WorksheetsTRIAL TEST CIA PART 3
Total questions: 100
Worksheet time: 2hrs 40mins
Name
Class
Date
1.
A manufacturer has been expanding rapidly and is considering adding a new production line. Employees are currently working double shifts and receiving large amounts of overtime pay. Demand for all of the organization’s products is currently high, but management worries about demand fluctuations with changes in the economy and technological developments by competitors. Management is concerned with such issues as whether it is efficiently using its resources, whether it is expanding too rapidly or not rapidly enough, whether employee morale is decreasing, and whether future expansion should be financed internally or through debt. Of the following management requests, which is within the normal scope of work of the internal audit activity as stated in the Standards?
a)
Perform an independent evaluation of management’s planning process as a basis for making recommendations.
b)
Talk with banks to identify financing alternatives and negotiate contract alternatives that will be presented to management for evaluation.
c)
Analyze financing alternatives and present the alternatives to the audit committee.
d)
Undertake a make-or-buy decision analysis to determine whether the organization should subcontract for part of its manufacturing versus adding capacity. Report the recommendation to management for approval.
2.
Control by management is the result of
a)
Planning, organizing, and directing of organizational activities.
b)
Ascertaining needs, identifying alternative courses of action, setting standards for measuring performance, and comparing outcomes with predetermined standards.
c)
Authorizing and monitoring performance and comparing actual performance with planned performance.
d)
Determining efficiency and economy of operations, including whether objectives have been met.
3.
Policies and procedures must be established to guide the internal audit activity. Which of the following statements is false with respect to this requirement?
a)
The form and content of written policies and procedures depend on the size of the internal audit activity.
b)
All internal audit activities must have a detailed policies and procedures manual.
c)
Formal administrative and technical manuals may not be needed by all internal audit activities.
d)
A small internal audit activity may be managed informally through close supervision and memoranda.
4.
Which of the items below most likely reflects differences between the policies of a relatively large and a relatively small internal audit activity? The policies for the large activity should
a)
Define the scope of internal auditing.
b)
Contain the authority to carry out engagements.
c)
Be specific as to activities to be carried out.
d)
Be in considerable detail.
5.
Coordination of internal and external auditing can reduce the overall costs. Who is responsible for actual coordination of internal and external auditing efforts?
a)
The chief audit executive.
b)
The external auditor.
c)
The board.
d)
Management.
6.
Which of the following are responsibilities of the chief audit executive (CAE)?1. Coordinating activities with other providers of assurance and consulting services, 2. Understanding the work of external auditors, 3. Providing sufficient information to the external auditors to permit them to understand the internal auditors’ work.
a)
1 and 2 only.
b)
2 and 3 only.
c)
1 and 3 only.
d)
1, 2, and 3.
7.
An audit committee should be designed to enhance the independence of both the internal and external auditing functions and to insulate these functions from undue management pressures. Using this criterion, audit committees should be composed of
a)
A rotating subcommittee of the board of directors or its equivalent.
b)
Only members from the relevant outside regulatory agencies.
c)
Members from all important constituencies, specifically including representatives from banking, labor, regulatory agencies, shareholders, and officers.
d)
Only external members of the board of directors or its equivalent.
8.
Internal audit resources should be appropriate, sufficient, and effectively deployed. Consequently,
a)
Resource planning should be limited to expected activities.
b)
The chief audit executive should perform a periodic skills assessment.
c)
Only members of the internal audit staff should perform internal audit activities.
d)
The chief audit executive ultimately must ensure the adequacy of resources.
9.
Johnny Hagert, Chief Audit Executive, is determining the sufficiency of the resource allocation for the internal audit activity’s risk-based audit plan that establishes its priorities. Mr. Hagert must consider all of the following except
a)
Communications received from senior management and the board.
b)
The audit universe.
c)
Knowledge of the internal audit staff.
d)
Consequences of not completing the engagement on time.
10.
The audit committee strengthens the control processes of an organization by
a)
Assigning the internal audit activity responsibility for interaction with governmental agencies.
b)
Using the chief audit executive as a major resource in selecting the external auditors.
c)
Following up on recommendations made by the chief audit executive.
d)
Approving internal audit activity policies.
11.
