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WorksheetsUnit 2.3: Stakeholder Relationships
Total questions: 42
Worksheet time: 1hrs 24mins
Name
Class
Date
1.
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)
Members drawn solely from relevant external regulatory agencies.
c)
Members from all key stakeholder groups, such as representatives from banking, labor, regulators, shareholders, and company officers.
d)
External directors of the board who are independent of the organization’s management.
2.
The audit committee may serve several important purposes, some of which directly benefit the internal audit function. The most significant benefit provided by the audit committee to the internal audit function is
a)
Protecting the independence of the internal audit function from undue management influence.
b)
Members drawn solely from relevant external regulatory agencies.
3.
To avoid creating conflict between the chief executive officer (CEO) and the audit committee, the chief audit executive (CAE) should
a)
Submit copies of all engagement communications to the CEO and audit committee.
b)
Strengthen independence through organizational status.
c)
Discuss with the audit committee all pending engagement communications to the CEO.
d)
Request board establishment of policies covering the internal audit function’s relationships with the audit committee.
4.
Internal audit resources, including staff with skills in data analytics, integrated auditing, and remote auditing, should be appropriate, sufficient, and effectively deployed. Consequently,
a)
Resource planning should be limited to expected activities.
b)
The chief audit executive should perform periodic skills assessment.
c)
Only members of the internal audit staff should perform internal audit assignments.
d)
The chief audit executive ultimately must ensure the adequacy of resources.
5.
The most important reason for the chief audit executive to ensure that the internal audit function has adequate and sufficient resources is to
a)
Ensure that the function is adequately protected from outsourcing.
b)
Demonstrate sufficient capability to meet the audit plan requirements.
c)
Establish credibility with the audit committee and management.
d)
Fulfill the need for effective succession planning.
6.
Which of the following statements about the chief audit executive’s responsibilities for internal audit resources is most accurate?
a)
The chief audit executive is responsible for ensuring that audit coverage is based on the skills of the internal audit function.
b)
The chief audit executive is responsible for presenting a detailed summary of audit resources to management.
c)
The chief audit executive is responsible for the effective deployment of resources to achieve the approved audit plan.
d)
The chief audit executive is responsible for administering the organization’s compensation program.
7.
Disputes between the external auditor and management are resolved through an arbiter. Which of the following statements regarding the external auditor is true?
a)
The external auditor’s work is overseen and reviewed by the audit committee.
b)
Review of the external auditor’s internal control and audit reports during each engagement is done by a different accounting firm.
c)
The external auditor’s work is overseen and reviewed by the audit committee.
d)
Negotiation of the external auditor’s fee is the responsibility of the organization’s officers.
8.
Audit committees have been identified as a major factor in promoting the independence of both internal and external auditors. Which of the following is the most important limitation on the effectiveness of audit committees?
a)
Audit committees may be composed of independent directors. However, those directors may have close personal and professional friendships with management.
b)
Audit committee members are compensated by the organization and thus favor an owner’s view.
c)
Audit committees devote most of their efforts to external audit concerns and do not pay much attention to the internal audit function and the overall control environment.
d)
Audit committee members do not normally have degrees in the accounting or auditing fields.
9.
The audit committee strengthens the control processes of an organization by
a)
Assigning the internal audit function 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 function policies.
10.
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 that is a stepping stone to management positions.
c)
Requiring internal auditors to report all significant findings of illegal activity to the chief executive officer.
d)
Keeping external and internal auditing work separated to maintain independence.
11.
Select the individual whose role would compromise the independence required for audit committee membership.
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.
12.
Which of the following audit committee activities is of the greatest benefit to the internal audit function?
a)
Review and approval of engagement work programs.
b)
Assurance that external auditors will rely on the work of the internal audit function whenever possible.
c)
Review and endorsement of all engagement communications prior to their release.
d)
Determine whether scope limitations impede the ability of the internal audit function to fulfill its mandate.
13.
Which of the following features of a large manufacturer’s organizational structure is a control weakness?
a)
The information systems department is headed by a vice president who reports directly to the president.
b)
The chief financial officer is a vice president who reports to the chief executive officer.
c)
The audit committee of the board consists of the chief executive officer, the chief financial officer, and a major shareholder.
d)
The controller reports to the chief financial officer.
14.
An audit committee of the board of directors of an organization is being established. Which of the following is normally a responsibility of the committee with regard to the internal audit function?
a)
Approval of the selection and dismissal of the chief audit executive.
b)
Development of the annual engagement work schedule.
c)
Approval of engagement work programs.
d)
Determination of engagement findings appropriate for specific engagement communications.
