Question 1

Which of the following activities would be most likely to impair the objectivity of an internal auditor?

Accepted Answer

A)  Performing reviews of procedures for a new information systems application before it is installed. 
B)  Benchmarking controls during the development of a new information systems application. 
C)  Assisting with the development and installation of a new information systems application. 
D)  Developing recommended controls for the use of a new information systems application. 
A)  Performing reviews of procedures for a new information systems application before it is installed. 
B)  Benchmarking controls during the development of a new information systems application. 
C)  Assisting with the development and installation of a new information systems application. 
D)  Developing recommended controls for the use of a new information systems application.

Question 2

Which the following activities should be performed by the internal audit activity to facilitate an effective relationship with the audit committee? 1. Periodically report about the accounting standards followed by the organization. 2. Provide assurance to the audit committee that its charter, activities, and processes are appropriate. 3. Ensure that the role and activities of the internal audit activity are clearly understood and responsive to the needs of the audit committee. 4. Maintain open and effective communications with the audit committee.

Accepted Answer

A)  1 and 2 only 
B)  3 and 4 only 
C)  1, 3, and 4 only 
D)  2, 3, and 4 only 
A)  1 and 2 only 
B)  3 and 4 only 
C)  1, 3, and 4 only 
D)  2, 3, and 4 only

Question 3

According to IIA guidance, which of the following are considerations of due professional care when an internal auditor conducts a formal consulting engagement? 1. The complexity of the work required. 2. The needs and expectations of the client. 3. The potential value of the engagement compared to the effort. 4. Information regarding assumptions and procedures to be employed.

Accepted Answer

A)  1 and 4 only 
B)  2 and 3 only 
C)  1, 2, and 3 only 
D)  1, 2, 3, and 4 
A)  1 and 4 only 
B)  2 and 3 only 
C)  1, 2, and 3 only 
D)  1, 2, 3, and 4

Question 4

Which statement most accurately describes how criteria are established for use by internal auditors in determining whether goals and objectives have been accomplished?

Accepted Answer

A)  Management is responsible for establishing the criteria. 
B)  Internal auditors should use professional standards or government regulations to establish the criteria. 
C)  The industry in which a company operates establishes criteria for each member company through benchmarks and best practices for that industry. 
D)  Appropriate accounting or auditing standards, including international standards, should be used as the criteria. 
A)  Management is responsible for establishing the criteria. 
B)  Internal auditors should use professional standards or government regulations to establish the criteria. 
C)  The industry in which a company operates establishes criteria for each member company through benchmarks and best practices for that industry. 
D)  Appropriate accounting or auditing standards, including international standards, should be used as the criteria.

Question 5

Which of the following tools would provide the most useful depiction of a process flow that spans multiple departments in an organization?

Accepted Answer

A)  A vertical flowchart of each department, showing inputs at the top and outputs at the bottom. 
B)  A narrative, with a section dedicated to the process of each department. 
C)  A combination of a flowchart, which shows the process, and a narrative, which indicates the related department. 
D)  A horizontal flowchart, with each department identified across the top and the process flow below. 
A)  A vertical flowchart of each department, showing inputs at the top and outputs at the bottom. 
B)  A narrative, with a section dedicated to the process of each department. 
C)  A combination of a flowchart, which shows the process, and a narrative, which indicates the related department. 
D)  A horizontal flowchart, with each department identified across the top and the process flow below.

Question 6

With regard to external assessments of an internal audit activity (IAA), which of the following is the chief audit executive required to discuss with the board?

Accepted Answer

A)  External reviewer conflicts of interest, and the need for an external assessment more frequently than once every five years. 
B)  External reviewer conflicts of interest, and the timeline of the external assessment. 
C)  The need for an external assessment more frequently than once every five years, and the simplest method for the external reviewer to join the IAA's organization. 
D)  The simplest way for the external reviewer to join the IAA's organization, and the timeline of the external assessment. 
A)  External reviewer conflicts of interest, and the need for an external assessment more frequently than once every five years. 
B)  External reviewer conflicts of interest, and the timeline of the external assessment. 
C)  The need for an external assessment more frequently than once every five years, and the simplest method for the external reviewer to join the IAA's organization. 
D)  The simplest way for the external reviewer to join the IAA's organization, and the timeline of the external assessment.

