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WorksheetsSession IAP 11
Total questions: 25
Worksheet time: 13mins
An entity is beginning its budget cycle. Approval of the capital budget by the board of directors is the first step in the process. Until final approval, only the CEO and division vice presidents have access to it. During the multiple iterations of the capital budget, hard copies are printed and distributed to authorized persons or their administrative assistants. Which of the following is the most effective procedure by an internal auditor to gain assurance that IT personnel are not distributing the capital budget reports to unauthorized employees?
1. Interviewing IT personnel responsible for programming the budgetary applications.
2. Interviewing computer operations personnel and reviewing logs of abnormal program terminations.
3. Reviewing the log signed by those receiving the reports.
4. Interviewing all authorized personnel or their administrative assistants to determine whether they received the reports.
1 and 2 only.
3 and 4 only.
1 and 4 only.
3 only.
During the process of confirming receivables as of December 31, Year 1, a positive confirmation was returned indicating the “balance owed as of December 31 was paid on January 9, Year 2.” The internal auditor would most likely
Determine whether a customary trade discount was taken by the customer.
Verify that the amount was received.
Determine whether any changes in the account occurred between January 1 and January 9, Year 2.
Reconfirm the zero balance as of January 10, Year 2.
Bank teller supervisors might manipulate accounts using their privileged computer access codes. They could withdraw money for their own use and move money among accounts when depositors complain to the bank about errors. The audit procedure most likely to detect this is
Reviewing transactions for employees’ accounts.
Testing the accuracy of account posting programs.
Reviewing transactions on privileged access codes.
Verifying proof records for teller access codes.
A subsidiary president terminated a controller and hired a replacement without the required organizational approvals. Sales, cash flow, and profit statistics were then manipulated by the new controller and president via accelerated depreciation and sale of capital assets to obtain larger performance bonuses for the controller and the subsidiary president. An approach that might detect this fraudulent activity is
Analysis of overall management control for segregation of duties.
Required exit interviews for all terminated employees.
Periodic changes of outside public accountants.
Regular analytical review of operating divisions.
Tests designed to detect purchases made before the end of the year that have been recorded in the subsequent year most likely would provide assurance about the relevant assertion regarding
Valuation and allocation.
Classification and understandability.
Cutoff.
Existence.
An internal auditor reconciles the total of the accounts receivable subsidiary ledger to the general ledger control account, as of October 31. By this procedure, the auditor would be most likely to learn of which of the following?
An account balance is past due and should be written off.
An October check from a customer was posted in error to the account of another customer with a similar name.
An opening balance in a subsidiary ledger account was improperly carried forward from the previous accounting period.
An October invoice was improperly computed.
In confirming with an outside agent, such as a financial institution, that the agent is holding investment securities in the client’s name, an auditor most likely gathers evidence in support of relevant financial statement assertions about existence or occurrence and
Rights and obligations.
Classification and understandability.
Completeness.
Valuation and allocation.
For review of an accounting department’s bank reconciliation unit, which of the following is an appropriate engagement work program step for the review of canceled checks for authorized signatures?
Examining a representative sample of signed checks and determining that the signatures are authorized in the organizational signature book.
Completing the tests of controls over check signatures in 4 hours.
Determining that all checks are to be signed by individuals authorized by the board.
Comparing the check date with the first cancellation date.
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?
Cutoff
Existence.
Completeness.
Occurrence.
An audit assistant found a purchase order for a regular supplier in the amount of $5,500. The purchase order was dated after receipt of the goods. The purchasing agent had forgotten to issue the purchase order. Also, a disbursement of $450 for materials did not have a receiving report. The assistant wanted to select additional purchase orders for investigation but was unconcerned about the lack of a receiving report. The audit director should
Agree with the assistant because the amount of the purchase order exception was considerably larger than the receiving report exception.
Disagree with the assistant because the lack of a receiving report has a greater risk of loss associated with it.
Disagree with the assistant because the two problems have an equal risk of loss associated with them.
Agree with the assistant because the cash disbursement clerk had been assured by the receiving clerk that the failure to fill out a report did not happen very often.
In a payables application, checks are authorized and paid based on matching purchase orders, receiving reports, and vendor invoices. Partial payments are common. An appropriate audit procedure for verifying that a purchase order has not been paid twice is to sort the
Check register file by purchase order, compute total amounts paid by purchase order, compare total amounts paid with purchase order amounts, and investigate any discrepancies between the total amounts paid and purchase order amounts.
Receiving report file by purchase order, compute total amounts received by purchase order, compare total amounts received with purchase order amounts, and investigate any discrepancies between the total amounts received and purchase order amounts.
Vendor invoice file by purchase order, compute total amounts invoiced by purchase order, compare total amounts invoiced with purchase order amounts, and investigate any discrepancies between the total amounts invoiced and purchase order amounts.
Receiving report file by vendor invoice amounts and investigate any discrepancies between the total amounts received and vendor invoice amounts.
In the confirmation of accounts receivable, the auditor would most likely
Require that confirmation requests be sent within 1 month of the fiscal year end.
Seek to obtain positive confirmations for at least 50% of the total dollar amount of the receivables.
Request confirmation of a sample of the inactive accounts.
