Question 1

What is the most likely source of information for a detailed schedule of a company's insurance policies in force?

Accepted Answer

A)  Original journal entries found in the cash disbursements journal, along with supporting checks processed by the bank. 
B)  Policies and procedures governing insurance coverage. 
C)  The current fiscal year's budget for insurance, together with the beginning balance of the prepaid insurance account. 
D)  The files containing insurance policies with various carriers. 
A)  Original journal entries found in the cash disbursements journal, along with supporting checks processed by the bank. 
B)  Policies and procedures governing insurance coverage. 
C)  The current fiscal year's budget for insurance, together with the beginning balance of the prepaid insurance account. 
D)  The files containing insurance policies with various carriers.

Question 2

Under what circumstances would internal audit not become involved when intentional misconduct is suspected?

Accepted Answer

A)  Management is involved in wrongdoing. 
B)  Management is running a parallel investigation. 
C)  Management does not believe a trusted employee could be guilty. 
D)  Management does not maintain strong internal controls. 
A)  Management is involved in wrongdoing. 
B)  Management is running a parallel investigation. 
C)  Management does not believe a trusted employee could be guilty. 
D)  Management does not maintain strong internal controls.

Question 3

The most common motivation for management fraud is the existence of:

Accepted Answer

A)  Vices, such as a gambling habit. 
B)  Job dissatisfaction. 
C)  Financial pressures on the organization. 
D)  The challenge of committing the perfect crime. 
A)  Vices, such as a gambling habit. 
B)  Job dissatisfaction. 
C)  Financial pressures on the organization. 
D)  The challenge of committing the perfect crime.

Question 4

An organization's policies allow buyers to authorize expenditures up to $50,000 without any other approval. Which of the following audit procedures would be most effective in determining if fraud in the form of payments to fictitious companies has occurred?

Accepted Answer

A)  Use generalized audit software to list all purchases over $50,000 to determine whether they were properly approved. 
B)  Develop a snapshot technique to trace all transactions by suspected buyers. 
C)  Use generalized audit software to take a random sample of all expenditures under $50,000 to determine whether they were properly approved. 
D)  Use generalized audit software to select a sample of paid invoices to new vendors and examine evidence that shows that services or goods were received. 
A)  Use generalized audit software to list all purchases over $50,000 to determine whether they were properly approved. 
B)  Develop a snapshot technique to trace all transactions by suspected buyers. 
C)  Use generalized audit software to take a random sample of all expenditures under $50,000 to determine whether they were properly approved. 
D)  Use generalized audit software to select a sample of paid invoices to new vendors and examine evidence that shows that services or goods were received.

Question 5

Which of the following is most appropriate when conducting an interview during the course of a fraud investigation?

Accepted Answer

A)  Schedule the interview well in advance. 
B)  Explain the detailed purpose to the interviewee. 
C)  Assume that the interviewee is guilty. 
D)  Have a witness present during the interview. 
A)  Schedule the interview well in advance. 
B)  Explain the detailed purpose to the interviewee. 
C)  Assume that the interviewee is guilty. 
D)  Have a witness present during the interview.

Question 6

During an engagement the internal auditors reported that the organization was paying suppliers without receiving the merchandise. Management responded that it would immediately establish the use of receiving reports. As part of the follow-up activity, which of the following procedures would be the most appropriate in determining that management action was implemented?

Accepted Answer

A)  Ask management if the new policy related to the receiving reports is in place. 
B)  Select a sample of receiving reports and determine if payments were made. 
C)  Interview warehouse employees to ascertain adherence to new policy. 
D)  Select a sample of payments and determine if a receiving report exists. 
A)  Ask management if the new policy related to the receiving reports is in place. 
B)  Select a sample of receiving reports and determine if payments were made. 
C)  Interview warehouse employees to ascertain adherence to new policy. 
D)  Select a sample of payments and determine if a receiving report exists.

Question 7

A chief audit executive (CAE) is determining which engagements to include on the annual audit plan. She would like to consider the organization's attitude toward risk and the degree of difficulty in achieving objectives. Which of the following resources should the CAE consult?

Accepted Answer

A)  The corporate risk register. 
B)  The strategic plan. 
C)  Internal and external audit reports. 
D)  The board's meeting records. 
A)  The corporate risk register. 
B)  The strategic plan. 
C)  Internal and external audit reports. 
D)  The board's meeting records.

Question 8

Which of the following is the correct ratio to use in calculating the dollar value of the population if the auditor is using ratio estimation? Number of Items Audited Value Carrying Amount Sample 300 $500,000 $480,000 Population 3,000 $5,000,000

Accepted Answer

A)  0.10 
B)  0.96 
C)  1.04 
D)  10.00 
A)  0.10 
B)  0.96 
C)  1.04 
D)  10.00

Question 9

Which of the following actions are appropriate for the chief audit executive to perform when identifying audit resource requirements? 1. Consider employees from other operational areas as audit resources, to provide additional audit coverage in the organization. 2. Approach an external service provider to conduct internal audits on certain areas of the organization, due to a lack of skills in the organization. 3. Suggest to the audit committee that an audit of technology be deferred until staff can be trained, due to limited IT audit skills among the audit staff. 4. Communicate to senior management a summary report on the status and adequacy of audit resources.

