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WorksheetsTRIAL TEST CIA PART 2 SECTION 3
Total questions: 100
Worksheet time: 3hrs 30mins
Name
Class
Date
1.
When assessing the risk associated with an activity, an internal auditor should
a)
Determine how the risk should best be managed.
b)
Provide assurance on the management of the risk.
c)
Update the risk management process based on risk exposures.
d)
Design controls to mitigate the identified risks.
2.
Which of the following items is least likely to be considered when determining the strategy for assessing governance, risk management, and control?
a)
The maturity of the processes.
b)
The seniority of the persons responsible.
c)
The organizational culture.
d)
The members of the audit committee.
3.
The chief audit executive for a large decentralized organization has developed a manual containing comprehensive detailed written procedures as a guide for the decentralized engagement work groups, each of which has 20 to 30 internal auditors. The organization recently acquired a small organization that has an internal audit activity consisting of a supervisor and two staff personnel. Which of the following actions is the most practical in providing administrative guidance for this new internal audit activity?
a)
Select key procedures from the manual and use informal supervisory direction for other engagement management issues.
b)
Use informal supervisory direction for engagement management issues.
c)
Use the already developed manual.
d)
Adopt the administrative procedures being followed by the internal auditors of the acquired organization.
4.
Which of the following, though not appropriate for use with a large internal audit activity, is an acceptable approach for managing a small internal audit activity?
a)
Preparing comprehensive policies and procedures.
b)
Writing detailed instructions and guidelines for each engagement area.
c)
Using only daily, close supervision and written memoranda.
d)
Developing technical manuals to guide performance.
5.
Which of the following actions is an appropriate response by organizations wishing to improve the public’s perception of their financial reporting?
a)
Increased adoption of audit committees composed of outside directors.
b)
Viewing internal auditing as a transient profession—a stepping stone to managerial positions.
c)
Requiring internal auditors to report all significant observations of illegal activity to the chief executive officer.
d)
Keeping external and internal auditing work separated to maintain independence.
6.
Which of the following is not an appropriate member of an audit committee?
a)
The vice president of the local bank used by the organization.
b)
An academic specializing in business administration.
c)
A retired executive of a firm that had been associated with the organization.
d)
The organization’s vice president of operations.
7.
Which of the following actions is an appropriate response by organizations wishing to improve the public’s perception of their financial reporting? 1. The chief audit executive, 2. Senior management, 3. The board of directors
a)
1 and 2.
b)
2 and 3.
c)
1 only.
d)
1 and 3.
8.
Which of the following statements about the chief audit executive’s responsibilities for internal audit resources is most accurate?
a)
The CAE is responsible for ensuring that audit coverage is based on the skills of the internal audit activity.
b)
The CAE is responsible for presenting a detailed summary of audit resources to management.
c)
The CAE is responsible for the effective deployment of resources to achieve the approved audit plan.
d)
The CAE is responsible for administering the organization’s compensation program.
9.
Which of the following is a false statement about the relationship between internal auditors and external auditors?
a)
Oversight of the work of external auditors is the responsibility of the chief audit executive.
b)
Sufficient meetings are scheduled between internal and external auditors to ensure timely and efficient completion of the work.
c)
Internal and external auditors may exchange engagement communications and management letters.
d)
Internal auditors may provide engagement work programs and working papers to external auditors.
10.
To improve their efficiency, internal auditors may rely upon the work of external auditors if it i
a)
Performed after the internal auditing work.
b)
Primarily concerned with operational objectives and activities.
c)
Coordinated with internal auditing work.
d)
Conducted in accordance with the Code of Ethics.
11.
The primary difference between operational engagements and financial engagements is that, in the former, the internal auditors
a)
Are not concerned with whether the client entity is generating information in compliance with financial accounting standards.
b)
Are seeking to help management use resources in the most effective manner possible.
c)
Start with the financial statements of the client entity and work backward to the basic processes involved in producing them.
d)
Can use analytical skills and tools that are not necessary in financial engagements.
12.
Why should an organization use the survey form of control self-assessment (CSA)?
a)
Few respondents are required to respond.
b)
Respondents are not widely dispersed.
c)
No time constraint is involved.
d)
The organizational culture does not encourage openness.
13.
An auditor is scheduled to audit payroll controls for an organization that has recently outsourced its information processing to an external service provider (ESP). The ESP’s external auditor has issued reports pertaining to the ESP’s controls and made it readily available to the internal auditor. What action should the auditor take, considering the outsourcing decision?
a)
Review only the ESP’s external auditor.
b)
Review only the organization’s controls over data sent to and received from the ESP.
c)
Review the control reports and ensure that the ESP’s external auditor is credible and reliable.
d)
Cancel the engagement because the processing is being performed outside of the organization.