What is the best description of information technology (IT) assurance?
a)
Review of controls that focus on an organization’s ability to comply with established labor laws and policies.
b)
Review and testing of IT to assure the integrity of information.
c)
Determining that year-to-year growth in sales is measurable using accounting methods.
d)
Reviewing credit policies to determine whether only qualified customers are being granted favorable credit terms.
12.
Which group is charged with overseeing the establishment, administration, and evaluation of the processes of risk management and control?
a)
Operating managers.
b)
Internal auditors.
c)
External auditors.
d)
Senior management.
13.
In reviewing a cost-plus construction contract for a new catalog showroom, the internal auditor should be cognizant of the risk that
a)
The contractor could be charging for the use of equipment not used in the construction.
b)
Income taxes related to construction equipment depreciation may have been calculated erroneously.
c)
Contractor cash budgets could have been inappropriately compiled.
d)
Payroll taxes may have been inappropriately omitted from billings.
14.
Which of the following statements about TQM is false?
a)
This approach can increase revenues and decrease costs significantly.
b)
TQM is a comprehensive approach to quality.
c)
TQM begins with internal suppliers’ requirements.
d)
D.TQM concepts are applicable to the operations of the internal audit activity itself.
15.
The reliability and integrity of all critical information of an organization, regardless of the media in which the information is stored, is the responsibility of
a)
Shareholders.
b)
IT department.
c)
Management.
d)
All employees.
16.
Using a balanced scorecard, an organization evaluates managerial performance based on
a)
A single ultimate measure of operating results, such as residual income.
b)
Multiple financial and nonfinancial measures.
c)
Multiple nonfinancial measures only.
d)
Multiple financial measures only.
17.
Which type of engagement focuses on operations and how effectively and efficiently the organizational units affected will cooperate?
a)
Program-results engagement.
b)
Process engagement.
c)
Privacy engagement.
d)
Compliance engagement.
18.
Employees have the most confidence in a hotline monitored by which of the following?
a)
An expert from the legal department, backed by a nonretaliation policy.
b)
An in-house representative, backed by a retaliation policy.
c)
An in-house representative, backed by a nonretaliation policy.
d)
An off-site attorney who can better protect attorney-client privilege.
19.
The financial reporting process encompasses the steps to
a)
Detect all fraud that is occurring throughout the organization.
b)
Create information to help prepare the financial statements and related notes.
c)
Provide all staff with information regarding raises and promotions.
d)
Make sure the internal control matches up the specifications from the AICPA.
20.
In any organization-wide risk management assessment, the CAE should include risks associated with which of the following activities?
a)
Environmental.
b)
Health.
c)
Safety.
d)
All of the answers are correct.
21.
Advisory and related client service activities, the nature and scope of which are agreed upon with the client, are best described as
a)
Internal audit services.
b)
Assurance services.
c)
Consulting services.
d)
External assurance services.
22.
An internal auditor performed a formal consulting engagement for XYZ Corporation on June 1, Year 1. When is the earliest time the auditor can perform assurance services for XYZ Corporation and be considered independent and objective?
a)
January 1, Year 2.
b)
June 1, Year 2.
c)
July 1, Year 1.
d)
June 2, Year 1.
23.
Internal auditors should design the scope of work in a consulting engagement to ensure that all of the following will be maintained except
a)
Independence.
b)
Integrity.
c)
Credibility.
d)
Professionalism.
24.
An example of an internal nonfinancial benchmark is
a)
The labor rate of comparably skilled employees at a major competitor’s plant.
b)
The average actual cost per pound of a specific product at the company’s most efficient plant.
c)
A US $50,000 limit on the cost of employee training programs at each of the company’s plants.
d)
The percentage of customer orders delivered on time at the company’s most efficient plant.
25.
The phase of the benchmarking process in which the team must be able to justify its recommendations is the
a)
Prioritize benchmarking projects phase.
b)
Implementation phase.
c)
Data analysis phase.
d)
Researching and identifying best in class performance phase.
26.
Which of the following is an example of business process reengineering?
a)
Adding a new machine to the existing production line to speed up production.
b)
Redesigning the production line to speed up production.
c)
Repairing a machine on the process line to speed up production.
d)
Updating the computer systems involved on the production line to speed up production.
27.