15.
What is the reason the CAE must have direct and unrestricted access to the board?
a)
The board is composed of financial experts and are a great resource for collaboration on financial decisions.
b)
The internal audit function needs to achieve organizational independence.
c)
Stock exchanges require that all listed organizations have an audit committee.
d)
The CAE must build and maintain strong constructive relationships with managers and other stakeholders.
16.
Which of the following is a possible statutory limitation on audit committees?
a)
At least one member must be a CPA.
b)
One member must be a financial expert.
c)
A member of the audit committee must be a member of management.
d)
A member of the audit committee must be an internal auditor.
17.
A typical activity of an audit committee is
a)
Choosing an external auditor.
b)
Approving an external auditor’s work.
c)
Serving as the organization’s highest level governing body.
d)
Meeting annually with the chief audit executive.
18.
Johnny Hagert, Chief Audit Executive, is determining the sufficiency of the resource allocation for the internal audit function’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.
19.
Use of external service providers with expertise in healthcare benefits is appropriate when the internal audit function is
a)
Evaluating the organization’s estimate of its liability for postretirement benefits, which includes healthcare benefits.
b)
Benchmarking the organization’s healthcare program costs against industry standards using data analytics.
c)
Training its staff to conduct an audit of healthcare costs in a major division of the organization.
d)
All of the answers are correct.
20.
Gator Financial Service is considering outsourcing its internal audit function. Gator Financial Service
a)
Cannot outsource the function because doing so would impair the effectiveness of the engagement.
b)
Can outsource the services if an external auditor can effectively oversee the internal audit function.
c)
Must outsource the entire internal audit function to maintain independence.
d)
Can outsource the services as long as Gator Financial Service continues to have the responsibility for maintaining an effective internal audit function.
21.
Numerous environmental laws and regulations have recently changed. Senior management has asked the chief audit executive to perform an environmental engagement to be completed as soon as possible. The internal audit function is currently performing an operational engagement. As a result, the chief audit executive must make difficult decisions about resource allocation. Which of the following is the least significant issue in determining whether to reallocate audit resources?
a)
The potential fraud discovered during the operational audit.
b)
The internal cost to the organization for noncompliance with the new environmental laws and regulations.
c)
The knowledge, skills, and competencies of the internal audit staff.
d)
The results from prior financial audits.
22.
When determining the number and experience level of an internal audit staff to be assigned to an engagement, the chief audit executive should consider which of the following? Complexity of the engagement. Length of the engagement Available internal audit function resources Lapsed time since the last engagement
a)
1 and 2 only.
b)
1 and 3 only.
c)
1 and 2 and 3.
d)
1, 2, 3, and 4.
23.
Which of the following parties is (are) primarily responsible for resource management in an internal auditing engagement? The chief audit executive Senior management The board of directors
a)
1 and 2.
b)
1 and 3.
c)
1 only.
d)
1 and 3.
24.
The internal audit function has recently experienced the departure of two internal auditors who cannot be immediately replaced due to budget constraints. Which of the following is the least desirable option for efficiently completing future engagements given this reduction in resources?
a)
Using self-assessment questionnaires to address audit objectives.
b)
Employing information technology in audit planning, sampling, and documentation.
c)
Eliminating advisory engagements from the engagement work schedule.
d)
Filling vacancies with personnel from operating departments that are not being audited.
25.
When assigning individual internal auditors to engagements, engagement supervisors must consider various factors based on needs, abilities, and skills. Which of the following criteria should be de-prioritized when assigning a staff auditor to a specific engagement?
a)
The staff internal auditor’s desire for training in the area.
b)
The complexity of the engagement.
c)
The experience level of the internal auditor.
d)
Special skills possessed by the staff internal auditor.
26.
Staff members of the internal audit function should be assigned to engagements and training projects that will enable them to develop their potential. Which of the following should be the most important consideration in making assignments that foster proper development?
a)
The skills and experience levels of individual auditors.
b)
Specific training requirements imposed by the Standards.
c)
The importance of giving all staff members extensive supervisory experience.
d)
Special interests of individual staff members.
27.
In selecting an instructional strategy for developing internal audit staff, a chief audit executive begins by reviewing
a)
Organizational objectives.
b)
Learning content.
c)
Budget readiness.
d)
Budget constraints.
28.
The advantage attributed to the establishment of internal auditing field offices for work at foreign locations is best described as
a)
The possibility of increased objectivity of personnel assigned to a field office.
b)
A reduction of travel time and related travel expense.
c)
The increased ease of maintaining uniform organization-wide standards.
d)
More contact with senior personnel leading to an increase in control.