14.
Under a total quality management (TQM) approach,
a)
Measurement occurs throughout the process, and errors are caught and corrected at the source.
b)
Quality control is performed by highly trained inspectors at the end of the production process.
c)
Upper management assumes the primary responsibility for the quality of the products and services.
d)
A large number of suppliers are used in order to obtain the lowest possible prices.
15.
Personal information may include: 1. Medical status, 2. Social status, 3. Credit records, 4. Disciplinary actions
a)
1, 2, and 4 only.
b)
1 only.
c)
1 and 2 only.
d)
1, 2, 3, and 4.
16.
Which of the following criteria would be most useful to a sales department manager in evaluating the performance of the manager’s customer-service group?
a)
The customer is always right.
b)
Customer complaints should be processed promptly.
c)
Employees should maintain a positive attitude when dealing with customers.
d)
All customer inquiries should be answered within 7 days of receipt.
17.
An operational engagement communication that concerns the scrap disposal function in a manufacturer should address
a)
The efficiency and effectiveness of the scrap disposal function and include any observations requiring corrective action.
b)
Whether the scrap material inventory is reported as a current asset.
c)
Whether the physical inventory count of the scrap material equals the recorded amount.
d)
Whether the scrap material inventory is valued at the lower of cost or market.
18.
Discipline of employees may be limited by all of the following except
a)
Whistleblower laws.
b)
A requirement to report certain employee violations to a governmental entity.
c)
Union contracts.
d)
Exceptions to the employee-at-will doctrine.
19.
To better monitor the performance of operating management, executive management has requested that the internal auditors examine interim financial statements that are prepared for internal use only. Although interim financial statements have been prepared for several years, this will be the first time that the internal auditors have been involved. The primary reason for this request was that executive management was surprised at the lower-than-anticipated net profit eventually reflected in last year’s audited financial statements. Earnings had been artificially manipulated on quarterly financial statements. In their work on this year’s interim financial statements, internal auditors are likely to focus on which of the following?
a)
Whether payables have been accrued properly at the end of the interim period.
b)
The timing of revenue recognition and the valuation of inventories.
c)
Whether accounting estimates are reasonable given past actual results.
d)
Whether there have been changes in accounting principles that materially affect the financial statements.
20.
A manufacturing organization uses hazardous materials in production of its products. An audit of these hazardous materials may include: 1. Recommending an environmental management system as a part of policies and procedures, 2. Verifying the existence of “cradle to grave” (creation to destruction) tracking records for these material, 3. Using consultants to avoid self-incrimination of the firm in the event illegalities were detected in an environmental audit, 4. Evaluating the cost provided for in an environmental liability accrual account.
a)
2 only.
b)
1 and 2 only.
c)
1, 2, and 4 only.
d)
3 and 4 only.
21.
Who is responsible for determining the methodology to use for classifying engagements within the organization?
a)
The chief audit executive.
b)
Management.
c)
The board.
d)
The audit committee.
22.
When internal auditors perform a consulting engagement, what is the best statement of their responsibility regarding risk?
a)
Be alert to the existence of significant risks.
b)
Consider only the risk consistent with engagement objectives.
c)
Address risk consistent with engagement objectives and be alert to certain other risks.
d)
Assume responsibility for managing risks.
23.
The internal auditor should decline to perform which of the following types of consulting engagements?
a)
Engagements that have no conflict with the policies and procedures of the internal audit activity.
b)
Engagements in which the internal audit staff lacks the knowledge needed to perform part of the engagement.
c)
Engagements that are allowed by the terms of the internal audit charter.
d)
Engagements that add value and promote the best interests of the organization.
24.
After the chief audit executive receives approval from the board to offer consulting services, what should be done?
a)
The CAE should begin performing consulting services.
b)
The CAE should get approval from the internal auditors.
c)
The internal audit charter should be amended.
d)
The board should develop appropriate policies and procedures for conducting such engagements.
25.
Which of the following best describes generic benchmarking?
a)
Studying an organization in the same industry.
b)
Identifying ways to optimize how the organization performs a process.
c)
Studying operations of organizations with similar processes regardless of industry.
d)
Applying best practices in one part of the organization to its other parts.
26.
A manufacturer compares its accounts payable practices with those of an investment bank. This comparison is an example of
a)
Generic benchmarking.
b)
Strategic benchmarking.
c)
Competitive benchmarking.
d)
Internal benchmarking.
27.
The treasury function of an entity has hired outside consultants to help prepare the organization’s bond offering. The internal auditor then performs an engagement to determine whether the consultants followed governmental regulations. The auditor has performed which type of engagement?
a)
Due diligence.
b)
Compliance.
c)
Business continuity.
d)
Financial audit.
