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WorksheetsSession IAP 10
Total questions: 25
Worksheet time: 13mins
An internal audit function is charged with evaluating the compliance of the organization’s human resources function with applicable laws, regulations, and internal policies. Which objective(s) is (are) appropriate for this engagement plan?
1. Evaluate compliance with residency policy.
2. Ensure that applicant pools are representative of the population.
3. Assess the process used for responding to employee complaints.
4. Question recently hired employees to assess compliance with interviewing standards.
3 only.
1 and 2 only.
3 and 4 only.
1 and 3 only.
Which of the following is an appropriate statement of an engagement objective?
To determine whether inventory stocks are sufficient to meet projected sales.
To observe the physical inventory count.
To search for the existence of obsolete inventory by computing inventory turnover by product line.
To include information about stockouts in the final engagement communication.
The established scope of the engagement must be sufficient to satisfy the objectives of the engagement. When developing the objectives of the engagement, the internal auditor considers the
Results of engagement procedures.
Information included in the engagement work program.
Probability of significant noncompliance.
Resources required.
An engagement objective is to verify that the correct goods or services are received on time, at the right price, and in the right quantity. Based on this objective, the function to be reviewed is the
Manufacturing department.
Receiving department.
Purchasing department.
Payroll department.
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
Advertising agency billings.
Accounts payable.
Asset disposals.
Allowance for doubtful accounts.
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?
The qualifications of the internal auditing staff selected for the engagement.
Recommendations of the engagement client’s employees.
Risks associated with the activities to be reviewed.
The recipients of the final engagement communication.
If an engagement client’s operating standards are vague and thus subject to interpretation, the internal auditor must
Seek agreement with management as to the criteria to be used to measure operating performance.
Interpret the standards in their strictest sense because standards are otherwise only minimum measures of acceptance.
Omit any comments on standards and the engagement client’s performance in relationship to those standards because such an analysis would be meaningless.
Determine best practices in this area and use them as the standard.
An internal auditor is assigned to perform an engagement to evaluate the organization’s insurance program, including the appropriateness of the approach to minimizing risks. The organization self-insures against large casualty losses and health benefits provided for all its employees. It is a large national entity with over 15,000 employees located in various parts of the country. It uses an outside claims processor to administer its health care program. The organization’s medical costs have been rising by approximately 8% per year for the past five years, and management is concerned with controlling these costs. The internal auditor needs to determine the scope of the proposed evaluation of insurance coverage. Which of the following statements are true regarding the potential scope of the engagement?
1. The internal audit activity should concentrate on processing that occurs within the organization and not on evaluating the correctness of transactions processing by the health care processor.
2. The internal auditor should interview management prior to beginning the engagement to understand (1) its concerns and (2) the underlying assumptions made and rationale used when making the self-insurance decision.
3. The internal auditor should consider engaging an actuarial consultant to better understand the risks involved in order to help determine the scope of the engagement.
2 and 3.
1 and 2.
1 only.
2 only.
In evaluating the effectiveness and efficiency with which resources are employed, an internal auditor is responsible for
Reviewing the reliability of operating information.
Determining the extent to which adequate operating criteria have been established.
Verifying the existence of assets.
Verifying the accuracy of asset valuation.
Which statement most accurately describes how criteria are established for use by internal auditors in determining whether goals and objectives have been accomplished?
Management is responsible for establishing the criteria.
Appropriate accounting or auditing standards, including international standards, should be used as the criteria.
Internal auditors should use professional standards or government regulations to establish the criteria.
The industry in which a company operates establishes criteria for each member company through benchmarks and best practices for that industry.
Fact Pattern: The chief audit executive (CAE) of a mid-sized internal audit activity was concerned that management might outsource the internal auditing function. Thus, the CAE adopted a very aggressive program to promote the internal audit activity within the organization. The CAE planned to present the results to senior management and the board and recommend modification of the internal audit activity’s charter after using the new program. The following lists six actions the CAE took to promote a positive image within the organization:
1. Engagement assignments concentrated on efficiency. The engagements focused solely on cost savings, and each engagement communication highlighted potential costs to be saved. Negative observations were omitted. The focus on efficiency was new, but the engagement clients seemed very happy.
2. Drafts of all engagement communications were carefully reviewed with the engagement clients to get their input. Their comments were carefully considered when developing the final engagement communication.
3. The information technology internal auditor participated as part of a development team to review the control procedures to be incorporated into a major computer application under development.
4. Given limited resources, the engagement manager performed a risk assessment to establish engagement work schedule priorities. This was a marked departure from the previous approach of ensuring that all operations are evaluated on at least a 3-year interval.
5. To save time, the CAE no longer required that a standard internal control questionnaire be completed for each engagement.
6. When the internal auditors found that the engagement client had not developed specific criteria or data to evaluate operations, the internal auditors were instructed to perform research, develop specific criteria, review the criteria with the engagement client, and, if acceptable, use them to evaluate the engagement client’s operations. If the engagement client disagreed with the criteria, a negotiation took place until acceptable criteria could be agreed upon. The engagement communication commented on the engagement client’s operations in conjunction with the agreed-upon criteria.
