Question 1

Which of the following factors affects the control risk of a company?

Accepted Answer

A)  Potential problems like technological obsolescence. 
B)  Unusual pressures on management. 
C)  Complex accounts that require expert valuations. 
D)  Segregation of duties. 
A)  Potential problems like technological obsolescence. 
B)  Unusual pressures on management. 
C)  Complex accounts that require expert valuations. 
D)  Segregation of duties.

Question 2

When reviewing operational risk for a department whose manager adopts a laissez-faire style of leadership, it is most important for the internal auditor to verify that:

Accepted Answer

A)  Employee decisions follow department and company guidelines. 
B)  The manager considers employees' input when designing new procedures. 
C)  Employees are empowered to deal with unusual or emergency situations. 
D)  Management has adopted an open-door policy to assist with communication. 
A)  Employee decisions follow department and company guidelines. 
B)  The manager considers employees' input when designing new procedures. 
C)  Employees are empowered to deal with unusual or emergency situations. 
D)  Management has adopted an open-door policy to assist with communication.

Question 3

To determine if a new computer system is improving the use of a manufacturer's limited facilities in serving the largest number of customers, an auditor should compare.

Accepted Answer

A)  The number of reworked orders and their costs before and after system installation. 
B)  Inventory and materials handling costs before and after system installation. 
C)  The number of orders filled and their cycle times before and after system installation. 
D)  The number of reworked orders and orders filled before and after system installation. 
A)  The number of reworked orders and their costs before and after system installation. 
B)  Inventory and materials handling costs before and after system installation. 
C)  The number of orders filled and their cycle times before and after system installation. 
D)  The number of reworked orders and orders filled before and after system installation.

Question 4

What type of risk management strategy is being employed when an organization installs two firewalls to provide protection from unauthorized access to the network?

Accepted Answer

A)  Diversifying the risk that network access will not be available to legitimate, authorized users. 
B)  Accepting the risk that there may be attempts at unauthorized access to the network. 
C)  Avoiding the risk of having a direct network connection to un-trusted networks. 
D)  Sharing the risk that either firewall could be compromised by hackers. 
A)  Diversifying the risk that network access will not be available to legitimate, authorized users. 
B)  Accepting the risk that there may be attempts at unauthorized access to the network. 
C)  Avoiding the risk of having a direct network connection to un-trusted networks. 
D)  Sharing the risk that either firewall could be compromised by hackers.

Question 5

Which of the following represents the most effective governance structure?

Accepted Answer

A)  Operating Executive Internal Management Auditing Responsibility for risk Oversight role Advisory role II. III. IV. 
B)  I Only 
C)  II 
D)  III 
E)  IV 
A)  Operating Executive Internal Management Auditing Responsibility for risk Oversight role Advisory role II. III. IV. 
B)  I Only 
C)  II 
D)  III 
E)  IV

Question 6

Which of the following would be the most effective action for an internal audit activity to take in order to assist in improving an organization's ethical climate?

Accepted Answer

A)  Review formal and informal processes within the organization that could promote unethical behavior. II. Conduct surveys of employees, suppliers, and customers regarding ethics. III. Assess the employees' knowledge of and compliance with the organization's code of conduct. 
B)  I only 
C)  I and II only 
D)  II and III only 
E)  I, II, and III. 
A)  Review formal and informal processes within the organization that could promote unethical behavior. II. Conduct surveys of employees, suppliers, and customers regarding ethics. III. Assess the employees' knowledge of and compliance with the organization's code of conduct. 
B)  I only 
C)  I and II only 
D)  II and III only 
E)  I, II, and III.

Question 7

Which of the following lists these audit steps in the correct chronological order?

Accepted Answer

A)  Create the engagement work program. II. Conduct the exit conference. III. Perform fieldwork. IV. Schedule the audit engagement. Issue a summary report of audit findings. 
B)  I, IV, III, II, V. 
C)  I, IV, II, III, V. 
D)  IV, I, III, II, V. 
E)  IV, III, I, V, II. 
A)  Create the engagement work program. II. Conduct the exit conference. III. Perform fieldwork. IV. Schedule the audit engagement. Issue a summary report of audit findings. 
B)  I, IV, III, II, V. 
C)  I, IV, II, III, V. 
D)  IV, I, III, II, V. 
E)  IV, III, I, V, II.