28.
A due diligence review may be a(n)
a)
Review of interim financial statements as directed by an underwriting firm.
b)
Operational audit of a division of an organization to determine whether divisional management is complying with laws and regulations.
c)
Review of operations as requested by the audit committee to determine whether the operations comply with audit committee and organizational policies.
d)
Review of the internal controls in place at an organization targeted for acquisition by a larger entity.
29.
The internal auditing activity of Rivers Financial Group is developing a plan for the current year. Which of the following should not be emphasized in the audit plan?
a)
All control systems.
b)
Areas where inherent risk is very high.
c)
Control systems on which the organization is most reliant.
d)
Unacceptable current risks that require management action.
30.
An organization has no formal risk management framework. In developing a risk-based plan to determine the priorities of the internal audit activity, the chief audit executive (CAE) should
a)
Use the same risk-based plan developed for other clients.
b)
Not establish a risk-based plan because one is not necessary.
c)
Consult with senior management and the board and use the best judgment of risks.
d)
Limit the scope of the engagement.
31.
An auditor assesses control risk because it
a)
Is relevant to the auditor’s understanding of the control environment.
b)
Provides assurance that the auditor’s materiality levels are appropriate.
c)
Indicates to the auditor where inherent risk may be the greatest.
d)
Affects the level of detection risk that the auditor may accept.
32.
On the basis of audit evidence gathered and evaluated, an auditor decides to increase the assessed level of control risk from that originally planned. To achieve an overall audit risk level that is substantially the same as the planned audit risk level, the auditor would
a)
Increase inherent risk.
b)
Increase materiality levels.
c)
Decrease inherent risk.
d)
Decrease detection risk.
33.
The best means for the internal audit activity to determine whether its goal of implementing broader coverage of functional activities has been met is through
a)
Accumulation of engagement observations by engagement client.
b)
Comparison of the approved audit plan with actual engagement activity.
c)
Surveys of management satisfaction with the internal audit activity.
d)
Implementation of a quality assurance program.
34.
In which of the following duties would the chief audit executive least likely have a primary role?
a)
Determine the need for expanded testing.
b)
Review the summary observations sheet.
c)
Select or approve team members.
d)
Organize and draft the final engagement communication.
35.
Internal auditors must develop and document a plan for each engagement. The planning process should include all the following except
a)
Establishing engagement objectives and scope of work.
b)
Obtaining background information about the activities to be reviewed.
c)
Identifying sufficient information to achieve engagement objectives.
d)
Determining how, when, and to whom the engagement results will be communicated.
36.
In planning an assurance engagement, a survey could assist with all of the following except
a)
Obtaining engagement client comments and suggestions on control problems.
b)
Obtaining preliminary information on controls.
c)
Identifying areas for engagement emphasis.
d)
Evaluating the adequacy and effectiveness of controls.
37.
Controls should be designed to ensure that
a)
Operations are performed efficiently.
b)
Management’s plans have not been circumvented by worker collusion.
c)
The internal audit activity’s guidance and oversight of management’s performance is accomplished economically and efficiently.
d)
Management’s planning, organizing, and directing processes are properly evaluated.
38.
An internal auditor fails to discover an employee fraud during an assurance engagement. The nondiscovery is most likely to suggest a violation of the International Professional Practices Framework if it was the result of a
a)
Failure to perform a detailed review of all transactions in the area.
b)
Determination that any possible fraud in the area would not involve a material amount.
c)
Determination that the cost of extending procedures in the area would exceed the potential benefits.
d)
Presumption that the internal controls in the area were adequate and effective.
39.
Which of the following is an appropriate objective in an engagement to review a personnel department? Determining whether
a)
Hourly employees are being paid only for hours actually worked as indicated by time cards or similar reports.
b)
An equitable training program exists that provides all employees with approximately the same amount of training each year.
c)
Reference checks of prospective employees are being performed.
d)
Recruitment is being delegated to the various departments that have personnel needs.
40.
In evaluating the effectiveness and efficiency with which resources are employed, an internal auditor is responsible for
a)
Determining the extent to which adequate operating criteria have been established.
b)
Verifying the existence of assets.
c)
Reviewing the reliability of operating information.
d)
Verifying the accuracy of asset valuation.
41.
To identify the amount of obsolete inventory that may exist in an organization, an internal auditor probably should collect information using all of the following procedures except
a)
Confirmation.
b)
Scanning.
c)
Recomputation.
d)
Analytical review.
42.