29.
According to the Global Internal Audit Standards, the CAE must ensure that internal audit resources are:
a)
Relevant, adequate, and practical.
b)
Applicable, competent, and well-founded.
c)
Appropriate, sufficient, and effectively deployed.
d)
Suitable, satisfactory, and competently displayed.
30.
According to the Global Internal Audit Standards, internal audit resources are effectively deployed when
a)
The internal audit staff has the necessary attributes for the planned activities.
b)
The resources needed to accomplish the plan are adequate.
c)
There are more opportunities to achieve operating benefits for management of the activity under review.
d)
They are used in a way that optimizes the achievement of the approved plan.
31.
In managing internal audit resources, the CAE considers all of the following except
a)
Benchmarking.
b)
Succession planning.
c)
Staff evaluation and development.
d)
Resourcing needs.
32.
In addressing internal audit function resource needs for a complex integrated engagement, which of the following would be inappropriate for the chief audit executive to include?
a)
Other employees of the organization.
b)
Members of the audit committee.
c)
Specialized consultants.
d)
External service providers.
33.
Which of the following is the best source of a chief audit executive’s information for planning staffing requirements?
a)
Discussions of internal audit staff with senior management and the board.
b)
Review of internal audit staff education and training records.
c)
Review of internal audit staff size and composition of similarly sized organizations in the same industry.
d)
Interviews with existing internal audit staff.
34.
The capabilities of individual staff members are key features in the effectiveness of an internal audit function. What is the primary consideration used when staffing an internal audit function?
a)
Background checks.
b)
Job descriptions.
c)
Continuing education.
d)
Organizational orientation.
35.
By comparing job descriptions with the qualifications and duties of the individuals currently holding those jobs, a manager can
a)
Complete the human resource planning cycle.
b)
Determine whether the organization is appropriately staffed.
c)
Forecast future personnel needs.
d)
Determine which employees should be promoted.
36.
When determining the number and experience level of internal audit staff to be assigned to an engagement, which of the following factors is least relevant?
a)
Complexity of the engagement.
b)
Available internal audit function resources.
c)
Training needs of internal auditors.
d)
Lapsed time since the last engagement.
37.
In most organizations, the rapidly evolving scope of internal auditing responsibilities, which includes data analytics, integrated auditing, and remote auditing techniques, requires continual training. What is the primary purpose of such a training program?
a)
To comply with continuing education requirements of professional organizations.
b)
To use slack periods in engagement scheduling.
c)
To help individuals to achieve personal career goals.
d)
To achieve both individual and organizational goals.
38.
Although all the current members of an internal audit function have good records of performance, the CAE is not sure if any of the members are ready to assume a supervisory role. Which of the following is an advantage of bringing in an outsider rather than promoting from within?
a)
Supervisory training data are reduced when a qualified outsider is hired.
b)
The CAE can be sure that the new position will be filled by a competent employee.
c)
Bringing in an outsider is a less expensive alternative than promoting from within.
d)
The “modeling” effect is strengthened by bringing in a new role model.
39.
An organization has outsourced its internal audit function to an external service provider. Consequently,
a)
Oversight of the internal audit function also is outsourced.
b)
Responsibility for the internal audit function also is outsourced.
c)
The service provider must remind the organization that it retains ultimate responsibility for the internal audit function.
d)
The third party must be responsible for the internal audit function.
40.
An organization’s oversight of and responsibility for an outsourced internal audit function is most likely demonstrated by
a)
Establishing field offices.
b)
Maintaining a quality assurance and improvement program.
c)
Selecting appropriate internal audit staff.
d)
Hiring specialized consultants.
41.
When managing the internal audit function’s resources, the chief audit executive (CAE) most likely
a)
Determines the mix of knowledge and skills to evaluate their effective deployment.
b)
Considers the quantity of resources to evaluate their appropriateness.
c)
Conducts a skills assessment based on needs identified in the audit plan.
d)
Considers the optimal use of resources to determine their sufficiency.
42.
Which of the following statements most accurately reflects the chief audit executive’s responsibilities for internal audit resources?
a)
The CAE is responsible for ensuring that audit coverage is based on the periodic skills assessment.
b)
The CAE is responsible for evaluating the detailed summary of audit resources presented by management to the board.
c)
The CAE is not responsible for such human resource functions as evaluation and development.
d)
The CAE is responsible for communicating resource needs to the board but has no explicit responsibility for administering the organization’s compensation program.
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