Question 8

Which of the following risk factors is most subjective?

Accepted Answer

A)  Changes in staff, systems, or the environment. 
B)  Prior audit findings. 
C)  Size of the unit being audited. 
D)  Competency of operating management. 
A)  Changes in staff, systems, or the environment. 
B)  Prior audit findings. 
C)  Size of the unit being audited. 
D)  Competency of operating management.

Question 9

The work papers for an audit of hazardous-materials handling and disposal at an engineering research facility provide evidence that the following procedures were performed. Drums of hazardous waste not yet shipped off-site were inventoried. The physical count agreed with the company's inventory records. A sample of hazardous-waste shipments received at the disposal site was compared to bills of lading and company records. No errors were detected. The audit staff observed engineering personnel during the handling of hazardous materials. No company policy violations were noted. The reconciliation of waste drums to the inventory records provides evidence that:

Accepted Answer

A)  Hazardous-waste materials were being disposed of as prescribed by company policy. 
B)  The amount of hazardous materials being used was accurately recorded. 
C)  Records of drums shipped to the waste disposal site were being maintained. 
D)  All hazardous-waste drums in inventory were accounted for. 
A)  Hazardous-waste materials were being disposed of as prescribed by company policy. 
B)  The amount of hazardous materials being used was accurately recorded. 
C)  Records of drums shipped to the waste disposal site were being maintained. 
D)  All hazardous-waste drums in inventory were accounted for.

Question 10

A former line supervisor from the Financial Services Department has completed six months of a two-year development opportunity with the internal audit activity (IAA). She is assigned to a team that will audit the organization's payroll function, which is managed by the Human Resources Department. Which of the following statements is most relevant regarding her independence and objectivity with respect to the payroll audit?

Accepted Answer

A)  She may participate, but only after she has completed one year with the IAA. 
B)  She may participate, because she did not previously work in the Human Resources Department. 
C)  She may participate, but she must be supervised by the auditor in charge. 
D)  She may participate for training purposes, to build her knowledge of the IAA. 
A)  She may participate, but only after she has completed one year with the IAA. 
B)  She may participate, because she did not previously work in the Human Resources Department. 
C)  She may participate, but she must be supervised by the auditor in charge. 
D)  She may participate for training purposes, to build her knowledge of the IAA.

Question 11

Which domain of the COBIT framework addresses the maintenance and change management of existing systems to ensure alignment with business needs and objectives?

Accepted Answer

A)  Plan and organize. 
B)  Deliver and support. 
C)  Monitor and evaluate. 
D)  Acquire and implement. 
A)  Plan and organize. 
B)  Deliver and support. 
C)  Monitor and evaluate. 
D)  Acquire and implement.

Question 12

An auditor is using audit software to check inventory accuracy. Which of the following would be an indicator of poor input edit controls?

Accepted Answer

A)  Negative quantities on hand. 
B)  Total dollar values of zero for some parts. 
C)  Alpha characters in the field for order lead time. 
D)  Reorder levels set too high. 
A)  Negative quantities on hand. 
B)  Total dollar values of zero for some parts. 
C)  Alpha characters in the field for order lead time. 
D)  Reorder levels set too high.

Question 13

A manufacturing firm uses hazardous materials in the production of its products. An audit of the firm's processes related to hazardous materials should include.

Accepted Answer

A)  Recommending an environmental management system as part of policies and procedures. II. Verifying the existence of tracking records for these materials from creation to destruction. III. Using consultants to avoid self-incrimination of the firm in the event illegalities were detected in an environmental audit. IV. Evaluating the cost provided for in an environmental liability accrual account. 
B)  II only 
C)  III and IV only 
D)  I, II, and IV only 
E)  I, III, and IV only 
A)  Recommending an environmental management system as part of policies and procedures. II. Verifying the existence of tracking records for these materials from creation to destruction. III. Using consultants to avoid self-incrimination of the firm in the event illegalities were detected in an environmental audit. IV. Evaluating the cost provided for in an environmental liability accrual account. 
B)  II only 
C)  III and IV only 
D)  I, II, and IV only 
E)  I, III, and IV only

Question 14

An organization has developed a model to determine the most profitable rate of production. The organization varies the cost of labor in the model to determine how much the changes affect the optimal production level. Which type of analysis does this scenario demonstrate?