Accepted Answer

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

Question 10

An audit client responded to recommendations from a recent consulting engagement. The client indicated that several recommended process improvements would not be implemented. Which of the following actions should the internal audit activity take in response?

Accepted Answer

A)  Escalate the unresolved issues to the board, because they could pose significant risk exposures to the organization. 
B)  Confirm the decision with management and document this decision in the audit file. 
C)  Document the issue in the audit file and follow up until the issues are resolved. 
D)  Initiate an assurance engagement on the unresolved issues. 
A)  Escalate the unresolved issues to the board, because they could pose significant risk exposures to the organization. 
B)  Confirm the decision with management and document this decision in the audit file. 
C)  Document the issue in the audit file and follow up until the issues are resolved. 
D)  Initiate an assurance engagement on the unresolved issues.

Question 11

An internal auditor is conducting tests to determine if an organization is in compliance with its payment approval policies. After reviewing a sample of vouchers selected, the internal auditor concluded that there were indicators of fraud. Which of the following would be the most appropriate method to expand the audit test to achieve the audit objective?

Accepted Answer

A)  Validate the completeness of the accounts payable files. II. Examine the sample of vouchers in greater detail. III. Increase the number of vouchers in the sample. IV. Broaden the scope of the examination to include credits received by accounts payable. 
B)  I and II only 
C)  II and III only 
D)  I, II, and IV only 
E)  I, III, and IV only 
A)  Validate the completeness of the accounts payable files. II. Examine the sample of vouchers in greater detail. III. Increase the number of vouchers in the sample. IV. Broaden the scope of the examination to include credits received by accounts payable. 
B)  I and II only 
C)  II and III only 
D)  I, II, and IV only 
E)  I, III, and IV only

Question 12

In a sampling application, the group of items about which the auditor wants to estimate some characteristic is called the:

Accepted Answer

A)  Population. 
B)  Attribute of interest. 
C)  Sample. 
D)  Sampling unit. 
A)  Population. 
B)  Attribute of interest. 
C)  Sample. 
D)  Sampling unit.

Question 13

An internal auditor is evaluating controls over the purchasing function. The function includes the material control department, the purchasing department, and the receiving department. Which of the following is true regarding the presentation of the process flow among the three departments?

Accepted Answer

A)  A vertical flowchart of each department, showing inputs at the top and outputs at the bottom, would be most useful. 
B)  Flowcharts are not useful for documenting process flow. 
C)  A horizontal flowchart, with the departments described across the top and the process flowing horizontally, would be most useful. 
D)  Both a flowchart and narratives are needed due to the number of departments involved. 
A)  A vertical flowchart of each department, showing inputs at the top and outputs at the bottom, would be most useful. 
B)  Flowcharts are not useful for documenting process flow. 
C)  A horizontal flowchart, with the departments described across the top and the process flowing horizontally, would be most useful. 
D)  Both a flowchart and narratives are needed due to the number of departments involved.

Question 14

Which of the following is not a primary reason for outsourcing a portion of the internal audit activity?

Accepted Answer

A)  To gain access to a wider variety of skills, competencies and best practices. 
B)  To complement existing expertise with a required skill and competency for a particular audit engagement. 
C)  To focus on and strengthen core audit competencies. 
D)  To provide the organization with appropriate contingency planning for the internal audit function. 
A)  To gain access to a wider variety of skills, competencies and best practices. 
B)  To complement existing expertise with a required skill and competency for a particular audit engagement. 
C)  To focus on and strengthen core audit competencies. 
D)  To provide the organization with appropriate contingency planning for the internal audit function.

Question 15

A recent survey indicated that residents of a small town take the train to a nearby city eight times per month, on average. The same survey showed that the number of train trips that a resident takes per month (y) is determined by the number of days per month that the resident works in the nearby city (x), according to the equation: y = 2 + 2x. A person who never works in the nearby city is expected to take the train:

Accepted Answer

A)  Zero times per month. 
B)  Two times per month. 
C)  Four times per month. 
D)  Eight times per month. 
A)  Zero times per month. 
B)  Two times per month. 
C)  Four times per month. 
D)  Eight times per month.

Question 16

Which of the following is not a primary purpose for conducting a walk-through during the initial stages of an assurance engagement?

Accepted Answer

A)  To help develop process maps. 
B)  To determine segregation of duties. 
C)  To identify residual risks. 
D)  To test the adequacy of controls. 
A)  To help develop process maps. 
B)  To determine segregation of duties. 
C)  To identify residual risks. 
D)  To test the adequacy of controls.

Question 17

Which of the following is a detective control for managing the risk of fraud?