Question 7

In addition to data protection, which of the following is a control that is typically used by companies to safeguard the privacy rights of their customers?

Accepted Answer

A)  End-user computing. II. Encryption of data. III. Spyware. IV. Intrusion detection. 
B)  II only 
C)  I and III only 
D)  II and IV only 
E)  I, II, and IV only 
A)  End-user computing. II. Encryption of data. III. Spyware. IV. Intrusion detection. 
B)  II only 
C)  I and III only 
D)  II and IV only 
E)  I, II, and IV only

Question 8

When a risk assessment process has been used to construct an audit engagement schedule, which of the following should receive attention first?

Accepted Answer

A)  The external auditors have requested assistance for their upcoming annual audit. 
B)  A new accounts payable system is currently undergoing testing by the information technology department. 
C)  Management has requested an investigation of possible lapping in receivables. 
D)  The existing accounts payable system has not been audited over the past year. 
A)  The external auditors have requested assistance for their upcoming annual audit. 
B)  A new accounts payable system is currently undergoing testing by the information technology department. 
C)  Management has requested an investigation of possible lapping in receivables. 
D)  The existing accounts payable system has not been audited over the past year.

Question 9

According to the International Professional Practices Framework, risk is:

Accepted Answer

A)  Defined as the negative effect of events that are expected to occur. II. Measured in terms of consequences. III. Measured in terms of likelihood. 
B)  I only 
C)  I and II only 
D)  II and III only 
E)  I, II, and III. 
A)  Defined as the negative effect of events that are expected to occur. II. Measured in terms of consequences. III. Measured in terms of likelihood. 
B)  I only 
C)  I and II only 
D)  II and III only 
E)  I, II, and III.

Question 10

An internal auditor for a large bank is reviewing the collectability of a loan that is secured by real property. The best evidence of the loan's collectability would be:

Accepted Answer

A)  A recent independent appraisal of the value of the real property. 
B)  A document showing the loan committee's approval of the loan. 
C)  The borrower's confirmation of the loan balance. 
D)  A properly completed and signed loan application form. 
A)  A recent independent appraisal of the value of the real property. 
B)  A document showing the loan committee's approval of the loan. 
C)  The borrower's confirmation of the loan balance. 
D)  A properly completed and signed loan application form.

Question 11

Management has decided to invest significant capital in a new and innovative large computer system. They understand that they are one of the first organizations to implement this system, but they believe the benefits outweigh the uncertainty over the performance and reliability of the software. This decision best describes which aspect of risk management?

Accepted Answer

A)  Risk appetite. 
B)  Risk tolerance. 
C)  Residual risk. 
D)  Inherent risk. 
A)  Risk appetite. 
B)  Risk tolerance. 
C)  Residual risk. 
D)  Inherent risk.

Question 12

A new chief audit executive (CAE) of a large internal audit activity (IAA) is dissatisfied with the current amount and quality of training being provided to the staff and wishes to implement improvements. According to IIA guidance, which of the following actions would best help the CAE reach this objective?

Accepted Answer

A)  Require that all staff obtain a minimum of two relevant audit certifications. 
B)  Perform a gap analysis of the IAA's existing knowledge, skills and competencies. 
C)  Engage a consultant to benchmark the IAA's training program against its peers. 
D)  Assign one experienced manager to better coordinate staff training and development activities. 
A)  Require that all staff obtain a minimum of two relevant audit certifications. 
B)  Perform a gap analysis of the IAA's existing knowledge, skills and competencies. 
C)  Engage a consultant to benchmark the IAA's training program against its peers. 
D)  Assign one experienced manager to better coordinate staff training and development activities.

Question 13

Which of the following scenarios would represent the greatest threat to the authority of the internal audit activity (IAA)?

