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WorksheetsSession IAP 12
Total questions: 25
Worksheet time: 13mins
Which of the following is true of analytical approaches and process mapping?
Auditors use flowcharts at the end of an audit to verify the client’s processes and controls.
Only data flow diagrams apply to computerized systems.
Data flow diagrams have no symbols for output.
RACI diagrams are ineffective for cross-functional processes.
Ordinarily, what source of information should most affect the internal auditor’s conclusions?
Oral.
External.
Informal.
Inquiry.
Which of the following cannot be performed by an auditor using generalized audit software (GAS)?
Aging accounts receivable.
Matching identical product information in separate data files.
Identifying missing check numbers.
Correcting erroneous data elements, making them suitable for audit testwork.
Which of the following statements concerning the parallel simulation approach when testing a computerized accounting system is false?
Only real, not fictitious, transactions are reprocessed.
Transactions are reprocessed only by the client’s computer programs.
Transactions from throughout the period may be reprocessed.
It tends to be a very costly method.
In testing the write-off of a deteriorated piece of equipment, the best information about the condition of the equipment is
The production department’s equipment downtime report.
The equipment manager’s statement regarding condition.
A physical inspection of the actual piece of equipment.
Accounting records showing maintenance and repair costs.
Which of the following is an essential factor in evaluating the sufficiency of information? The information must
Be based on references that are considered competent.
Be convincing enough for a prudent person to reach the same decision.
Be well documented and cross-referenced in the workpapers.
Bear a direct relationship to the observation and include all of the elements of an observation.
Two major retail organizations, both publicly traded and operating in the same geographic area, have recently merged. Both are approximately the same size and have internal audit activities. Organization A has little EDI experience. Organization B has invested heavily in information technology and has EDI connections with its major vendors.
The board has asked the internal auditors from both organizations to analyze risk areas that should be addressed after the merger. The chief audit executive of Organization B has suggested that the two internal audit activities have a planning meeting to share work programs, scope of engagement coverage, and copies of engagement communications that were delivered to their boards. Management has also suggested that the internal auditors review the compatibility of the organizations’ two computer systems and control philosophy for individual store operations.
The two organizations agree to share data on store operations. The data reveal that three stores in Organization A are characterized by significantly lower gross margins, higher-than-average sales volume, and higher levels of employee bonuses. The three stores are part of a set of six that are managed by a relatively new section manager. In addition, the store managers of the three stores are also relatively new. The most likely cause of the observed data is
Promotional activities that offer large discounts coupled with the payment of bonuses to employees who reach targeted sales goals.
The relative inexperience of the store managers.
Problems with employee training and employee ability to meet customer needs.
Fraudulent activity whereby goods are taken from the stores, thus resulting in the lower gross margins.
When an auditor tests the internal controls of a computerized system, which of the following is true of the test data approach?
Test data are processed with the client’s computer and the results are compared to the auditor’s predetermined results.
Test data programs need not be tailor-made by the auditor for each client’s computer applications.
Test data programs usually consist of all possible valid and invalid conditions regarding compliance with internal controls.
Test data are coded to a dummy subsidiary so they can be extracted from the system under actual operations conditions.
Which of the following are least valuable in predicting the amount of uncollectible accounts for an organization?
Total monthly sales for each of the past 6 months.
Dollar amounts of accounts actually written off by the organization for each of the past 6 months.
Published economic indices indicating a general business downturn.
Written forecasts from the credit manager regarding expected future cash collections.
Smith Corporation has numerous customers. A customer file is kept on disk storage. Each customer record contains the name, address, credit limit, and account balance. The auditor wishes to test this file to determine whether credit limits are being exceeded. The best procedure for the auditor to follow is to
Request a printout of a sample of account balances so they can be individually checked against the credit limits.
Develop test data that would cause some account balances to exceed the credit limit and determine if the system properly detects such situations.
Request a printout of all account balances so they can be manually checked against the credit limits.
Develop a program to compare credit limits with account balances and print out the details of any account with a balance exceeding its credit limit.
What is the primary advantage of parallel simulation?
It tests the controls directly.
Any transactions during the period may be reprocessed.
It provides for continuous monitoring of online, real-time systems.
Processing is tested at one moment in time.
When an auditor tests a computerized accounting system, which of the following is true of the test data approach?
Several transactions of each type must be tested.
The program tested is different from the program used throughout the year by the client.
Test data are processed by the client’s computer programs under the auditor’s control.
Test data must consist of all possible valid and invalid conditions.
When an accounting application is processed by computer, an auditor cannot verify the reliable operation of automated controls by
Periodically submitting auditor-prepared test data to the same computer process and evaluating the results.