According to the Standards, internal auditors determine appropriate and sufficient resources to achieve engagement objectives based on an evaluation of all of the following except
a)
Budgetary control of the engagement.
b)
Complexity of each engagement.
c)
Time constraints for each engagement.
d)
Available resources for each engagement.
43.
An internal auditor has just completed a survey to become familiar with the organization’s payroll operations as part of an unplanned engagement. Which of the following most likely is performed next?
a)
Assign internal audit personnel.
b)
Establish initial engagement objectives.
c)
Write the engagement work program.
d)
Conduct field work.
44.
During an audit, information is uncovered that could have a significant impact on the organization’s competitiveness. According to IIA guidance, when is it appropriate for the internal auditor to communicate this information to management?
a)
Immediately, because of the sensitivity of the information.
b)
After the auditor has decided that the information is substantial and credible.
c)
After the auditor has formulated recommendations.
d)
As soon as the auditor has determined that communicating the information is not a violation of the organization’s code of conduct.
45.
What characteristic of information is satisfied by an original signed document?
a)
Sufficiency.
b)
Reliability.
c)
Relevance.
d)
Usefulness.
46.
Which of the following is an example of documentary information?
a)
A photograph of an engagement client’s workplace.
b)
A letter from a former employee alleging a fraud.
c)
A page of the general ledger containing irregularities placed there by the perpetrator of a fraud.
d)
A page of the internal auditor’s workpapers containing the computations that demonstrate the existence of an error or irregularity.
47.
The internal auditor for a construction contractor finds materials costs increasing as a percentage of billings and suspects that materials billed to the organization are being delivered to another contractor. What type of information will best enable the internal auditor to determine whether erroneous billings occurred?
a)
Documentary.
b)
Physical examination.
c)
Confirmation.
d)
Analytical.
48.
In an audit of a shipping department, the internal auditors conducted a survey to become familiar with its operations. The survey included interviewing key personnel using formal questionnaire. The disadvantage of this procedure is that the interviewer
a)
Is less likely to record information not specifically addressed in the questionnaire.
b)
Is able to ask clarifying questions.
c)
Is face-to-face with the interviewee.
d)
May ask questions requiring an explanatory response.
49.
How does the use of an internal control questionnaire assist an internal auditor in planning an engagement?
a)
Increases apprehension for the client’s employees.
b)
Provides a complete understanding of unfamiliar and complex operations.
c)
Information is gathered from those most familiar with it.
d)
Decreases the uniformity of data acquisition.
50.
An internal auditor is using an internal control questionnaire as part of a preliminary survey. Which of the following is the best reason for the auditor to interview management regarding the questionnaire responses?
a)
Interviews provide the opportunity to insert questions to probe promising areas.
b)
Interviews are the most efficient way to upgrade the information to the level of objective evidence.
c)
Interviewing is the least costly audit technique when a large amount of information is involved.
d)
Interviewing is the only audit procedure that does not require confirmation of the information obtained.
51.
During an interview with a data input clerk to discuss a computerized system used to track employee training requirements and compliance, an internal auditor identifies a potentially significant weakness in the system. The internal auditor should
a)
Not mention the weakness, directly or indirectly, to avoid making the clerk uncomfortable.
b)
Ask indirect questions that will help get more factual information relating to the potential weakness.
c)
Ask the clerk about the weakness and determine immediately whether the observation should be communicated.
d)
Conduct a second interview after determining whether the weakness actually exists.
52.
During an interview to identify controls over the quality of wastewater discharge, the responsible employee refers only to a department procedure when asked about controls to ensure that samples are collected and analyzed. In the internal auditor’s experience, such operations should maintain a log to record all samples, the types of analyses performed, and whether results should be reported to management or regulatory agencies. For some reason, this employee is reluctant to discuss detailed responsibilities in this area. The best thing for the internal auditor to do in this case is
a)
Continue the interview and discuss other elements of the employee’s duties, returning periodically to the samples and analytical results.
b)
Relate what the internal auditor has seen at other facilities and tell the employee that the log is necessary.
c)
Accept the information as given and record an observation finding that adequate controls are in place.
d)
Interview the supervisor of the employee and discuss the auditee’s duties in detail.
53.
An internal auditor wishes to evaluate the design of and perform procedures on controls over an engagement client’s cash disbursements procedures. If the controls leave no audit trail of documentary evidence, the internal auditor most likely will test the procedures by
a)
Confirmation and observation.
b)
Observation and inquiry.
c)
Analytical procedures and confirmation.
d)
Inquiry and analytical procedures.
54.
