorandum and questionnaire to the supervisors of the department to be evaluated. What is the most likely result of that procedure?
It creates apprehension about the engagement.
It is only useful for engagements of distant locations.
It involves the engagement client’s supervisory personnel in the engagement.
It is an uneconomical approach to obtaining information.
Which of the following best describes a preliminary survey?
A statistical sample of key employee attitudes, skills, and knowledge.
A standardized questionnaire used to obtain an understanding of management objectives.
A process used to become familiar with activities and risks to identify areas for engagement emphasis.
A “walk-through” of the financial control system to identify risks and the controls that can address those risks.
Which of the following factors should an internal auditor consider when planning an audit of an activity?
The objectives of the activity, the significant risks, and the control system.
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 number of employees involved, the control system, and the recommendations of external auditors.