Accepted Answer

A)  Forecast. 
B)  Sensitivity. 
C)  Critical path. 
D)  Decision. 
A)  Forecast. 
B)  Sensitivity. 
C)  Critical path. 
D)  Decision.

Question 15

Which of the following is the most effective strategy to manage the risk of foreign exchange losses due to sales to foreign customers?

Accepted Answer

A)  Hire a risk consultant. 
B)  Implement a hedging strategy. 
C)  Maintain a large foreign currency balance. 
D)  Insist that customers only pay in a stable currency. 
A)  Hire a risk consultant. 
B)  Implement a hedging strategy. 
C)  Maintain a large foreign currency balance. 
D)  Insist that customers only pay in a stable currency.

Question 16

Due to urgent requests from management, a busy internal audit activity finds that it can no longer meet all of its commitments contained in the annual audit plan. The best course of action for the chief audit executive to take would be to:

Accepted Answer

A)  Continue with the plan and seek opportunities to adjust priorities and reallocate resources. 
B)  Advise senior management and request that they reconsider these additional requests using more rigorous risk assessment and prioritization factors. 
C)  Advise the board and senior management and request a reassessment of the plan. 
D)  Advise the board immediately and seek their support for additional resources to meet the needs of the plan. 
A)  Continue with the plan and seek opportunities to adjust priorities and reallocate resources. 
B)  Advise senior management and request that they reconsider these additional requests using more rigorous risk assessment and prioritization factors. 
C)  Advise the board and senior management and request a reassessment of the plan. 
D)  Advise the board immediately and seek their support for additional resources to meet the needs of the plan.

Question 17

Senior management at a financial institution has received allegations of fraud at its derivatives trading desk and has asked the internal audit activity to investigate and issue a report concerning the allegations. The internal audit activity has not yet developed sufficient proficiency regarding derivatives trading to conduct a thorough fraud investigation in this area. Which of the following courses of action should the chief audit executive (CAE) take to comply with the Standards?

Accepted Answer

A)  Engage the former head of the institution's derivatives trading desk to perform the investigation and submit a report with supporting documentation to the CAE. 
B)  Request that senior management allow a delay of the fraud investigation until the internal audit activity's on-staff certified fraud examiner is able to obtain the appropriate training regarding the analysis of derivatives trading. 
C)  Request that senior management exclude the internal audit activity from the investigation completely and instead contract with an external certified fraud examiner with derivatives experience to perform all aspects of the investigation and subsequent reporting. 
D)  Contract with an external certified fraud examiner with derivatives experience to perform the investigation and subsequent reporting, with the chief audit executive approving the scope of the investigation and evaluating the adequacy of the work performed. 
A)  Engage the former head of the institution's derivatives trading desk to perform the investigation and submit a report with supporting documentation to the CAE. 
B)  Request that senior management allow a delay of the fraud investigation until the internal audit activity's on-staff certified fraud examiner is able to obtain the appropriate training regarding the analysis of derivatives trading. 
C)  Request that senior management exclude the internal audit activity from the investigation completely and instead contract with an external certified fraud examiner with derivatives experience to perform all aspects of the investigation and subsequent reporting. 
D)  Contract with an external certified fraud examiner with derivatives experience to perform the investigation and subsequent reporting, with the chief audit executive approving the scope of the investigation and evaluating the adequacy of the work performed.

Question 18

An internal auditor has taken an attributes sample of a bank's existing loan portfolio. Out of a sample of 60 loans, the auditor found: Four that were not properly collateralized. Five that were not in compliance with bank policies (other than lack of collateralization). Four that were part of a related-party group, but were set up as separate loan entities. Of the 60 loans selected in the sample, these errors were noted on a total of 10 loans. Several loans had multiple problems. Which of the following conclusions can the auditor reach from these observations? 1. There is sufficient evidence that fraudulent activity is taking place by one or more of the bank's lending officers. 2. The financial statements will be misstated as a result of these actions. 3. There are significant noncompliance audit findings that should be reported.

Accepted Answer

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

Question 19

An internal quality assessment of the internal audit activity should provide the chief audit executive with.