Which of the following types of engagements, if any, involve an internal auditor conducting performance audits to measure how well an organization is achieving its targets for its key performance indicators? 1. An assurance engagement, 2. A consulting engagement
a)
1 only.
b)
2 only.
c)
1 and 2.
d)
Neither 1 nor 2.
28.
A chief audit executive may use risk analysis in preparing work schedules. Which of the following is not considered in performing a risk analysis?
a)
Issues relating to organizational governance.
b)
Skills available on the internal audit staff.
c)
Results of prior engagements.
d)
Major operating changes.
29.
The term “risk” is best defined as the possibility that
a)
An internal auditor will fail to detect a material misstatement that causes financial statements or internal reports to be misstated or misleading.
b)
An event could occur affecting the achievement of objectives.
c)
Management will, either knowingly or unknowingly, make decisions that increase the potential liability of the organization.
d)
Financial statements or internal records will contain material misstatements.
30.
In the audit risk model, the risk that an auditor will express an inappropriate audit opinion when the financial statements are materially misstated is
a)
Audit risk.
b)
Inherent risk.
c)
Control risk.
d)
Detection risk.
31.
On the basis of audit evidence gathered and evaluated, an auditor decides to decrease the level of detection risk from that originally planned. Assuming the same planned audit risk level, the change in the planned detection risk most likely resulted from a(n)
a)
Decrease in the assessed control risk.
b)
Increase in materiality levels.
c)
Decrease in the assessed inherent risk.
d)
Increase in the assessed control risk.
32.
Who reviews and approves a summary of the internal audit plan?
a)
Senior management and the board.
b)
The audit committee and the board.
c)
Senior management only.
d)
The chief audit executive (CAE) only.
33.
As the chief audit executive, you have determined that the acquisition of some expensive, state-of-the-art software for paperless working paper files will be useful. Identify the preferred method for presenting your request to senior management.
a)
The effect of not obtaining the software.
b)
Statement of need.
c)
Comparison with other internal audit activities.
d)
Evaluation of the software’s technical specifications.
34.
An external consultant is developing methods for the management of a city’s capital facilities. An appropriate scope of an engagement to evaluate the consultant’s product is to
a)
Review the consultant’s contract to determine its propriety.
b)
Establish the parameters of the value of the items being managed and controlled.
c)
Determine the adequacy of the risk management and control systems for the management of capital facilities.
d)
Review the handling of idle equipment.
35.
As part of planning an engagement, the internal auditor in charge does all of the following except
a)
Determine the period covered.
b)
Conduct meetings with management responsible for the activity under review.
c)
Distribute reports from meetings with management.
d)
Determine to whom engagement results will be communicated.
36.
The internal auditor has gained an understanding of the design of an engagement client’s internal controls. The most appropriate next step is to
a)
Test controls to determine whether they are functioning as designed.
b)
Halt the engagement and issue a report about inadequate controls.
c)
Draw preliminary conclusions about internal control.
d)
Contact the engagement client’s direct supervisor to recommend that the head of the department or function under audit is transferred or terminated.
37.
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?
a)
Perform sufficient testing to determine its cause and effect.
b)
Operations are performed efficiently.Report it to the level of management responsible for corrective action.
c)
Schedule a separate engagement to evaluate that segment of the accounts receivable function.
d)
Highlight the weakness to ensure that procedures to test it are included in the engagement work program.
38.
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
a)
Probability of significant noncompliance.
b)
Information included in the engagement work program.
c)
Results of engagement procedures.
d)
Resources required.
39.
In the planning phase, the scope of an internal audit engagement is defined by the
a)
Engagement objectives.
b)
Scheduling and time estimates.
c)
Preliminary survey.
d)
Engagement work program.
40.
An auditor’s purpose in reviewing the renewal of a note payable shortly after the balance sheet date most likely is to obtain evidence concerning relevant assertions about
a)
Existence.
b)
Classification.
c)
Completeness.
d)
Accuracy, valuation, and allocation.
41.
The chief audit executive of a multinational organization must form an engagement team to examine a newly acquired subsidiary in another country. Consideration should be given to which of the following factors?1. Local customs, 2. Language skills of the internal auditor, 3. Experience of the internal auditor, 4. Monetary exchange rate
a)
1, 2, and 3.
b)
2, 3, and 4.
c)
1 and 3.
d)
1 and 2.