When outside firms of nonaccountants specializing in the taking of physical inventories are used to count, list, price, and subsequently compute the total dollar amount of inventory on hand at the date of the physical count, the internal audit activity ordinarily
a)
Considers the report of the outside inventory-taking firm to be an acceptable alternative procedure to the observation of physical inventories.
b)
Makes or observes some physical counts of the inventory, recomputes certain inventory calculations, and tests certain inventory transactions.
c)
Does not reduce the extent of work on the physical count of inventory.
d)
Considers the reduced audit effort with respect to the physical count of inventory as a scope limitation.
55.
Identification of an appropriate population to sample is dependent upon audit objectives. A population of entries in an asset repairs expense file is an appropriate population if the audit objective is to determine whether
a)
Expenditures for fixed assets have been improperly expensed.
b)
Noncapital repair expenditures have been properly charged to expense.
c)
Noncapital repair expenditures have been recorded in the proper period.
d)
Expenditures for fixed assets have been recorded in the proper period.
56.
An auditor’s statistical sample drawn from a population of invoices indicates a mean value of $150 and sampling precision of ± $30 at a 95% confidence level. Which of the following statements correctly interprets these sample data?
a)
In repeated sampling, the point estimate of the true population mean will be $150 about 95% of the time.
b)
The probability is 95% that the true population mean is $150.
c)
In repeated sampling, intervals with precision ± $30 around the sample mean will always contain the true population mean.
d)
The probability is 95% that the range $120 to $180 contains the true population mean.
57.
The most appropriate methodology for drawing a sample from 3,000 time cards to check for signatures would be
a)
Interval sampling.
b)
Cluster sampling.
c)
Stratified sampling.
d)
Variables sampling.
58.
An internal auditor uses a number of techniques to select samples. A frequently, and appropriately, used technique is random selection. In which of the following situations would random selection be least justified? The auditor needs to
a)
Test sales transactions to determine that they were properly authorized and are supported by shipping documents.
b)
Confirm accounts receivable and has already selected the 10 largest accounts for confirmation. The remaining accounts are not numbered. The auditor only has a computer listing of the accounts in alphabetical order approximately 250 pages long with 50 account balances on every page.
c)
Obtain evidence on the proper sales cut-off by sampling items from the monthly sales journal to determine if the items were recorded in the correct time period.
d)
Test the perpetual inventory records to ensure that the sample covers the largest monetary value items in the account.
59.
An auditor is conducting a survey of perceptions and beliefs of employees concerning an organization health care plan. The best approach to selecting a sample is to
a)
Focus on people who are likely to respond so that a larger sample can be obtained.
b)
Focus on managers and supervisors because they can also reflect the opinions of the people in their departments.
c)
Use stratified sampling where the strata are defined by marital and family status, age, and salaried/hourly status.
d)
Use monetary-unit sampling according to employee salaries.
60.
A bank’s internal auditor wishes to determine whether all loans are supported by sufficient collateral, properly aged regarding current payments, and accurately categorized as current or noncurrent. The best audit procedure to accomplish these objectives would be to
a)
Use generalized audit software to read the total loan file, age the file by last payment due, and extract a statistical sample stratified by the current and aged population. Examine each loan selected for proper collateralization and aging.
b)
Select a block sample of all loans in excess of a specified monetary limit and determine if they are current and properly categorized. For each loan approved, verify aging and categorization.
c)
Select a discovery sample of all loan applications to determine whether each application contains a statement of collateral.
d)
Select a sample of payments made on the loan portfolio and trace them to loans to see if the payments are properly applied. For each loan identified, examine the loan application to determine that the loan has proper collateralization.
61.
The supervisor of claims processing for a health insurance firm selects all claims processed in the past 2 days by a particular employee for audit. From this sample, the supervisor can develop
a)
An overall representative view of employee work for the year.
b)
A quantification of sampling error.
c)
Conclusions about the correctness of processing for the department.
d)
An understanding of the details contained in the processing task.
62.
Which sampling plan requires no additional sampling once the first error is found?
a)
Stratified sampling.
b)
Attribute sampling.
c)
Stop-or-go sampling.
d)
Discovery sampling.
63.
When an internal auditor’s sampling objective is to obtain a measurable assurance that a sample will contain at least one occurrence of a specific critical exception existing in a population, the sampling approach to use is
a)
Random.
b)
Discovery.
c)
Probability-proportional-to-size.
d)
Variables.
64.
Assume the internal auditor becomes concerned that significant fraud may be taking place by dentists who are billing the health care processor for services that were not provided. For example, employees may have their teeth cleaned, but the dentist charges the processor for pulling teeth and developing dentures. The most effective procedure to determine whether such a fraud exists is to
a)
Develop a schedule of payments made to individual dentists. Verify that payments were made to the dentists by confirming the payments with the health care processor.
b)
Take a random sample of payments made to dentists and confirm the amounts paid with the dentists’ offices to determine that the amounts agree with the amounts billed by the dentists.
c)
Take a random sample of claims submitted by dentists and trace through the system to determine whether the claims were paid at the amounts billed.
d)
Take a discovery sample of employee claims that were submitted through dentist offices, and confirm the type of service performed by the dentist through direct correspondence with the employee who had the service performed.
