Question 1

Which of the following best illustrates the primary focus of a risk-based approach to control self-assessment?

Accepted Answer

A)  To evaluate controls regarding the computer security of an oil refinery. 
B)  To examine the processes involved in exploring, developing, and operating a gold mine. 
C)  To assess the likelihood and impact of events associated with operating a finished goods warehouse. 
D)  To link a financial institution's business objectives to a work unit responsible for the associated risk. 
A)  To evaluate controls regarding the computer security of an oil refinery. 
B)  To examine the processes involved in exploring, developing, and operating a gold mine. 
C)  To assess the likelihood and impact of events associated with operating a finished goods warehouse. 
D)  To link a financial institution's business objectives to a work unit responsible for the associated risk. C

Question 2

The internal audit activity performs the following sequence of risk management activities: identification, analysis, and evaluation. According to IIA guidance, which of the following assurance approaches does this describe?

Accepted Answer

A)  Process elements approach. 
B)  Enterprise-wide risk management approach. 
C)  Key principles approach. 
D)  Maturity model approach. 
A)  Process elements approach. 
B)  Enterprise-wide risk management approach. 
C)  Key principles approach. 
D)  Maturity model approach. A

Question 3

After issuance of the engagement final communication for an audit of an organization's accounts payable function, which of the following should be sent satisfaction surveys?

Accepted Answer

A)  Manager of disbursements. II. Controller. III. Chief operating officer. IV. Audit committee members. 
B)  I only 
C)  I and II only 
D)  II and III only 
E)  II, III, and IV only 
A)  Manager of disbursements. II. Controller. III. Chief operating officer. IV. Audit committee members. 
B)  I only 
C)  I and II only 
D)  II and III only 
E)  II, III, and IV only B

Question 4

Which of the following trends found on financial reports would most likely indicate a possible problem?

Accepted Answer

A)  A material decrease in the receivables turnover. 
B)  A material increase in inventory turnover. 
C)  A material increase in daily sales compared to total outstanding receivables. 
D)  A material increase in the acid-test ratio. 
A)  A material decrease in the receivables turnover. 
B)  A material increase in inventory turnover. 
C)  A material increase in daily sales compared to total outstanding receivables. 
D)  A material increase in the acid-test ratio.

Question 5

Which of the following might alert an auditor to the possibility of fraud in a division?

Accepted Answer

A)  The division is not scheduled for an external audit this year. II. Sales have increased by 10 percent. III. A significant portion of management's compensation is directly tied to reported net income of the division. 
B)  I only 
C)  III only 
D)  I and II only 
E)  I, II, and III 
A)  The division is not scheduled for an external audit this year. II. Sales have increased by 10 percent. III. A significant portion of management's compensation is directly tied to reported net income of the division. 
B)  I only 
C)  III only 
D)  I and II only 
E)  I, II, and III

Question 6

According to IIA guidance, which of the following is true regarding audit supervision? 1. Supervision should be performed throughout the planning, examination, evaluation, communication, and follow-up stages of the audit engagement. 2. Supervision should extend to training, time reporting, and expense control, as well as administrative matters. 3. Supervision should include review of engagement workpapers, with documented evidence of the review.

Accepted Answer

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

Question 7

According to the Standards, which of the following best describes what must be agreed upon to establish an understanding with clients prior to starting a consulting engagement?

Accepted Answer

A)  The engagement objectives, access to clients records, and expectations. 
B)  The engagement objectives, scope, and time frame to complete the engagement. 
C)  The engagement scope, opportunities for making significant improvements, and client expectations. 
D)  The engagement objectives, scope, respective responsibilities, and other client expectations. 
A)  The engagement objectives, access to clients records, and expectations. 
B)  The engagement objectives, scope, and time frame to complete the engagement. 
C)  The engagement scope, opportunities for making significant improvements, and client expectations. 
D)  The engagement objectives, scope, respective responsibilities, and other client expectations.

Question 8

During an audit of the accounts receivable (AR) process, an internal auditor noted that reconciliations are still not performed regularly by the AR staff, a recommendation that was made following a previous audit. Monitoring by the financial reporting function has failed to detect the shortcoming. Both the financial reporting function and AR report to the controller, who is responsible for implementing action plans. Which of the following supports the internal auditor's decision to combine both observations into one reported finding?