42.
The purpose of including a time budget in an engagement work program is to
a)
Provide an objective means of evaluating the internal auditor’s competence.
b)
Ensure timely completion of the engagement.
c)
Provide a means of controlling and evaluating the progress of the engagement.
d)
Restrict the scope of the engagement.
43.
While testing a division’s compliance with company affirmative-action policies, an auditor found that 1. 5% of the employees are from minority groups, 2. No one from a minority group has been hired in the past year. The most appropriate conclusion for the auditor to reach is that
a)
Insufficient evidence exists of compliance with affirmative-action policies.
b)
The division is violating the company’s policies.
c)
The company’s policies cannot be audited and hence cannot be enforced.
d)
With 5% of its employees from minority groups, the division is effectively complying.
44.
Reliable evidence is best defined as evidence that
a)
Is the best attainable.
b)
Is obtained by observing people, property, and events.
c)
Is supplementary to other evidence already gathered and tends to strengthen or confirm it.
d)
Proves an intermediate fact, or group of facts, from which still other facts can be inferred.
45.
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
a)
Sufficient but not reliable or relevant.
b)
Sufficient, reliable, and relevant.
c)
Not sufficient, reliable, or relevant.
d)
Relevant but not sufficient or reliable.
46.
In engagement planning, internal auditors should review all relevant information. Which of the following sources of information would most likely help identify suspected violations of environmental regulations?
a)
Discussions with operating executives.
b)
Review of trade publications.
c)
Review of correspondence the entity has conducted with governmental agencies.
d)
Discussions conducted with the external auditors in coordinating engagement efforts.
47.
The most conclusive information to support supplier account balances is obtained by
a)
Reviewing the vendor statements obtained from the accounts payable clerk.
b)
Obtaining confirmations of balances from the suppliers.
c)
Performing analytical account analysis.
d)
Interviewing the accounts payable manager to determine the internal controls maintained over accounts payable processing.
48.
A set of engagement workpapers contained a copy of a document providing information that an expensive item that had been special-ordered was actually on hand on a particular date. The most likely source of this information is a printout from a computerized
a)
Purchases journal.
b)
Cash payments journal.
c)
Perpetual inventory file.
d)
Receiving report file.
49.
An auditor is considering developing a questionnaire to research employee attitudes toward control procedures. Which of the following is a criterion that should not be considered in designing the questionnaire?
a)
Questions must be worded to ensure a valid interpretation by the respondents.
b)
Questions must be reliably worded so that they measure what was intended to be measured.
c)
The questionnaire should be short to increase the response rate.
d)
Questions should be worded such that a “No” answer indicates a problem.
50.
The auditor used a questionnaire during interviews to gather information about the nature of claims processing. Unfortunately, the questionnaire did not cover a number of pieces of information offered by the person being interviewed. Consequently, the auditor did not document the potential problems for further audit investigation. The primary deficiency with the process is that
a)
The auditor failed to consider the importance of the information offered.
b)
A questionnaire was used in a situation in which a structured interview should have been used.
c)
Questionnaires do not allow for opportunities to document other information.
d)
All of the answers are correct.
51.
A questionnaire consists of a series of questions relating to controls normally required to prevent or detect errors and fraud that may occur for each type of transaction. Which of the following is not an advantage of a questionnaire?
a)
A questionnaire provides a framework that minimizes the possibility of overlooking aspects of internal control.
b)
A questionnaire can be easily completed.
c)
A questionnaire is flexible in design and application.
d)
The completed questionnaire provides documentation that the internal auditor became familiar with internal control.
52.
Which of the following is not an advantage of sending an internal control questionnaire prior to an audit engagement?
a)
The engagement client can use the questionnaire for self-evaluation prior to the auditor’s visit.
b)
The questionnaire will help the engagement client understand the scope of the engagement.
c)
Preparing the questionnaire will help the auditor plan the scope of the engagement and organize the information to be gathered.
d)
The engagement client will respond only to the questions asked, without volunteering additional information.
53.