Accepted Answer

A)  Awareness of prior incidents of fraud. 
B)  Contractor non-disclosure agreements. 
C)  Verification of currency exchange rates. 
D)  Receipts for employee expenses. 
A)  Awareness of prior incidents of fraud. 
B)  Contractor non-disclosure agreements. 
C)  Verification of currency exchange rates. 
D)  Receipts for employee expenses.

Question 18

Which of the following topics must the internal audit staff discuss with management during the exit conference? 1. Issues identified during the audit. 2. Evaluation criteria used to select controls for testing. 3. Staff who were interviewed during the audit. 4. The reporting process for the draft and final report.

Accepted Answer

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

Question 19

Which of the following factors should a chief audit executive consider when determining the audit universe? 1. Components of the organization's strategic plan. 2. Inputs from senior management and the board. 3. Views of competitors and business associates. 4. Results of exit interviews with departing employees.

Accepted Answer

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

Question 20

During a review of performance measures in an organization's purchasing function, the preliminary survey indicates that most of the measures have been in use for some time. The internal auditor should:

Accepted Answer

A)  Review the data that was used to develop the measures. 
B)  Perform benchmarking in order to verify that the measures being used are meaningful. 
C)  Establish the history of the measures and reasons for use. 
D)  Report that the measures being used are out-of-date and should be improved. 
A)  Review the data that was used to develop the measures. 
B)  Perform benchmarking in order to verify that the measures being used are meaningful. 
C)  Establish the history of the measures and reasons for use. 
D)  Report that the measures being used are out-of-date and should be improved.

What is the most likely source of information for a detailed schedule of a company's insurance policies in force?

Under what circumstances would internal audit not become involved when intentional misconduct is suspected?

The most common motivation for management fraud is the existence of:

An organization's policies allow buyers to authorize expenditures up to $50,000 without any other approval. Which of the following audit procedures would be most effective in determining if fraud in the form of payments to fictitious companies has occurred?

Which of the following is most appropriate when conducting an interview during the course of a fraud investigation?

A chief audit executive (CAE) is determining which engagements to include on the annual audit plan. She would like to consider the organization's attitude toward risk and the degree of difficulty in achieving objectives. Which of the following resources should the CAE consult?

Which of the following is the correct ratio to use in calculating the dollar value of the population if the auditor is using ratio estimation? Number of Items Audited Value Carrying Amount Sample 300 $500,000 $480,000 Population 3,000 $5,000,000

An audit client responded to recommendations from a recent consulting engagement. The client indicated that several recommended process improvements would not be implemented. Which of the following actions should the internal audit activity take in response?

In a sampling application, the group of items about which the auditor wants to estimate some characteristic is called the:

An internal auditor is evaluating controls over the purchasing function. The function includes the material control department, the purchasing department, and the receiving department. Which of the following is true regarding the presentation of the process flow among the three departments?

Which of the following is not a primary reason for outsourcing a portion of the internal audit activity?

Which of the following is not a primary purpose for conducting a walk-through during the initial stages of an assurance engagement?

Which of the following is a detective control for managing the risk of fraud?

During a review of performance measures in an organization's purchasing function, the preliminary survey indicates that most of the measures have been in use for some time. The internal auditor should:

Certified Financial Services Auditor

Certified Government Auditing Professional

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

Business Analysis and Information Technology

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Exam 4: Conducting the Internal Audit Engagement

What is the most likely source of information for a detailed schedule of a company's insurance policies in force?

Under what circumstances would internal audit not become involved when intentional misconduct is suspected?

The most common motivation for management fraud is the existence of:

An organization's policies allow buyers to authorize expenditures up to $50,000 without any other approval. Which of the following audit procedures would be most effective in determining if fraud in the form of payments to fictitious companies has occurred?

Which of the following is most appropriate when conducting an interview during the course of a fraud investigation?

A chief audit executive (CAE) is determining which engagements to include on the annual audit plan. She would like to consider the organization's attitude toward risk and the degree of difficulty in achieving objectives. Which of the following resources should the CAE consult?

Which of the following is the correct ratio to use in calculating the dollar value of the population if the auditor is using ratio estimation? Number of Items Audited Value Carrying Amount Sample 300 $500,000 $480,000 Population 3,000 $5,000,000

An audit client responded to recommendations from a recent consulting engagement. The client indicated that several recommended process improvements would not be implemented. Which of the following actions should the internal audit activity take in response?

In a sampling application, the group of items about which the auditor wants to estimate some characteristic is called the:

An internal auditor is evaluating controls over the purchasing function. The function includes the material control department, the purchasing department, and the receiving department. Which of the following is true regarding the presentation of the process flow among the three departments?

Which of the following is not a primary reason for outsourcing a portion of the internal audit activity?

Which of the following is not a primary purpose for conducting a walk-through during the initial stages of an assurance engagement?

Which of the following is a detective control for managing the risk of fraud?

During a review of performance measures in an organization's purchasing function, the preliminary survey indicates that most of the measures have been in use for some time. The internal auditor should:

Certified Financial Services Auditor

Certified Government Auditing Professional

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

Business Analysis and Information Technology

Filters