Accepted Answer

A)  The observation was made during the same audit, and the action plan has a common owner. 
B)  The observation relates to the same control activity within a common process. 
C)  The observation has a common control, and it was noted in a prior audit. 
D)  The observation has a common process, and the action plan for the observation has a common owner. 
A)  The observation was made during the same audit, and the action plan has a common owner. 
B)  The observation relates to the same control activity within a common process. 
C)  The observation has a common control, and it was noted in a prior audit. 
D)  The observation has a common process, and the action plan for the observation has a common owner.

Question 9

When interviewing an individual in relation to a fraud investigation, which course of action should the internal auditor follow?

Accepted Answer

A)  Assure the individual that the results of the interview will remain confidential. 
B)  Establish a rapport with the subject to encourage openness. 
C)  Discontinue questioning once the individual has confessed to the fraud. 
D)  Refrain from deviating from the list of questions prepared before the interview. 
A)  Assure the individual that the results of the interview will remain confidential. 
B)  Establish a rapport with the subject to encourage openness. 
C)  Discontinue questioning once the individual has confessed to the fraud. 
D)  Refrain from deviating from the list of questions prepared before the interview.

Question 10

An organization has developed a large database that tracks employees, employee benefits, payroll deductions, job classifications, and other similar information. The internal auditor reviews the retirement benefits plan and determines that the pension and medical benefits have been changed several times in the past ten years. The auditor wishes to determine whether there is justification to perform further audit investigation. The most appropriate audit procedure would be to:

Accepted Answer

A)  Review the trend of overall retirement expense over the last ten years. If the retirement expense increased, it would indicate the need for further investigation. 
B)  Use generalized audit software to select a monetary-unit sample of retirement pay, and determine whether each retired employee was paid correctly. 
C)  Review reasonableness of retirement pay and medical expenses on a per-person basis stratified by which plan was in effect when the employee retired. 
D)  Use generalized audit software to select an attributes sample of retirement pay, and perform detailed testing to determine whether each person chosen was given the proper benefits. 
A)  Review the trend of overall retirement expense over the last ten years. If the retirement expense increased, it would indicate the need for further investigation. 
B)  Use generalized audit software to select a monetary-unit sample of retirement pay, and determine whether each retired employee was paid correctly. 
C)  Review reasonableness of retirement pay and medical expenses on a per-person basis stratified by which plan was in effect when the employee retired. 
D)  Use generalized audit software to select an attributes sample of retirement pay, and perform detailed testing to determine whether each person chosen was given the proper benefits.

Question 11

An internal auditor notices that a division has recorded uncharacteristically high sales and gross margins for the past three months and now suspects the division is reporting fictitious sales. Which course of action should the auditor follow to determine whether fraud has occurred?

Accepted Answer

A)  Trace a sample of shipping documents to related sales invoices to verify proper billing. 
B)  Send accounts receivable balance confirmations to customers. 
C)  Compare the division's sales and gross margins to those of the prior three-month period. 
D)  Estimate the sales and cost of goods sold for the three-month period by using regression analysis. 
A)  Trace a sample of shipping documents to related sales invoices to verify proper billing. 
B)  Send accounts receivable balance confirmations to customers. 
C)  Compare the division's sales and gross margins to those of the prior three-month period. 
D)  Estimate the sales and cost of goods sold for the three-month period by using regression analysis.

Question 12

Which of the following would be an appropriate role of the internal audit function?

Accepted Answer

A)  Determine the consequences for ethics violations. 
B)  Be responsible for the management of a whistle blowing hotline. 
C)  Establish the ethics policies for the organization. 
D)  Evaluate the effectiveness of the organization's ethics-related activities. 
A)  Determine the consequences for ethics violations. 
B)  Be responsible for the management of a whistle blowing hotline. 
C)  Establish the ethics policies for the organization. 
D)  Evaluate the effectiveness of the organization's ethics-related activities.

Question 13

Which of the following best defines an engagement conclusion?

Accepted Answer

A)  An auditor's determination of the cause of an engagement observation. 
B)  An auditor's professional judgment of the situation which was reviewed. 
C)  An opinion that must be included in the engagement final communication. 
D)  A recommendation for corrective action. 
A)  An auditor's determination of the cause of an engagement observation. 
B)  An auditor's professional judgment of the situation which was reviewed. 
C)  An opinion that must be included in the engagement final communication. 
D)  A recommendation for corrective action.