The auditor conducted an interview with the supervisor. The auditor noted that the supervisor became uncomfortable and nervous, and changed the subject whenever the auditor raised questions about certain types of claims. The supervisor’s answers were consistent with company policies and procedures. When documenting the interview, the auditor should
a)
Document the supervisor’s answers noting the nature of the nonverbal communications.
b)
Not document the nonverbal communication because it is subjective and is not corroborated.
c)
Conclude that the nonverbal communication is persuasive and that sufficient evidence exists to charge fraud against the group.
d)
Ignore the specific answers given in the interview, because they are self-serving.
54.
Auditors must be effective listeners, especially when asking complex questions. To improve their listening, auditors should take care to do all the following except
a)
Stop talking. It is very difficult to listen and talk at the same time.
b)
Be patient. Allow the speaker ample time to respond.
c)
Avoid all questions until the speaker has concluded.
d)
Put the speaker at ease. A nervous speaker will be difficult to understand.
55.
Listening effectiveness is best increased by
a)
Resisting both internal and external distractions.
b)
Waiting to review key concepts until the speaker is through talking.
c)
Tuning out messages that do not seem to fit the meeting purpose.
d)
Factoring in biases to evaluate the information being given.
56.
An internal auditor is interviewing an employee. While listening to the interviewee, the internal auditor should
a)
Prepare a response to the interviewee.
b)
Take mental notes on the speaker’s nonverbal communication because it is more important than what is being said.
c)
Make sure all details, as well as the main ideas of the interviewee, are remembered.
d)
Integrate the incoming information from the interviewee with information that is already known.
57.
An internal auditing team developed a preliminary questionnaire with the following response choices:1. Probably not a problem, 2. Possibly a problem, 3. Probably a problem The questionnaire illustrates the use of
a)
Trend analysis.
b)
Ratio analysis.
c)
Unobtrusive measures or observations.
d)
Rating scales.
58.
Which of the following procedures is the least effective in gathering information about the nature of the processing and potential problems?
a)
Interview supervisors in the claims department to find out more about the procedures used, and the rationale for the procedures, and obtain their observations about the nature and efficiency of processing.
b)
Send an email message to all clerical personnel detailing the alleged problems and request them to respond.
c)
Interview selected clerical employees in the claims department to find out more about the procedures used, and the rationale for the procedures, and obtain their observations about the nature and efficiency of processing.
d)
Distribute a questionnaire to gain a greater understanding of the responsibilities for claims processing and the control procedures utilized.
59.
The annual physical inventory of the main warehouse was recorded by existing surveillance cameras. The cameras were unobtrusive and the employees had long forgotten of their existence. Unable to attend the actual physical inventory, the audit manager observed the video footage. What advantage did the auditor gain by observing the recorded video inventory over observing in person?
a)
The recorded version is more persuasive for the occurrence assertion.
b)
The auditor can determine whether written policies have been implemented.
c)
Employee behavior was not influenced by observation.
d)
Private behavior, feelings, and motives can be better observed using the recorded version.
60.
An organization has continual large shortages at the cash registers despite having procedures in place. A local accounting firm was retained to audit the organization’s control procedures over cash. Several types of audit procedures were used during the engagement. Which of the following is the best example of the data-gathering method of observation?
a)
Upon examination of cash register tapes, the auditor discovered cash drawers were opened several times during employee shifts with no corresponding sales.
b)
The auditor spoke with several employees, including the store manager, about the steps they follow when voiding a sales transaction.
c)
Reconciliations of cash deposits with sales records were performed by the auditor.
d)
The auditor watched one of the morning shift employees pay the delivery driver out of the cash register.
61.
In a sampling application, the group of items about which the auditor wants to estimate some characteristic is called the
a)
Population.
b)
Attribute of interest.
c)
Sample.
d)
Sampling unit.
62.
A specified range is based on an estimate of a population characteristic calculated from a random sample. The probability that the range contains the true population value is the
a)
Error rate.
b)
Lower precision limit.
c)
Confidence level.
d)
Standard error of the mean.
63.
A 90% confidence interval for the mean of a population based on the information in a sample always implies that there is a 90% chance that the
a)
Estimate is equal to the true population mean.
b)
True population mean is no larger than the largest endpoint of the interval.
c)
Standard deviation will not be any greater than 10% of the population mean.
d)
True population mean lies within the specified confidence interval.
64.