65.
After partially completing an internal control review of the accounts payable department, an auditor suspects that some type of fraud has occurred. To ascertain whether the fraud is present, the best sampling approach is to use
a)
Simple random sampling to select a sample of vouchers processed by the department during the past year.
b)
Probability-proportional-to-size sampling to select a sample of vouchers processed by the department during the past year.
c)
Discovery sampling to select a sample of vouchers processed by the department during the past year.
d)
Judgmental sampling to select a sample of vouchers processed by clerks identified by the department manager as acting suspiciously.
66.
An internal auditor is planning to use monetary-unit sampling for testing the monetary value of a large accounts receivable population. The advantages of using monetary-unit sampling (MUS) include all of the following except that it
a)
Is an efficient model for establishing that a low error rate population is not materially misstated.
b)
Does not require the normal distribution approximation required by variables sampling.
c)
Can be applied to a group of accounts because the sampling units are homogeneous.
d)
Results in a smaller sample size than classical variables sampling for larger numbers of misstatements.
67.
In which of the following situations will monetary-unit sampling be more effective and efficient than ratio estimation?
a)
The population contains a large number of differences between the recorded amount and the actual amount.
b)
The population is expected to contain few differences between the recorded amount and the actual amount.
c)
The population has a high degree of variability in monetary amount.
d)
The population has a low degree of variability in monetary amount.
68.
Fact Pattern: An auditor is testing on a company’s large, normally distributed accounts receivable file. The objectives of the audit are to test end-of-period monetary balances and accounts receivable posting exception (error) rates. The accounts receivable file contains a large number of small monetary balances and a small number of large monetary balances, and the auditor expects to find numerous errors in the account balances. The most appropriate sampling technique to estimate the monetary amount of errors is
a)
Difference or ratio estimation.
b)
Unstratified mean-per-unit.
c)
Probability-proportional-to-size.
d)
Attribute.
69.
Fact Pattern: An auditor is testing on a company’s large, normally distributed accounts receivable file. The objectives of the audit are to test end-of-period monetary balances and accounts receivable posting exception (error) rates. The expected population exception rate is 3% for the accounts receivable posting processes. If the auditor has established a 5% tolerable rate, the auditor would use which sampling plan for testing the actual exception rate?
a)
Difference or mean-per-unit estimation.
b)
Discovery.
c)
Stratified.
d)
Attribute.
70.
A hospital has observed an increase in the number of cases of a disease and has asked an analyst to collect data on the cases over the last 3 years. The analyst noted that the disease appeared 3 years ago during the second quarter of the year. Since then, the third and fourth quarters of each year showed significant spikes in the number of cases when compared to the first two quarters. What is the best way to present these findings?
a)
Table, showing the number of cases in each month for the last 3 years.
b)
Pie chart, showing the number of cases in each quarter for the last 3 years.
c)
Scatter plot, showing the change in the number of cases for each quarter for the last 3 years.
d)
Bar graph, showing the number of cases in each quarter for the last 3 years.
71.
When an accounting application is processed by computer, an auditor cannot verify the reliable operation of automated controls by
a)
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.
b)
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.
c)
Manually reperforming, as of a moment in time, the processing of input data and comparing the simulated results with the actual results.
d)
Periodically submitting auditor-prepared test data to the same computer process and evaluating the results.
72.
The auditor’s primary concern when an auditee’s programmer writes a program to age inventory is
a)
The auditor’s programming expertise.
b)
Loss of independence.
c)
Saving valuable audit time.
d)
The programmer’s access to confidential information.
73.
Which of the following is necessary to audit balances in an online computer system in an environment of destructive updating?
a)
Periodic dumping of transaction files.
b)
Year-end use of audit hooks.
c)
An integrated test facility (ITF).
d)
A well-documented audit trail.
74.
A primary reason auditors are reluctant to use an ITF (minicompany technique) is that it requires them to
a)
Reserve specific master file records and process them at regular intervals.
b)
Collect transaction and master file records in a separate file.
c)
Notify user personnel so they can make manual adjustments to output.
d)
Identify and reverse the fictitious entries to avoid contamination of control totals.
75.
