Question 1

According to IIA guidance, which of the following statements about working papers is false?

Accepted Answer

A)  They assist in the implementation of recommendations. 
B)  They provide support for communication to third parties. 
C)  They demonstrate compliance with auditing standards. 
D)  They contribute to development of the internal audit staff. 
A)  They assist in the implementation of recommendations. 
B)  They provide support for communication to third parties. 
C)  They demonstrate compliance with auditing standards. 
D)  They contribute to development of the internal audit staff.

Question 2

During an account receivables audit, an internal auditor found a significant number of input errors resulting in a $500, 000 balance understatement. Which of the following is the most important question the internal auditor should ask to develop an appropriate recommendation for this finding?

Accepted Answer

A)  Who? 
B)  How? 
C)  Why? 
D)  When? 
A)  Who? 
B)  How? 
C)  Why? 
D)  When?

Question 3

Which of the following actions would be a violation of the IIA Code of Ethics?

Accepted Answer

A)  Excluding an issue in the final audit report after management has resolved the issue. 
B)  Reporting information that could be damaging to the organization, at the request of a court of law. 
C)  Failing to return a free promotional pen to a vendor related to the audit activity. 
D)  Declining an audit engagement for which the auditor does not have the necessary experience or training. 
A)  Excluding an issue in the final audit report after management has resolved the issue. 
B)  Reporting information that could be damaging to the organization, at the request of a court of law. 
C)  Failing to return a free promotional pen to a vendor related to the audit activity. 
D)  Declining an audit engagement for which the auditor does not have the necessary experience or training.

Question 4

Which of the following might alert an internal auditor to the possibility of fraud in a division? 1. The division is not scheduled for an external audit this year. 2. Sales have increased by 10 percent. 3. A significant portion of management's compensation is directly tied to reported net income of the division.

Accepted Answer

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

Question 5

Which of the following measurements could an auditor use in an audit of the efficiency of a motor vehicle inspection facility?

Accepted Answer

A)  The total number of cars approved. 
B)  The ratio of cars rejected to total cars inspected. 
C)  The number of cars inspected per inspection agent. 
D)  The average amount of fees collected per cashier. 
A)  The total number of cars approved. 
B)  The ratio of cars rejected to total cars inspected. 
C)  The number of cars inspected per inspection agent. 
D)  The average amount of fees collected per cashier.

Question 6

While performing an accounts payable engagement, a senior auditor wants to conduct several tests of controls for travel expenses. Which of the following actions are most appropriate for the senior auditor to undertake? 1. Ensure all tests use a random sampling technique. 2. Consider a judgmental approach for the sample size. 3. Assess testing errors through root cause analysis. 4. Ensure that the entire data set is tested.

Accepted Answer

A)  1 and 2. 
B)  1 and 3. 
C)  2 and 3. 
D)  2 and 4. 
A)  1 and 2. 
B)  1 and 3. 
C)  2 and 3. 
D)  2 and 4.

Question 7

An internal auditor plans to use an analytical review to verify the correctness of various operating expenses in a division. The use of an analytical review as a verification technique would not be a preferred approach if.

Accepted Answer

A)  The auditor notes strong indicators of a specific fraud involving this account. 
B)  The company has relatively stable operations which have not changed much over the past year. 
C)  The auditor would like to identify large, unusual, or non-recurring transactions during the year. 
D)  The operating expenses vary in relation to other operating expenses, but not in relation to revenue. 
A)  The auditor notes strong indicators of a specific fraud involving this account. 
B)  The company has relatively stable operations which have not changed much over the past year. 
C)  The auditor would like to identify large, unusual, or non-recurring transactions during the year. 
D)  The operating expenses vary in relation to other operating expenses, but not in relation to revenue.

Question 8

An internal auditor used a questionnaire during an interview to gather information about the nature of credit sales processing. The questionnaire did not cover some pertinent information offered by the person being interviewed, and the auditor did not document the potential problems for further investigation. The primary deficiency with the above process is that:

Accepted Answer

A)  The auditor failed to consider the importance of the information offered. 
B)  A questionnaire was used in a situation where a structured interview should have been used. 
C)  The use of a questionnaire precluded the auditor from documenting other information. 
D)  The engagement program was incomplete. 
A)  The auditor failed to consider the importance of the information offered. 
B)  A questionnaire was used in a situation where a structured interview should have been used. 
C)  The use of a questionnaire precluded the auditor from documenting other information. 
D)  The engagement program was incomplete.

Question 9

Which of the following statements regarding organizational governance is not correct?

Accepted Answer

A)  An effective internal audit function is one of the four cornerstones of good governance. 
B)  Those performing governance activities are accountable to the customer. 
C)  Accountability is one of the key elements of organizational governance. 
D)  Governance principles and the need for an internal audit function are applicable to governmental and not-for-profit activities. 
A)  An effective internal audit function is one of the four cornerstones of good governance. 
B)  Those performing governance activities are accountable to the customer. 
C)  Accountability is one of the key elements of organizational governance. 
D)  Governance principles and the need for an internal audit function are applicable to governmental and not-for-profit activities.