The degree to which the auditor is justified in believing that the estimate based on a random sample will fall within a specified range is called
a)
Sampling risk.
b)
Non-sampling risk.
c)
Confidence level.
d)
Precision.
65.
To project the frequency of shipments to wrong addresses, an internal auditor chose a random sample from the busiest month of each of the four quarters of the most recent year. What underlying concept of statistical sampling did the auditor violate?
a)
Attempting to project a rate of occurrence rather than an error rate.
b)
Failing to give each item in the population an equal chance of selection.
c)
Failing to adequately describe the population.
d)
Using multistage sampling in conjunction with attributes.
66.
A distinguishing characteristic of random number sample selection is that each
a)
Item is selected from a stratum having minimum variability.
b)
Item’s chance for selection is proportional to its dollar value.
c)
Item in the population has an equal chance of being selected.
d)
Stratum in the population has an equal number of items selected.
67.
Using random numbers to select a sample
a)
Is required for a variables sampling plan.
b)
Is likely to result in an unbiased sample.
c)
Results in a representative sample.
d)
Allows auditors to use smaller samples.
68.
The size of a given sample is jointly a result of characteristics of the population of interest and decisions made by the internal auditor. Everything else being equal, sample size will
a)
Increase if the internal auditor decides to accept more risk of incorrectly concluding that controls are effective when they are in fact ineffective.
b)
Double if the internal auditor finds that the variance of the population is twice as large as was indicated in the pilot sample.
c)
Decrease if the internal auditor increases the tolerable rate of deviation.
d)
Increase as sampling risk increases.
69.
If all other factors specified in an attribute sampling plan remain constant, decreasing the confidence level from 95% to 90% would cause the required sample size to
a)
Increase.
b)
Decrease.
c)
Change by 5%.
d)
Remain the same.
70.
In an attribute sampling application, holding other factors constant, sample size will increase as which of the following becomes smaller?
a)
Confidence coefficient.
b)
Population.
c)
Planned precision.
d)
Expected rate of occurrence.
71.
An auditor has to make a number of decisions when using attribute sampling. The term efficiency is used to describe anything that affects sample size. The term effectiveness is used to describe the likelihood that the statistical sample result will be a more accurate estimate of the true population error rate. Assume an auditor expects a control procedure failure rate of 0.5%. The auditor is making a decision on whether to use a 90% or a 95% confidence level and whether to set the tolerable control failure rate at 3% or 4%. Which of the following statements regarding efficiency and effectiveness of an attribute sample is true?
a)
Decreasing the confidence level to 90% and decreasing the tolerable control failure rate to 3% will result in both increased efficiency and effectiveness.
b)
Decreasing the tolerable failure rate from 4% to 3% will increase audit efficiency.
c)
Increasing the confidence level to 95% and decreasing the tolerable control failure rate to 3% will increase audit effectiveness.
d)
Increasing the confidence level to 95% will increase audit efficiency.
72.
Which one of the following statements about sampling is true?
a)
A larger sample is always more representative of the underlying population than a smaller sample.
b)
For very large populations, the absolute size of the sample affects the precision of its results more than its size relative to its population.
c)
For a given sample size, a simple random sample always produces the most representative sample.
d)
The limitations of an incomplete sample frame can almost always be overcome by careful sampling techniques.
73.
When relatively few items of high monetary value constitute a large proportion of an account balance, stratified sampling techniques and complete testing of the high monetary-value items will generally result in a
a)
Simplified evaluation of sample results.
b)
Smaller nonsampling error.
c)
Larger estimate of population variability.
d)
Reduction in sample size.
74.
An auditor for the state highway and safety department needs to estimate the average highway weight of tractor-trailer trucks using the state’s highway system. Which estimation method must be used?
a)
Mean-per-unit.
b)
Difference.
c)
Ratio.
d)
Probability-proportional-to-size.
75.
To use stratified variables sampling to evaluate a large, heterogeneous inventory, an appropriate criterion for classifying inventory items into strata is
a)
Monetary values.
b)
Number of items.
c)
Turnover volume.
d)
Storage locations.
76.
Which one of the following is not an important consideration in determining the appropriate sample size?
a)
Whether the sample is designed to estimate a mean or a proportion.
b)
The amount of variability in the population under study.
c)
The sensitivity of the decision using this sample to errors of estimation.
d)
The cost per sample observation.