Accepted Answer

A)  A change was implemented requiring the IAA to report administratively to the organization's chief legal counsel rather than the board. 
B)  Responsibility for risk management processes were removed from the IAA and placed under a newly created chief risk officer. 
C)  The IAA was denied access to expenditure and budget requirement reports because the reports were considered to be financial administrative matters. 
D)  An internal auditor was informed by the chief financial officer that client survey results would be unfavorable unless the auditor changed a finding in the report. 
A)  A change was implemented requiring the IAA to report administratively to the organization's chief legal counsel rather than the board. 
B)  Responsibility for risk management processes were removed from the IAA and placed under a newly created chief risk officer. 
C)  The IAA was denied access to expenditure and budget requirement reports because the reports were considered to be financial administrative matters. 
D)  An internal auditor was informed by the chief financial officer that client survey results would be unfavorable unless the auditor changed a finding in the report.

Question 14

Which of the following processes should be included in a benchmarking activity?

Accepted Answer

A)  Identify key measures. II. Collect data on performances and practices. III. Identify opportunities for improvement. 
B)  II only 
C)  I and III only 
D)  II and III only 
E)  I, II, and III. 
A)  Identify key measures. II. Collect data on performances and practices. III. Identify opportunities for improvement. 
B)  II only 
C)  I and III only 
D)  II and III only 
E)  I, II, and III.

Question 15

Which of the following statements describes impairment to the internal auditor's objectivity?

Accepted Answer

A)  An internal auditor reviews a purchasing agent's contract drafts prior to their execution. 
B)  An internal auditor reduces the scope of an audit engagement due to budget restrictions. 
C)  An internal auditor receives a promotional gift that is available to the organization's employees. 
D)  An internal auditor performs an assessment of the operations for which he was recently responsible. 
A)  An internal auditor reviews a purchasing agent's contract drafts prior to their execution. 
B)  An internal auditor reduces the scope of an audit engagement due to budget restrictions. 
C)  An internal auditor receives a promotional gift that is available to the organization's employees. 
D)  An internal auditor performs an assessment of the operations for which he was recently responsible.

Question 16

Which of the following audit techniques is used to evaluate control design while also embodying auditing's analytical process?

Accepted Answer

A)  A risk and control matrix. 
B)  A flowchart. 
C)  A walk-through. 
D)  A process narrative. 
A)  A risk and control matrix. 
B)  A flowchart. 
C)  A walk-through. 
D)  A process narrative.

Question 17

Which of the following would most likely function as a detective control?

Accepted Answer

A)  Security dogs. 
B)  Alert employees. 
C)  Insurance claims. 
D)  Cycle counts. 
A)  Security dogs. 
B)  Alert employees. 
C)  Insurance claims. 
D)  Cycle counts.

Question 18

Some of a company's payroll transactions were batch posted to the payroll file but were not uploaded correctly to the general ledger file on the mainframe. The best control to detect this type of error would be.

Accepted Answer

A)  Edit controls on the payroll file. 
B)  Appropriate segregation of duties for batch approval. 
C)  Validation of hash totals. 
D)  Reconciliation of paychecks to the bank account. 
A)  Edit controls on the payroll file. 
B)  Appropriate segregation of duties for batch approval. 
C)  Validation of hash totals. 
D)  Reconciliation of paychecks to the bank account.

Question 19

The chief commodity trader for a large energy company learns from a friend that a competitor will likely fail its upcoming regulatory audit and will be forced to temporarily decrease production. If the information is true, the trader has short-term opportunities to make trades that will financially benefit the trader's company and will lead to a substantial increase in the trader's performance bonus. However, if the information is not true, making the trades will significantly increase the company's risk of being caught in a long position. From an ethical perspective, which of the following would be the most appropriate course of action for the trader to take?