An internal auditor reviews and adapts a systems flowchart to understand the flow of information in the processing of cash receipts. Which of the following statements is true regarding the use of such flowcharts? The flowcharts
a)
Show specific control procedures used, such as edit tests that are implemented and batch control reconciliations.
b)
Are a good guide to potential segregation of duties.
c)
Are generally kept up to date for systems changes.
d)
Show only computer processing, not manual processing.
76.
Graphical notations that show the flow and transformation of data within a system or business area are called
a)
Action diagrams.
b)
Program structure charts.
c)
Conceptual data models.
d)
Data flow diagrams.
77.
Which of the following is a true statement comparing a horizontal flowchart with a vertical flowchart?
a)
A horizontal flowchart provides more room for written descriptions that parallel the symbols.
b)
A horizontal flowchart brings into sharper focus the assignment of duties and independent checks on performance.
c)
A horizontal flowchart is usually longer.
d)
A horizontal flowchart does not provide as broad a picture at a glance.
78.
An advantage of using systems flowcharts to document information about internal control instead of using internal control questionnaires is that systems flowcharts
a)
Identify internal control deficiencies more prominently.
b)
Provide a visual depiction of clients’ activities.
c)
Indicate whether controls are operating effectively.
d)
Reduce the need to observe clients’ employees performing routine tasks.
79.
Which result of an analytical procedure suggests the existence of obsolete merchandise?
a)
Decrease in the inventory turnover rate.
b)
Decrease in the ratio of gross profit to sales.
c)
Decrease in the ratio of inventory to accounts payable.
d)
Decrease in the ratio of inventory to accounts receivable.
80.
An internal auditor decides to perform an inventory turnover analysis for both raw materials inventory and finished goods inventory. The analysis would be potentially useful in
a)
Identifying products for which management has not been attuned to changes in market demand.
b)
Identifying potential problems in purchasing activities.
c)
Identifying obsolete inventory.
d)
All of the answers are correct.
81.
A company’s accounts receivable turnover rate decreased from 7.3 to 4.3 over the last 3 years. What is the most likely cause for the decrease?
a)
An increase in the discount offered for early payment.
b)
A more liberal credit policy.
c)
A change in net payment due from 30 to 25 days.
d)
Increased cash sales.
82.
Assume an internal auditor computes an inventory turnover rate by product line and identifies a number of product lines with a rate of less than 3.5. Which of the following conclusions can be justified by these engagement results? 1. The identified product lines contain obsolete inventory, 2. Inventory is valued at more than net realizable value, 3. Inventory costs are too high because the organization is carrying obsolete inventory.
a)
1 and 3 only.
b)
2 only.
c)
1, 2, and 3.
d)
None of the answers are correct.
83.
The primary purpose of an engagement workpaper prepared in connection with payroll expense is to
a)
Record payroll data and analyses to support reported recommendations.
b)
Verify the work done by the internal auditor.
c)
Record the names of all employees.
d)
Provide documentation to support payroll taxes due.
84.
Which of the following most completely describes the appropriate content of workpapers?
a)
Engagement objectives, procedures, and conclusions.
b)
Engagement purposes, criteria, techniques, and recommendations.
c)
Engagement objectives, procedures, observations, conclusions, and recommendations.
d)
Engagement subject, purposes, sampling information, and analysis.
85.
Engagement workpapers include
a)
Providing a basis for evaluating the internal audit quality program.
b)
Copies of all source documents examined in the course of the engagement.
c)
Copies of all procedures that were reviewed during the engagement.
d)
All workpapers prepared during a previous engagement performed in the same area.
86.
The chief audit executive establishes policies for
a)
Standardized workpapers.
b)
Defining the hours available for individual engagements.
c)
Defining standardized tick marks and ensuring compliance with them.
d)
Ensuring the written documentation of all conversations held throughout the engagement.
87.
An internal audit activity’s policies regarding engagement records should address such matters as their content, retention period, handling of access requests, and responsibility for control and security. Which of the following statements relevant to the development of these policies is true?
a)
Most records not protected by the attorney-client privilege are accessible in criminal proceedings.
b)
The work product of the internal auditors is protected from disclosure.
c)
Records created with an expectation of confidentiality are protected from disclosure.
d)
Documents revealing attorneys’ thought processes will be subject to forced disclosure.
88.
Engagement workpapers are reviewed to ensure that
a)
They are properly cross-referenced to the engagement communications.
b)
No issues are open at the conclusion of the field work.
c)
They meet or exceed the work standards of the organization’s external auditors.
d)
They are properly referenced for easy follow-up within the next year.
89.
An internal auditor’s workpapers should be reviewed by the
a)
Management of the engagement client.
b)
Management of the internal audit activity.
c)
Audit committee of the board.
d)
Management of the organization’s security division.
90.