Regarding Action 6, which of the following elements of the action most likely would have rendered it inappropriate if omitted?
All of the answers are correct.
Developing a set of criteria to present to the engagement client as a basis for evaluating the engagement client’s operations.
Commenting on the agreed-upon criteria.
Seek agreement with the client about the criteria.
An internal auditor has been asked to review the treasury department’s compliance with corporate policy related to the use of forward trading to manage currency valuation risk. The auditor finds no related policies in the corporate policy manual but does discover that the department is following a policy developed by the company’s bank. Which of the following would be the most appropriate response from the auditor?
Perform no further audit work and report the lack of a corporate policy as an audit observation.
Postpone the audit engagement until a corporate policy can be established.
Use the bank’s policy as the audit criteria and determine whether formal adoption should be recommended in the engagement final communication.
Withdraw from the audit engagement, because there is nothing to audit due to the lack of a corporate policy.
Which of the following audit objectives would be appropriate in an audit of the efficient use of an organization’s facilities?
To determine whether the actual capacity is reasonable compared to the needed capacity.
To determine whether rates to lease office space for the organization are reasonable when compared to market lease rates.
To determine whether facilities are procured competitively.
To determine whether employees are satisfied with the allocation of office space among departments.
Which of the following is not an engagement objective related to the purchasing function?
Determine whether goods received are properly reflected in purchasing records.
Run background checks on unauthorized vendors.
Determine whether purchases eligible for competitive bids are properly reviewed and authorized.
Determine whether receiving reports are independently verified.
All of the following are acceptable criteria on which an internal audit may be based except
Control frameworks.
Policies and procedures.
Management cooperation with audit activities.
Standards or guidelines.
Which of the following statements is an engagement objective?
Observe the deposit of the day’s cash receipts.
Recompute each month’s bank reconciliation.
Evaluate whether cash receipts are adequately safeguarded.
Analyze the pattern of any cash shortages.
A United States organization plans to expand operations to Gambia. Which of the following are plausible assurance engagement objectives for an internal audit of the human resources department?
1. Evaluate the clarity and transparency of the design of global compensation and benefit systems.
2. Identify methods of improving communications with assignees, line management, and leadership.
3. Assess compliance with applicable requirements for visas and work permits.
4. Provide consultation to potential assignees and line management on terms and conditions of the internal assignment.
2 and 4 only.
1, 2, and 4 only.
1 and 3 only.
3 and 4 only.
The preliminary survey phase of an engagement to evaluate recruiting activity shows that hotel and airfare expenses are approximately equal. Both hotel and airline arrangements are made by the recruiting group secretary. Based on this information, the scope of field work should include
Considering competitive factors involved in the selection of hotel accommodations.
Obtaining assurance that candidates’ legal rights are protected during the course of the interview experience.
Comparing the detail of hotel charges per candidate’s expense reports with copies of hotel bills obtained directly from hotel sources.
Recommending that someone outside the recruiting group make hotel and airline reservations.
In an engagement to review a not-for-profit organization’s special revenue fund, the primary engagement objective is to determine whether the organization
Applies the funds in a way that would benefit the greatest number of people.
Managed its resources economically and efficiently.
Prepared its financial statements in accordance with accounting principles generally accepted in its country.
Complied with existing fund requirements and performed specified activities.
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?
An increase in product sales, along with an increase in commissions.
An increase in sales returns, along with an increase in commissions.
A decrease in sales returns, along with an increase in product sales.
A decrease in sales commissions, along with a decrease in product sales.
Which of the following is not likely to be an assurance engagement objective related to auditing governance activities?
Determine customer satisfaction with shareholder communications.
Determine the operating effectiveness of the whistleblower process.
Assess compliance with ethics policies.
Evaluate the design adequacy of board education and training.
In the planning phase, the scope of an internal audit engagement is defined by the
Engagement work program.
Scheduling and time estimates.
Preliminary survey.
Engagement objectives.
Internal auditors need to determine the extent to which management has established adequate control criteria. For this purpose, which of the following actions may be appropriate?
1. Determining whether objectives have been accomplished
2. Using management’s adequate control criteria in their evaluation
3. Working with management to develop appropriate control evaluation criteria
2 only.
1 and 2 only.
1, 2, and 3.
1 only.
Before an assurance engagement can be performed, the auditor must identify appropriate criteria. The sources of such criteria are least likely to include
Benchmarks for the leading firms in the industry.
Historical cost information for the processes examined.
Government regulations for the industry.
Best practices for another industry.
Scope statements for assurance engagements may include which of the following?
1. Boundaries of the process
2. Areas that are within the scope and those that are excluded
3. Time frame limitations
4. Final report distribution
1 and 2 only.
2 and 3 only.
1, 2, and 3 only.
1, 2, and 4 only.