Question 14

Which of the following would most likely cause an internal auditor to consider adding fraud work steps to the audit program?

Accepted Answer

A)  Improper segregation of duties. 
B)  Incentives and bonus programs. 
C)  An employee's reported concerns. 
D)  Lack of an ethics policy. 
A)  Improper segregation of duties. 
B)  Incentives and bonus programs. 
C)  An employee's reported concerns. 
D)  Lack of an ethics policy.

Question 15

Which of the following is an example of the verification of internal documentary evidence?

Accepted Answer

A)  Reviewing a carrier's bill of lading. 
B)  Reconciling a vendor's month-end statement. 
C)  Vouching a copy of a sales invoice to receivables. 
D)  Recalculating a customer's purchase order. 
A)  Reviewing a carrier's bill of lading. 
B)  Reconciling a vendor's month-end statement. 
C)  Vouching a copy of a sales invoice to receivables. 
D)  Recalculating a customer's purchase order.

Question 16

An internal auditor is reviewing a new automated human resources system. The system contains a table of pay rates which are matched to the employee job classifications. The best control to ensure that the table is updated correctly for only valid pay changes would be to:

Accepted Answer

A)  Limit access to the data table to management and line supervisors who have the authority to determine pay rates. 
B)  Require a supervisor in the department, who does not have the ability to change the table, to compare the changes to a signed management authorization. 
C)  Ensure that adequate edit and reasonableness checks are built into the automated system. 
D)  Require that all pay changes be signed by the employee to verify that the change goes to a bona fide employee. 
A)  Limit access to the data table to management and line supervisors who have the authority to determine pay rates. 
B)  Require a supervisor in the department, who does not have the ability to change the table, to compare the changes to a signed management authorization. 
C)  Ensure that adequate edit and reasonableness checks are built into the automated system. 
D)  Require that all pay changes be signed by the employee to verify that the change goes to a bona fide employee.

Question 17

A report prepared by the internal audit activity contains several observations that disclose proprietary information regarding the organization's manufacturing process. According to the International Professional Practices Framework, which of the following is the appropriate treatment for this report?

Accepted Answer

A)  Distribute the report only to the board to protect disclosure. 
B)  Disclose and distribute this information in a separate report. 
C)  Remove the observations and report verbally to senior management. 
D)  Require a separate non-disclosure statement from each recipient. 
A)  Distribute the report only to the board to protect disclosure. 
B)  Disclose and distribute this information in a separate report. 
C)  Remove the observations and report verbally to senior management. 
D)  Require a separate non-disclosure statement from each recipient.

Question 18

Which of the following is not an outcome of control self-assessment?

Accepted Answer

A)  Informal, soft controls are omitted, and greater focus is placed on hard controls. 
B)  The entire objectives-risks-controls infrastructure of an organization is subject to greater monitoring and continuous improvement. 
C)  Internal auditors become involved in and knowledgeable about the self-assessment process. 
D)  Nonaudit employees become experienced in assessing controls and associating control processes with managing risks. 
A)  Informal, soft controls are omitted, and greater focus is placed on hard controls. 
B)  The entire objectives-risks-controls infrastructure of an organization is subject to greater monitoring and continuous improvement. 
C)  Internal auditors become involved in and knowledgeable about the self-assessment process. 
D)  Nonaudit employees become experienced in assessing controls and associating control processes with managing risks.

Question 19

An employee in the sales department completes a purchase requisition and forwards it to the purchaser. The purchaser places competitive bids and orders the requested items using approved purchase orders. When the employee receives the ordered items, she forwards the packing slips to the accounts payable department. The invoice for the ordered items is sent directly to the sales department, and an administrative assistant in the sales department forwards the invoices to the accounts payable department for payment. Which of the following audit steps best addresses the risk of fraud in the cash receipts process?