During the workpaper review, an internal auditing supervisor finds that the internal auditor’s observations are not adequately cross-referenced to supporting documentation. The supervisor will most likely instruct the internal auditor to
a)
Prepare a workpaper to indicate that the full scope of the engagement was carried out.
b)
Familiarize himself or herself with the sequence of workpapers so that (s)he will be able to answer questions about the conclusions stated in the final engagement communication.
c)
Eliminate any cross-references to other workpapers because the system is unclear.
d)
Provide a cross-referencing system that shows the relationship among observations, conclusions, recommendations, and the related facts.
91.
An internal audit staffer has just completed an assessment of the engagement client’s operating and financial controls. The staffer’s preliminary conclusion is that controls are adequately designed to achieve management’s operating and financial objectives. The staffer’s next step is to
a)
Present his or her findings to the chief audit executive.
b)
Prepare a preliminary report on internal controls for presentation to the board.
c)
Report his or her results to the auditor in charge.
d)
Prepare a plan for testing internal controls.
92.
A manager responsible for the supervision and review of other internal auditors needs the necessary skills, knowledge, and other competencies. Which of the following does not describe a skill, knowledge, or other competency necessary to supervise a particular engagement?
a)
The ability to review and analyze an engagement work program to determine whether the proposed engagement procedures will result in information relevant to the engagement’s objectives.
b)
Assuring that an engagement communication is supported and accurate relative to the information documented in the engagement workpapers.
c)
Using risk assessment and other judgmental processes to develop an engagement work schedule for the internal audit activity and present the schedule to the board.
d)
Determining that staff auditors have completed the engagement procedures and that engagement objectives have been met.
93.
The engagement team leader is least likely to have a primary role in
a)
Allocating budgeted engagement hours among assigned staff.
b)
Updating the permanent files.
c)
Reviewing the workpapers.
d)
Preparing the critique sheet for the engagement.
94.
Internal audit activity policy requires that final engagement communications not be issued without a management response. An engagement with significant observations is complete except for management’s response. Evaluate the following courses of action and select the best alternative.
a)
Issue an interim engagement communication regarding the important issues noted.
b)
Modify the policy to allow a specific time period for management’s response.
c)
Wait for management’s response and then issue the engagement communication.
d)
Discuss the situation with the external auditors.
95.
While performing an operational engagement involving the firm’s production cycle, an internal auditor discovers that, in the absence of specific guidelines, some engineers and buyers routinely accept vacation trips paid by certain of the firm’s vendors. Other engineers and buyers will not accept even a working lunch paid for by a vendor. Which of the following actions should the internal auditor take?
a)
None. The engineers and buyers are professionals. An internal auditor should not inappropriately interfere in what is essentially a personal decision.
b)
Informally counsel the engineers and buyers who accept the vacation trips. This helps prevent the possibility of kickbacks, while preserving good internal auditor-engagement client relations.
c)
Formally recommend that the organization establish a code of ethics. Guidelines of acceptable conduct, within which individual decisions may be made, should be provided.
d)
Issue a formal engagement communication naming the personnel who accept vacations but make no recommendations. Corrective action is the responsibility of management.
96.
According to the Standards, final engagement communications should be distributed to those members of the organization who are able to ensure that engagement results are given due consideration. For higher-level members of the organization, that requirement can usually be satisfied with
a)
Interim reports.
b)
Summary reports.
c)
Oral reports.
d)
Final written reports only.
97.
Avoiding unnecessary technical language is best associated with which quality of communication addressed in the Standards?
a)
Accurate.
b)
Concise.
c)
Clear.
d)
Complete.
98.
Which of the following combinations of participants is most appropriate to attend an exit meeting?
a)
The responsible internal auditor and representatives from management who are knowledgeable about detailed operations and who can authorize implementation of corrective action.
b)
The chief audit executive and the executive in charge of the activity or function reviewed.
c)
Staff internal auditors who conducted the field work and operating personnel in charge of the daily performance of the activity or function reviewed.
d)
Staff auditors who conducted the field work and the executive in charge of the activity or function reviewed.
99.
Which of the following individuals should normally not receive a final engagement communication related to a review of the purchasing cycle?
a)
The director of purchasing.
b)
The independent external auditor.
c)
The chief audit executive.
d)
The chair of the board.
100.
Management is beginning to take corrective action on personnel department deficiencies reported during the last engagement performed by the internal audit activity. The internal auditor should
a)
Oversee the corrective action.
b)
Postpone the next engagement of the personnel department until the corrective action is completed.
c)
Refrain from judging whether the corrective action will remedy the deficiencies.
d)
Follow up to see that the corrective action satisfies the engagement recommendations.
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