Manually reperforming, as of a moment in time, the processing of input data and comparing the simulated results with the actual results.
Manually comparing detail transaction files used by an edit program with the program’s generated error listings to determine that errors were properly identified by the edit program.
Constructing a processing system for accounting applications and processing actual data from throughout the period through both the client’s program and the auditor’s program.
The graphic portrayal of the flow of data and the information processing of a system, including computer hardware, is best displayed in a
Gantt chart.
Program flowchart.
System flowchart.
Data-flow diagram.
Which of the following constitutes sufficient audit evidence for verifying air travel reimbursement?
Either a pre-printed ticket or a boarding pass.
Either a pre-printed ticket or a printout of an electronic ticket.
Both a printout of an electronic ticket and a boarding pass.
Either a printout of an electronic ticket or a boarding pass.
Fact Pattern: The chief audit executive is reviewing some of the basic concepts inherent in the performance of an engagement with three internal auditors who are on a rotation assignment. After 6 months in the internal audit activity, they will move back to line positions. Each of them has fairly extensive organizational experience and is on a fast track to a high-level management line position. To develop their analytical decision-making abilities, the CAE pulls some old engagement working papers, holding back the review notes and clearing comments. The CAE asks the team to indicate the informational criteria that are violated.
In an engagement to evaluate the effectiveness and validity of a subsidiary’s marketing expenditures, the internal auditors identified the following information:
1. Analytical comparisons of advertising expenditures and changes in shopping patterns and item sales
2. Direct observation of various advertising media used
3. Review of a marketing survey of general public reaction to the marketing plan
Which of the following informational criteria, if any, is violated?
Relevance.
Sufficiency.
Reliability.
No criteria are violated.
The most persuasive information about the existence of newly acquired computers for the sales department is
Documentation prepared externally.
Inquiry of management.
Physical examination.
Observation of engagement client’s procedures.
Which computer auditing method uses a set of dummy transactions to test controls in processing programs?
Integrated test facility.
Embedded audit module.
Test data approach.
Parallel simulation.
Auditors have learned that increased computerization has created more opportunities for computer fraud but has also led to the development of computer audit techniques to detect frauds. A type of fraud that has occurred in the banking industry is a programming fraud in which the programmer designs a program to calculate daily interest on savings accounts to four decimal points. The programmer then truncates the last two digits and adds it to his or her account balance. Which of the following computer audit techniques would be most effective in detecting this type of fraud?
Generalized audit software that selects account balances for confirmation with the depositor.
SCARF (Systems Control and Audit Review File).
Snapshot.
Parallel simulation.
The auditor’s primary concern when an auditee’s programmer writes a program to age inventory is
Saving valuable audit time.
The auditor’s programming expertise.
The programmer’s access to confidential information.
Loss of independence.
To verify the proper value of costs charged to real property records for improvements to the property, the best source of information is
Comparison of billed amounts with contract estimates.
A letter signed by the real property manager asserting the propriety of costs incurred.
Original invoices supporting entries into the accounting records.
Inspection by the internal auditor of real property improvements.
An internal auditor at a credit union concludes that a secured real estate loan is collectible. Which of the following engagement procedures provides the most persuasive information about the loan’s collectibility?
Examining documentation of a recent, independent appraisal of the real estate.
Confirming the loan balance with the borrower.
Examining the loan application for appropriate borrowers’ signatures.
Reviewing the loan file for proper authorization by the credit committee.
If a financial institution overstated revenue by charging too much of each loan payment to interest income and too little to repayment of principal, which of the following audit procedures would be least likely to detect the error?
Using generalized audit software to select a random sample of loan payments made during the period, calculating the correct posting amounts, and tracing the postings that were made to the various accounts.
Performing an analytical review by comparing interest income this period as a percentage of the loan portfolio with the interest income percentage for the prior period.
Using test data and submitting interest payments for various loans in the test portfolio to determine if they are recorded correctly.
Using an integrated test facility (ITF) and submitting interest payments for various loans in the ITF portfolio to determine if they are recorded correctly.
You have been assigned to an engagement involving the maintenance department. Which of the following is likely to produce the least reliable information?
Notes on discussions with mechanics in the maintenance operation.
An analysis of changes in certain maintenance department ratios.
A schedule comparing actual maintenance expenses with budgeted expenses and those of the prior period and disclosing important differences.
A narrative covering review of user reports on maintenance service.
Which of the following procedures would provide the most reliable information?
Inspection of bank statements obtained directly from the client’s financial institution.
Analytical procedures performed by the internal auditor on the entity’s trial balance.
Inquiries of the client’s employees held in private.
Inspection of prenumbered client purchase orders filed in the vouchers payable department.