Accepted Answer

A)  Verify that approvals of purchasing documents comply with the authority matrix. 
B)  Observe whether the purchase orders are sequentially numbered. 
C)  Examine whether the sales department supervisor approves invoices for payment. 
D)  Determine whether the accounts payable department reconciles all purchasing documents prior to payment. 
A)  Verify that approvals of purchasing documents comply with the authority matrix. 
B)  Observe whether the purchase orders are sequentially numbered. 
C)  Examine whether the sales department supervisor approves invoices for payment. 
D)  Determine whether the accounts payable department reconciles all purchasing documents prior to payment.

Question 20

During a systems development audit, software developers indicated that all programs were moved from the development environment to the production environment and then tested in the production environment. What should the auditor recommend?

Accepted Answer

A)  Implement a test environment to ensure that testing is not performed in the production environment. II. Require developers to move modified programs from the development environment to the test environment and from the test environment to the production environment. III. Eliminate access by developers to the production environment. 
B)  I only 
C)  III only 
D)  I and II only 
E)  I and III only 
A)  Implement a test environment to ensure that testing is not performed in the production environment. II. Require developers to move modified programs from the development environment to the test environment and from the test environment to the production environment. III. Eliminate access by developers to the production environment. 
B)  I only 
C)  III only 
D)  I and II only 
E)  I and III only

Which of the following best illustrates the primary focus of a risk-based approach to control self-assessment?

The internal audit activity performs the following sequence of risk management activities: identification, analysis, and evaluation. According to IIA guidance, which of the following assurance approaches does this describe?

After issuance of the engagement final communication for an audit of an organization's accounts payable function, which of the following should be sent satisfaction surveys?

Which of the following trends found on financial reports would most likely indicate a possible problem?

Which of the following might alert an auditor to the possibility of fraud in a division?

According to the Standards, which of the following best describes what must be agreed upon to establish an understanding with clients prior to starting a consulting engagement?

When interviewing an individual in relation to a fraud investigation, which course of action should the internal auditor follow?

An internal auditor notices that a division has recorded uncharacteristically high sales and gross margins for the past three months and now suspects the division is reporting fictitious sales. Which course of action should the auditor follow to determine whether fraud has occurred?

Which of the following would be an appropriate role of the internal audit function?

Which of the following best defines an engagement conclusion?

Which of the following would most likely cause an internal auditor to consider adding fraud work steps to the audit program?

Which of the following is an example of the verification of internal documentary evidence?

An internal auditor is reviewing a new automated human resources system. The system contains a table of pay rates which are matched to the employee job classifications. The best control to ensure that the table is updated correctly for only valid pay changes would be to:

Which of the following is not an outcome of control self-assessment?

During a systems development audit, software developers indicated that all programs were moved from the development environment to the production environment and then tested in the production environment. What should the auditor recommend?

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Exam 4: Conducting the Internal Audit Engagement

Which of the following best illustrates the primary focus of a risk-based approach to control self-assessment?

The internal audit activity performs the following sequence of risk management activities: identification, analysis, and evaluation. According to IIA guidance, which of the following assurance approaches does this describe?

After issuance of the engagement final communication for an audit of an organization's accounts payable function, which of the following should be sent satisfaction surveys?

Which of the following trends found on financial reports would most likely indicate a possible problem?

Which of the following might alert an auditor to the possibility of fraud in a division?

According to the Standards, which of the following best describes what must be agreed upon to establish an understanding with clients prior to starting a consulting engagement?

When interviewing an individual in relation to a fraud investigation, which course of action should the internal auditor follow?

An internal auditor notices that a division has recorded uncharacteristically high sales and gross margins for the past three months and now suspects the division is reporting fictitious sales. Which course of action should the auditor follow to determine whether fraud has occurred?

Which of the following would be an appropriate role of the internal audit function?

Which of the following best defines an engagement conclusion?

Which of the following would most likely cause an internal auditor to consider adding fraud work steps to the audit program?

Which of the following is an example of the verification of internal documentary evidence?

An internal auditor is reviewing a new automated human resources system. The system contains a table of pay rates which are matched to the employee job classifications. The best control to ensure that the table is updated correctly for only valid pay changes would be to:

Which of the following is not an outcome of control self-assessment?

During a systems development audit, software developers indicated that all programs were moved from the development environment to the production environment and then tested in the production environment. What should the auditor recommend?

Certified Financial Services Auditor

Certified Government Auditing Professional

The Internal Audit Activity Role in Governance, Risk, and Control

Business Analysis and Information Technology

Filters