Accepted Answer

A)  Recommendations for improvement. 
B)  Objectives for internal audit engagements. 
C)  Confirmation of action on past audit recommendations. 
D)  Appraisals of internal audit staff performance. 
A)  Recommendations for improvement. 
B)  Objectives for internal audit engagements. 
C)  Confirmation of action on past audit recommendations. 
D)  Appraisals of internal audit staff performance.

Question 20

An employee who recently transferred into the internal audit activity has been assigned to audit the accounts payable system. Which function, if previously performed by this employee, would represent a conflict of interest?

Accepted Answer

A)  Monitoring the allowance for doubtful accounts. 
B)  Writing procedures for the handling of duplicate payments. 
C)  Signing timekeeping cards for subordinates. 
D)  Reviewing shipping documents for accuracy. 
A)  Monitoring the allowance for doubtful accounts. 
B)  Writing procedures for the handling of duplicate payments. 
C)  Signing timekeeping cards for subordinates. 
D)  Reviewing shipping documents for accuracy.

Which of the following factors affects the control risk of a company?

When reviewing operational risk for a department whose manager adopts a laissez-faire style of leadership, it is most important for the internal auditor to verify that:

To determine if a new computer system is improving the use of a manufacturer's limited facilities in serving the largest number of customers, an auditor should compare.

What type of risk management strategy is being employed when an organization installs two firewalls to provide protection from unauthorized access to the network?

Which of the following represents the most effective governance structure?

Which of the following would be the most effective action for an internal audit activity to take in order to assist in improving an organization's ethical climate?

Which of the following lists these audit steps in the correct chronological order?

Which of the following risk factors is most subjective?

Which domain of the COBIT framework addresses the maintenance and change management of existing systems to ensure alignment with business needs and objectives?

An auditor is using audit software to check inventory accuracy. Which of the following would be an indicator of poor input edit controls?

A manufacturing firm uses hazardous materials in the production of its products. An audit of the firm's processes related to hazardous materials should include.

An organization has developed a model to determine the most profitable rate of production. The organization varies the cost of labor in the model to determine how much the changes affect the optimal production level. Which type of analysis does this scenario demonstrate?

Which of the following is the most effective strategy to manage the risk of foreign exchange losses due to sales to foreign customers?

Due to urgent requests from management, a busy internal audit activity finds that it can no longer meet all of its commitments contained in the annual audit plan. The best course of action for the chief audit executive to take would be to:

An internal quality assessment of the internal audit activity should provide the chief audit executive with.

An employee who recently transferred into the internal audit activity has been assigned to audit the accounts payable system. Which function, if previously performed by this employee, would represent a conflict of interest?

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 factors affects the control risk of a company?

When reviewing operational risk for a department whose manager adopts a laissez-faire style of leadership, it is most important for the internal auditor to verify that:

To determine if a new computer system is improving the use of a manufacturer's limited facilities in serving the largest number of customers, an auditor should compare.

What type of risk management strategy is being employed when an organization installs two firewalls to provide protection from unauthorized access to the network?

Which of the following represents the most effective governance structure?

Which of the following would be the most effective action for an internal audit activity to take in order to assist in improving an organization's ethical climate?

Which of the following lists these audit steps in the correct chronological order?

Which of the following risk factors is most subjective?

Which domain of the COBIT framework addresses the maintenance and change management of existing systems to ensure alignment with business needs and objectives?

An auditor is using audit software to check inventory accuracy. Which of the following would be an indicator of poor input edit controls?

A manufacturing firm uses hazardous materials in the production of its products. An audit of the firm's processes related to hazardous materials should include.

An organization has developed a model to determine the most profitable rate of production. The organization varies the cost of labor in the model to determine how much the changes affect the optimal production level. Which type of analysis does this scenario demonstrate?

Which of the following is the most effective strategy to manage the risk of foreign exchange losses due to sales to foreign customers?

Due to urgent requests from management, a busy internal audit activity finds that it can no longer meet all of its commitments contained in the annual audit plan. The best course of action for the chief audit executive to take would be to:

An internal quality assessment of the internal audit activity should provide the chief audit executive with.

An employee who recently transferred into the internal audit activity has been assigned to audit the accounts payable system. Which function, if previously performed by this employee, would represent a conflict of interest?

Certified Financial Services Auditor

Certified Government Auditing Professional

Conducting the Internal Audit Engagement

Business Analysis and Information Technology

Filters