77.
The director of sales asks for a count of customers grouped in descending numerical rank by (1) the number of orders they place during a single year and (2) the dollar amounts of the average order. The visual format of these two pieces of information is most likely to be a
a)
Fishbone (Ishikawa) diagram.
b)
Cost of quality report.
c)
Kaizen diagram.
d)
Pareto diagram.
78.
In the context of quality control, which chart is best for displaying the 80:20 rule?
a)
Benchmark.
b)
Pareto.
c)
Fishbone.
d)
Cost-benefit.
79.
The new purchasing director is analyzing purchase orders for the organization. Which of the following analyses would best be displayed on a histogram?
a)
In the past year the organization placed 10,000 purchase orders. Organize the number of orders placed with each supplier, sorted in descending order.
b)
The average turnaround time from issuing a purchase order to receiving the merchandise is 7 days. Review the last 2,000 purchase orders, and using 10 days as the upper control limit and 4 days as the lower control limit, graph the turnaround time for each order.
c)
The organization purchased US $27 million worth of inventory in the past year. Distribute by value, using US $500 increments, the quantity of purchase orders that fall within each range.
d)
Identify and organize the reasons the average turnaround time for purchase orders falls outside the control parameters of 4-10 days.
80.
A car insurance company is considering opening branches in a foreign country. The country’s population has been growing rapidly for the last 5 years. The company wants to know whether the number of car accidents are correlated with the recent population growth. Which of the following charts prepared by an analyst would be most helpful to the company?
a)
A line chart showing each month on the x-axis and the number of car accidents on the y-axis.
b)
A scatter plot showing the number of car accidents on the y-axis and the population size on the x-axis.
c)
A table showing the number of car accidents in rows and the population size in columns.
d)
A pie chart showing the number of car accidents in each city for the last 5 years.
81.
Which of the following cannot be performed by an auditor using generalized audit software (GAS)?
a)
Identifying missing check numbers.
b)
Correcting erroneous data elements, making them suitable for audit testwork.
c)
Matching identical product information in separate data files.
d)
Aging accounts receivable.
82.
Which of the following is not true about audit use of the Internet?
a)
It is a useful research tool for gathering audit-related information.
b)
It provides a secure medium to transmit confidential information.
c)
Electronic communication is the major use of the Internet by internal auditors.
d)
An electronic record of a user’s web browsing activities is created.
83.
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?
a)
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.
b)
Using an integrated test facility (ITF) and submitting interest payments for various loans in the ITF portfolio to determine if they are recorded correctly.
c)
Using test data and submitting interest payments for various loans in the test portfolio to determine if they are recorded correctly.
d)
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.
84.
When documenting internal control, the independent auditor sometimes uses a systems flowchart, which can best be described as a
a)
Pictorial presentation of the flow of instructions in a client’s internal computer system.
b)
Diagram that clearly indicates an organization’s internal reporting structure.
c)
Graphic illustration of the flow of operations that is used to replace the auditor’s internal control questionnaire.
d)
Symbolic representation of a system or series of sequential processes.
85.
Of the following, which is the most efficient source for an auditor to use to evaluate a company’s overall control system?
a)
Control flowcharts.
b)
Copies of standard operating procedures.
c)
A narrative describing departmental history, activities, and forms usage.
d)
Copies of industry operating standards.
86.
An auditor’s flowchart of a client’s accounting system is a diagrammatic representation that depicts the auditor’s
a)
Assessment of the risks of material misstatement.
b)
Identification of weaknesses in the system.
c)
Assessment of the control environment’s effectiveness.
d)
Understanding of the system.
87.
The normal sequence of documents and operations on a well-prepared systems flowchart is
a)
Top to bottom and left to right.
b)
Bottom to top and left to right.
c)
Top to bottom and right to left.
d)
Bottom to top and right to left.
88.
During an operational audit engagement, an auditor compared the inventory turnover rate of a subsidiary with established industry standards in order to
a)
Evaluate the accuracy of internal financial reports.
b)
Test controls designed to safeguard assets.
c)
Determine compliance with corporate procedures regarding inventory levels.
d)
Assess performance and indicate where additional audit work may be needed.
89.