Accepted Answer

A)  Make the trade because the company and the trader will both benefit. 
B)  Have another trader on staff make the trade in order to avoid a conflict of interest. 
C)  Disclose the information to the risk oversight committee but proceed with the trade to capitalize on the opportunity. 
D)  Defer the decision to management and risk the loss of the trading opportunity. 
A)  Make the trade because the company and the trader will both benefit. 
B)  Have another trader on staff make the trade in order to avoid a conflict of interest. 
C)  Disclose the information to the risk oversight committee but proceed with the trade to capitalize on the opportunity. 
D)  Defer the decision to management and risk the loss of the trading opportunity.

Question 20

Which of the following situations allows for the most objectivity on the part of an internal auditor?

Accepted Answer

A)  Assessing testing procedures in a new computer system. 
B)  Performing a risk assessment of a new financial instrument. 
C)  Drawing conclusions from a sample of financial transactions. 
D)  Comparing current environmental activities against legislation. 
A)  Assessing testing procedures in a new computer system. 
B)  Performing a risk assessment of a new financial instrument. 
C)  Drawing conclusions from a sample of financial transactions. 
D)  Comparing current environmental activities against legislation.

Which of the following activities would be most likely to impair the objectivity of an internal auditor?

Which statement most accurately describes how criteria are established for use by internal auditors in determining whether goals and objectives have been accomplished?

Which of the following tools would provide the most useful depiction of a process flow that spans multiple departments in an organization?

With regard to external assessments of an internal audit activity (IAA), which of the following is the chief audit executive required to discuss with the board?

In addition to data protection, which of the following is a control that is typically used by companies to safeguard the privacy rights of their customers?

When a risk assessment process has been used to construct an audit engagement schedule, which of the following should receive attention first?

According to the International Professional Practices Framework, risk is:

An internal auditor for a large bank is reviewing the collectability of a loan that is secured by real property. The best evidence of the loan's collectability would be:

Which of the following scenarios would represent the greatest threat to the authority of the internal audit activity (IAA)?

Which of the following processes should be included in a benchmarking activity?

Which of the following statements describes impairment to the internal auditor's objectivity?

Which of the following audit techniques is used to evaluate control design while also embodying auditing's analytical process?

Which of the following would most likely function as a detective control?

Some of a company's payroll transactions were batch posted to the payroll file but were not uploaded correctly to the general ledger file on the mainframe. The best control to detect this type of error would be.

Which of the following situations allows for the most objectivity on the part of an internal auditor?

Certified Financial Services Auditor

Certified Government Auditing Professional

Conducting the Internal Audit Engagement

Business Analysis and Information Technology

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Exam 3: The Internal Audit Activity Role in Governance, Risk, and Control

Which of the following activities would be most likely to impair the objectivity of an internal auditor?

Which statement most accurately describes how criteria are established for use by internal auditors in determining whether goals and objectives have been accomplished?

Which of the following tools would provide the most useful depiction of a process flow that spans multiple departments in an organization?

With regard to external assessments of an internal audit activity (IAA), which of the following is the chief audit executive required to discuss with the board?

In addition to data protection, which of the following is a control that is typically used by companies to safeguard the privacy rights of their customers?

When a risk assessment process has been used to construct an audit engagement schedule, which of the following should receive attention first?

According to the International Professional Practices Framework, risk is:

An internal auditor for a large bank is reviewing the collectability of a loan that is secured by real property. The best evidence of the loan's collectability would be:

Which of the following scenarios would represent the greatest threat to the authority of the internal audit activity (IAA)?

Which of the following processes should be included in a benchmarking activity?

Which of the following statements describes impairment to the internal auditor's objectivity?

Which of the following audit techniques is used to evaluate control design while also embodying auditing's analytical process?

Which of the following would most likely function as a detective control?

Some of a company's payroll transactions were batch posted to the payroll file but were not uploaded correctly to the general ledger file on the mainframe. The best control to detect this type of error would be.

Which of the following situations allows for the most objectivity on the part of an internal auditor?

Certified Financial Services Auditor

Certified Government Auditing Professional

Conducting the Internal Audit Engagement

Business Analysis and Information Technology

Filters