Question 10

The last quality assessment of the internal audit activity identified three areas for improvement: the achievement of audit engagement objectives, quality of work, and staff development. According to IIA guidance, which of the following should be the chief audit executive's primary focus to achieve these recommended improvements?

Accepted Answer

A)  Demonstrated compliance with procedures. 
B)  Due professional care. 
C)  Engagement supervision. 
D)  Employment of tools and techniques. 
A)  Demonstrated compliance with procedures. 
B)  Due professional care. 
C)  Engagement supervision. 
D)  Employment of tools and techniques.

Question 11

Which of the following roles, if undertaken by an internal auditor, would have the greatest potential for conflict with the Standards regarding objectivity?

Accepted Answer

A)  IT system designer. 
B)  Product development team consultant. 
C)  Ethics advocate. 
D)  External audit liaison. 
A)  IT system designer. 
B)  Product development team consultant. 
C)  Ethics advocate. 
D)  External audit liaison.

Question 12

Which of the following audit activities is within the scope of assurance activities as stated in the International Professional Practices Framework?

Accepted Answer

A)  Review a make-or-buy decision and report a recommendation to management for approval. 
B)  Participate in negotiations for a corporate acquisition. 
C)  Assess financing alternatives for a new generator. 
D)  Perform an evaluation of management's planning process. 
A)  Review a make-or-buy decision and report a recommendation to management for approval. 
B)  Participate in negotiations for a corporate acquisition. 
C)  Assess financing alternatives for a new generator. 
D)  Perform an evaluation of management's planning process.

Question 13

Management should be included in the development of the audit plan in order to:

Accepted Answer

A)  Provide assurance that past audit recommendations have been properly implemented. 
B)  Select the audit tests that will be used for each engagement. 
C)  Verify that the highest risks are included in the risk-based audit plan. 
D)  Guarantee access to the organization's sites and records for audit work. 
A)  Provide assurance that past audit recommendations have been properly implemented. 
B)  Select the audit tests that will be used for each engagement. 
C)  Verify that the highest risks are included in the risk-based audit plan. 
D)  Guarantee access to the organization's sites and records for audit work.

Question 14

According to IIA guidance, which of the following is an area in which the internal auditor should be proficient?

Accepted Answer

A)  Management principles. 
B)  Computerized information systems. 
C)  Internal audit standards, procedures, and techniques. 
D)  Fundamentals of accounting, economics, and finance. 
A)  Management principles. 
B)  Computerized information systems. 
C)  Internal audit standards, procedures, and techniques. 
D)  Fundamentals of accounting, economics, and finance.

Question 15

A company's chief audit executive determines that the internal audit staff does not have the requisite skills to conduct an audit of the financial derivatives area. Which of the following actions would be the least acceptable?

Accepted Answer

A)  Notify the audit committee of the problem and consult with them regarding outsourcing the audit engagement to a qualified external auditing firm. 
B)  Determine the requisite knowledge needed and obtain the proper training for auditors if such training is available within the appropriate time framework outlined by the audit committee. 
C)  Notify the audit committee of the problem and assign the most competent auditors to perform the audit engagement. 
D)  Employ the skills of a financial derivatives expert to consult on the project, and supplement the consulting with a local seminar on financial derivatives. 
A)  Notify the audit committee of the problem and consult with them regarding outsourcing the audit engagement to a qualified external auditing firm. 
B)  Determine the requisite knowledge needed and obtain the proper training for auditors if such training is available within the appropriate time framework outlined by the audit committee. 
C)  Notify the audit committee of the problem and assign the most competent auditors to perform the audit engagement. 
D)  Employ the skills of a financial derivatives expert to consult on the project, and supplement the consulting with a local seminar on financial derivatives.

Question 16

Which of the following controls within a spreadsheet would address the risk of logic errors? 1. The spreadsheet contains formulas that foot and cross-foot data. 2. The spreadsheet is locked to protect cell formulas from being inadvertently changed. 3. Spreadsheets are included in nightly backup processes. 4. Check-in and check-out software is used to manage version control.

Accepted Answer

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

Question 17

An internal auditor audited a department store's cash function. Which of the following actions would indicate a lack of due professional care by the auditor?

Accepted Answer

A)  Based on a well-designed system of internal controls over the cash function, the audit report assured senior management that no irregularities existed. 
B)  A flowchart of the entire cash function was developed but only samples of transactions were tested. 
C)  The audit report included a well-supported recommendation for a reduction in staff even though such a reduction might adversely impact morale. 
D)  The auditor informed appropriate authorities within the organization about suspected wrongdoing but did not inform external authorities. 
A)  Based on a well-designed system of internal controls over the cash function, the audit report assured senior management that no irregularities existed. 
B)  A flowchart of the entire cash function was developed but only samples of transactions were tested. 
C)  The audit report included a well-supported recommendation for a reduction in staff even though such a reduction might adversely impact morale. 
D)  The auditor informed appropriate authorities within the organization about suspected wrongdoing but did not inform external authorities.