Engagement workpapers are indexed by means of reference numbers. The primary purpose of indexing is to
a)
Permit cross-referencing and simplify supervisory review.
b)
Support the final engagement communication.
c)
Eliminate the need for follow-up reviews.
d)
Determine that workpapers adequately support observations, conclusions, and recommendations.
90.
A fire destroyed a large portion of an organization’s inventory. Management is filing an insurance claim and needs to use the internal auditors’ workpapers in preparing the claim. Management
a)
May not use the workpapers in preparing the claim.
b)
May use the workpapers in preparing the claim, but such use should be approved by the chief audit executive.
c)
Should be precluded from preparing the claim, and this function should be performed by the internal audit activity.
d)
May use the workpapers in preparing the claim, but such use should be approved by the organization’s external auditors.
91.
The internal auditor is most likely to make workpapers available to the engagement client when
a)
Fraud is suspected.
b)
The internal auditors have recorded specific damaging comments.
c)
The internal auditor considers the content noncontroversial.
d)
Engagement client comments are needed to evaluate significance and accuracy.
92.
“Three of six petty cash funds examined failed to contain either the correct amount of funds or sufficient documentation in lieu of funds, a 50% noncompliance rate.” The above statement is an example of a(n)
a)
Observation.
b)
Opinion.
c)
Conclusion.
d)
Recommendation.
93.
The single most important factor in drawing a useful conclusion or stating a useful opinion in an engagement report is
a)
Use of statistical sampling techniques.
b)
Senior management interest in the engagement outcome.
c)
Auditee management assurances.
d)
Auditor judgment.
94.
A new staff internal auditor’s first assignment is to review the cash management operations of the organization. The staff internal auditor has no background in cash management. Under which of the following conditions would this arrangement be appropriate?1. The senior internal auditor is skilled in the area and closely supervises the staff internal auditor, 2. The staff internal auditor performs the work and prepares an engagement communication that is reviewed in detail by the chief audit executive.
a)
1 only.
b)
2 only.
c)
Both 1 and 2.
d)
Neither 1 nor 2.
95.
Determining that engagement objectives have been met is part of the overall supervision of an engagement and is the ultimate responsibility of the
a)
Staff internal auditor.
b)
Board.
c)
Engagement supervisor.
d)
Chief audit executive.
96.
During an engagement involving the receiving section of the purchasing division, the internal auditor discovers that a receiving problem might be the result of procedures followed in the procurement section. The internal audit activity’s management agrees that the internal auditor should extend the engagement, on a limited scale, into the procurement section. According to the Standards, which device should be used to communicate the change in engagement scope to the engagement client?
a)
An informal notification of the involved supervisor.
b)
A formal written communication to the involved supervisor.
c)
A written interim communication to the involved supervisor and the same distribution as the original correspondence scheduling the engagement.
d)
No communication is necessary if the internal audit activity’s charter specifies the unrestricted scope of its work.
97.
Recommendations should be included in audit reports to
a)
Provide management with options for addressing audit findings.
b)
Ensure that problems are resolved in the manner suggested by the auditor.
c)
Minimize the amount of time required to correct audit findings.
d)
Guarantee that audit findings are addressed, regardless of cost.
98.
Which of the following is most appropriate for inclusion in the summary of a final engagement communication?
a)
Engagement client responses to recommendations.
b)
A concise statement of engagement observations.
c)
Reference to areas not covered by the engagement.
d)
Discussion of recommendations given in prior years’ engagement communications.
99.
engagement final communication contains a significant error, the chief audit executive is required to do which of the following?
a)
Issue a written report to individuals who can ensure that engagement results are given due consideration.
b)
Issue a written report to the audit committee and senior management.
c)
Communicate corrected information to all individuals who received the original communication.
d)
Communicate corrected information to all those who might have relied on the original communication.
100.
The internal audit activity customarily has a dual relationship with management and the audit committee. This means that
a)
Management should help the internal audit activity by revising and forwarding engagement communications to the audit committee.
b)
The internal audit activity should report directly to the audit committee, without corroborating engagement communications with management.
c)
The accuracy of engagement communications should be verified with management, and the internal audit activity should then report to management and the audit committee.
d)
Ideally, the internal audit activity works under the audit committee but reports to the chief operating officer on all engagements relating to operations.
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