Require confirmation of all receivables from agencies of the federal government.
An internal auditor observes that controls over the perpetual inventory system are weak. An appropriate engagement response is to
Increase the testing of the inventory controls.
Perform turnover ratio tests.
Recommend that a physical inventory count be scheduled.
Apply gross profit analyses by product lines and compare the results with prior years’ information for reasonableness.
An internal auditor has set an engagement objective of ascertaining the reasonableness of the increases in rental revenue resulting from operating costs passed on to the lessee by the landlord. The internal auditor has already inspected the lease contract to determine that such costs are allowed. Which of the following engagement procedures will best meet this objective?
Observation.
Inspection of documents.
Analytical review.
Inquiry.
An auditor inspects a client’s investment records to determine that any transfers between categories of investments have been properly recorded. The primary purpose of this procedure is to obtain evidence concerning relevant financial statement assertions about
Classification and understandability, and valuation and allocation.
Valuation and allocation, and rights and obligations.
Rights and obligations, and existence.
Existence or occurrence, and classification and understandability.
Purchases from two new vendors increased dramatically after a new buyer was hired. The buyer was obtaining kickbacks from the two vendors based on sales volume. A possible means of detection is
Periodically surveying vendors regarding potential buyer conflict of interest or ethics violations.
The receipt of an invoice to put new vendors on the master file.
The use of change analysis and trend analysis of buyer or vendor activity.
The use of purchase orders for all purchases.
In confirming accounts receivable, an internal auditor decided to confirm customers’ account balances rather than individual invoices. Which of the following most likely will be included with the organization confirmation letter?
An auditor-prepared letter requesting the customer to supply missing and incorrect information directly to the client.
An organization-prepared letter reminding the customer that a nonresponse will cause a second request to be sent.
An auditor-prepared letter explaining that a nonresponse may cause an inference that the account balance is correct.
An organization-prepared statement of account showing the details of the customer’s account balance.
Management has requested that the internal auditor investigate the possibility that a purchasing agent is receiving kickbacks. Which of the following procedures is least effective in addressing management’s concern?
Observe any changes in the lifestyles or individual consumption habits of the purchasing agents involved.
Take a statistical sample of goods purchased and compare purchase prices for goods with those of other sources of similar goods, such as other organizations or catalogs.
Confirm all contract terms with vendors.
Analyze, by purchasing agent, all increases in cost of procured goods from specific vendors.
Two merging retail enterprises agree to share data on store operations. The data reveal that three stores in Organization A are characterized by:
1. Significantly lower gross margins,
2. Higher-than-average sales volume, and
3. Higher levels of employee bonuses.
Assume the internal auditor for the merged enterprise concludes that inventory fraud is the most reasonable explanation of the observed data. Which of the following engagement procedures will provide the most persuasive information that fraud is taking place?
Interview the three individual store managers to determine if their explanations about the observed differences are the same. Compare their explanations with those of the section manager.
Schedule a surprise physical inventory. Investigate areas of inventory shrinkage.
Take a sample of individual store prices and compare them with the sales entered on the cash register for the same items.
Use an integrated test facility (ITF) to compare individual sales transactions with test transactions submitted through the ITF. Investigate all differences.
An internal auditor has set an engagement objective of determining whether mail room staff is fully used. Which of the following engagement techniques will best meet this objective?
Inspection of documents.
Analytical review.
Observation.
Inquiry.
Which of the following might be detected by an auditor’s review of the client’s sales cutoff?
Lapping of year-end accounts receivable.
Excessive goods returned for credit.
Inflated sales for the year.
Unrecorded sales discounts.
To determine the competence of the personnel in the purchasing department, an internal auditor most likely should perform
Inquiries of the staff.
Tests of controls.
Substantive procedures.
Analytical procedures.
Shipping documents should be traced to and compared with sales records or invoices to
Determine whether payments are properly applied to customer accounts.
Assure that shipments are billed to customers.
Determine whether unit prices billed are in accordance with sales contracts.
Ascertain whether all sales are supported by shipping documents.
An auditor for a major retail company suspects that inventory fraud is occurring at three stores that have high cost of goods sold. Which of the following audit activities would provide the most persuasive evidence that fraud is occurring?
Select a sample of individual store prices and compare them with the sales entered on the cash register for the same items.
Interview the three individual store managers to determine if their explanations about the observed differences are the same, and then compare their explanations to that of the section manager.
Schedule a surprise inventory audit to include a physical inventory. Investigate areas of inventory shrinkage.
Use an integrated test facility (ITF) to compare individual sales transactions with test transactions submitted through the ITF. Investigate all differences.
While reviewing a division’s accounts, an internal auditor becomes concerned that the division’s management may have shipped poor quality merchandise to boost sales and profitability and thereby increase the manager’s bonus. For this reason, the internal auditor suspects that returned goods are being shipped to other customers as new products without full correction of their defects. Which of the following engagement procedures is the least effective in determining whether such shipments took place?
Interview customer service representatives regarding unusual amounts of customer complaints.
Require the division to take a complete physical inventory at year end, and observe the taking of the inventory.
Physically observe the shipping and receiving area for information of returned goods.
Examine credit memos issued after year end for goods shipped before year end.