Question 18

Which of the following characteristics could indicate high risk?

Accepted Answer

A)  Management decisions are made by a committee of mid to higher level management personnel. 
B)  The company is not in a rapidly growing industry. 
C)  The company's profitability is lower than the industry norm. 
D)  Management turnover has been very low. 
A)  Management decisions are made by a committee of mid to higher level management personnel. 
B)  The company is not in a rapidly growing industry. 
C)  The company's profitability is lower than the industry norm. 
D)  Management turnover has been very low.

Question 19

According to the Standards, for how long should internal auditors who have previously performed or had management responsibility for an operation wait to become involved in future internal audit activity with that same operation?

Accepted Answer

A)  Three months. 
B)  Six months. 
C)  One year. 
D)  Two years. 
A)  Three months. 
B)  Six months. 
C)  One year. 
D)  Two years.

Question 20

Which of the following represents the correct order of the risk management process?

Accepted Answer

A)  Resource allocation, risk management metrics, risk assessment, post-mortem analysis, effective communication. 
B)  Risk management metrics, resource allocation, risk assessment, effective communication, post-mortem analysis. 
C)  Risk assessment, resource allocation, risk governance and reporting, post-mortem analysis, feedback. 
D)  Resource allocation, risk monitoring, risk assessment, feedback, post-mortem analysis. 
A)  Resource allocation, risk management metrics, risk assessment, post-mortem analysis, effective communication. 
B)  Risk management metrics, resource allocation, risk assessment, effective communication, post-mortem analysis. 
C)  Risk assessment, resource allocation, risk governance and reporting, post-mortem analysis, feedback. 
D)  Resource allocation, risk monitoring, risk assessment, feedback, post-mortem analysis.

According to IIA guidance, which of the following statements about working papers is false?

During an account receivables audit, an internal auditor found a significant number of input errors resulting in a $500, 000 balance understatement. Which of the following is the most important question the internal auditor should ask to develop an appropriate recommendation for this finding?

Which of the following actions would be a violation of the IIA Code of Ethics?

Which of the following measurements could an auditor use in an audit of the efficiency of a motor vehicle inspection facility?

An internal auditor plans to use an analytical review to verify the correctness of various operating expenses in a division. The use of an analytical review as a verification technique would not be a preferred approach if.

Which of the following statements regarding organizational governance is not correct?

Which of the following roles, if undertaken by an internal auditor, would have the greatest potential for conflict with the Standards regarding objectivity?

Which of the following audit activities is within the scope of assurance activities as stated in the International Professional Practices Framework?

Management should be included in the development of the audit plan in order to:

According to IIA guidance, which of the following is an area in which the internal auditor should be proficient?

A company's chief audit executive determines that the internal audit staff does not have the requisite skills to conduct an audit of the financial derivatives area. Which of the following actions would be the least acceptable?

An internal auditor audited a department store's cash function. Which of the following actions would indicate a lack of due professional care by the auditor?

Which of the following characteristics could indicate high risk?

According to the Standards, for how long should internal auditors who have previously performed or had management responsibility for an operation wait to become involved in future internal audit activity with that same operation?

Which of the following represents the correct order of the risk management process?

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

According to IIA guidance, which of the following statements about working papers is false?

During an account receivables audit, an internal auditor found a significant number of input errors resulting in a $500, 000 balance understatement. Which of the following is the most important question the internal auditor should ask to develop an appropriate recommendation for this finding?

Which of the following actions would be a violation of the IIA Code of Ethics?

Which of the following measurements could an auditor use in an audit of the efficiency of a motor vehicle inspection facility?

An internal auditor plans to use an analytical review to verify the correctness of various operating expenses in a division. The use of an analytical review as a verification technique would not be a preferred approach if.

Which of the following statements regarding organizational governance is not correct?

Which of the following roles, if undertaken by an internal auditor, would have the greatest potential for conflict with the Standards regarding objectivity?

Which of the following audit activities is within the scope of assurance activities as stated in the International Professional Practices Framework?

Management should be included in the development of the audit plan in order to:

According to IIA guidance, which of the following is an area in which the internal auditor should be proficient?

A company's chief audit executive determines that the internal audit staff does not have the requisite skills to conduct an audit of the financial derivatives area. Which of the following actions would be the least acceptable?

An internal auditor audited a department store's cash function. Which of the following actions would indicate a lack of due professional care by the auditor?

Which of the following characteristics could indicate high risk?

According to the Standards, for how long should internal auditors who have previously performed or had management responsibility for an operation wait to become involved in future internal audit activity with that same operation?

Which of the following represents the correct order of the risk management process?

Certified Financial Services Auditor

Certified Government Auditing Professional

Conducting the Internal Audit Engagement

Business Analysis and Information Technology

Filters