Question 1

An auditor evaluating excessive product rejection rates should investigate:

Accepted Answer

A)  Communication between sales and production departments on sales returns. II. Volume of product sales year-to-date in comparison to prior year-to-date. III. Changes in credit ratings of customers versus sales to those customers. IV. Detailed product scrap accounts and accumulations. 
B)  I and III only 
C)  I and IV only 
D)  II, III, and IV only 
E)  I, II, III, and IV. 
A)  Communication between sales and production departments on sales returns. II. Volume of product sales year-to-date in comparison to prior year-to-date. III. Changes in credit ratings of customers versus sales to those customers. IV. Detailed product scrap accounts and accumulations. 
B)  I and III only 
C)  I and IV only 
D)  II, III, and IV only 
E)  I, II, III, and IV.

Question 2

The following are potential sources of evidence regarding the effectiveness of a division's total quality management program. The least persuasive evidence would be a comparison of:

Accepted Answer

A)  Employee morale before and after program implementation. 
B)  Scrap and rework costs before and after program implementation. 
C)  Customer returns before and after program implementation. 
D)  Manufacturing and distribution costs per unit before and after program implementation. 
A)  Employee morale before and after program implementation. 
B)  Scrap and rework costs before and after program implementation. 
C)  Customer returns before and after program implementation. 
D)  Manufacturing and distribution costs per unit before and after program implementation.

Question 3

An internal auditor has been assigned to facilitate a risk and control self-assessment for the finance group. Which of the following is the most appropriate role that she should assume when facilitating the workshop?

Accepted Answer

A)  Express an opinion on the participants' inputs and conclusions as the assessment progresses. 
B)  Provide appropriate techniques and guidelines on how the exercise should be undertaken. 
C)  Evaluate and report on all issues that may be uncovered during the exercise. 
D)  Screen and vet participants so that the most appropriate candidates are selected to participate in the exercise. 
A)  Express an opinion on the participants' inputs and conclusions as the assessment progresses. 
B)  Provide appropriate techniques and guidelines on how the exercise should be undertaken. 
C)  Evaluate and report on all issues that may be uncovered during the exercise. 
D)  Screen and vet participants so that the most appropriate candidates are selected to participate in the exercise.

Question 4

An internal auditor is conducting an assessment of the purchasing department. She has worked the full amount of hours budgeted for the engagement; however, the audit objectives are not yet complete. According to IIA guidance, which of the following are appropriate options available to the chief audit executive? 1. Allow the auditor to decide whether to extend the audit engagement. 2. Determine whether the work already completed is sufficient to conclude the engagement. 3. Provide the auditor feedback on areas of improvement for future engagements. 4. Provide the auditor with instructions and directions to complete the audit.

Accepted Answer

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

Question 5

Which of the following statements is true?

Accepted Answer

A)  If management chooses not to take action on internal audit's assurance engagement observation, the chief audit executive (CA
E)  has a responsibility to propose an action plan to the board. 
B)  Internal audit's responsibility for an assurance engagement observation ends when management implements changes to remediate the observation. 
C)  When management decides to accept the risk of not taking action on an assurance observation, the (CA
E)  is responsible for judging whether or not that decision is prudent. 
D)  An assurance engagement observation is considered remediated when management's corrective action plan is approved by the board. 
A)  If management chooses not to take action on internal audit's assurance engagement observation, the chief audit executive (CA
E)  has a responsibility to propose an action plan to the board. 
B)  Internal audit's responsibility for an assurance engagement observation ends when management implements changes to remediate the observation. 
C)  When management decides to accept the risk of not taking action on an assurance observation, the (CA
E)  is responsible for judging whether or not that decision is prudent. 
D)  An assurance engagement observation is considered remediated when management's corrective action plan is approved by the board.

Question 6

The chief audit executive (CAE) of a large retail operation believes that senior management has accepted a level of risk that exceeds the organization's current risk tolerance with respect to a major expansion. The CAE plans to meet with senior management to discuss these concerns. According to IIA guidance, which of the following would be an appropriate course of action in preparation for this meeting? • Understand management's basis for the decision. • Advise the board of the concern and upcoming meeting. • Ascertain which members of management have accepted the risk. • Determine if management has the authority to accept the risk.

Accepted Answer

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

Question 7

What type of analysis is performed when an auditor tests for unusual variations in information by comparing the number of employees working at a factory site with the direct cost of production each month over a period of one year?

Accepted Answer

A)  Trend analysis. 
B)  Ratio analysis. 
C)  Regression analysis. 
D)  Horizontal analysis. 
A)  Trend analysis. 
B)  Ratio analysis. 
C)  Regression analysis. 
D)  Horizontal analysis.

Question 8

When interrogating an individual who is suspected of fraud, it is appropriate to:

Accepted Answer

A)  Tell the individual that any information disclosed in the interrogation will not be disclosed outside of the company. 
B)  Start the interview with questions to which the interviewer already knows the answer. 
C)  Discontinue questioning once the individual has confessed to the fraud. 
D)  Prepare a list of questions prior to the interrogation and strictly adhere to the list. 
A)  Tell the individual that any information disclosed in the interrogation will not be disclosed outside of the company. 
B)  Start the interview with questions to which the interviewer already knows the answer. 
C)  Discontinue questioning once the individual has confessed to the fraud. 
D)  Prepare a list of questions prior to the interrogation and strictly adhere to the list.

Question 9

During an assurance engagement, an internal auditor discovered that a sales manager approved numerous sales contracts for values exceeding his authorization limit. The auditor reported the finding to the audit supervisor, noting that the sales manager had additional new contracts under negotiation. According to IIA guidance, which of the following would be the most appropriate next step?

Accepted Answer

A)  The audit supervisor should include the new contracts in the finding for the final audit report. 
B)  The audit supervisor should communicate the finding to the supervisor of the sales manager through an interim report. 
C)  The audit supervisor should remind the sales manager of his authority limit for the contracts under negotiation. 
D)  The auditor should not reference the new contracts, because they are not yet signed and therefore cannot be included in the final report. 
A)  The audit supervisor should include the new contracts in the finding for the final audit report. 
B)  The audit supervisor should communicate the finding to the supervisor of the sales manager through an interim report. 
C)  The audit supervisor should remind the sales manager of his authority limit for the contracts under negotiation. 
D)  The auditor should not reference the new contracts, because they are not yet signed and therefore cannot be included in the final report.

Question 10

The chief audit executive (CAE) manages a large internal audit activity (IAA) reporting functionally to the audit committee and administratively to the chief risk officer. During the CAE's recent unplanned medical leave, several internal audit reports were completed and waiting for CAE approval, however, no formal delegation of authority was in place to anticipate this situation. In order to preserve the independence of the IAA, which of the following would be the most appropriate individual to review and approve these reports during the CAE's absence?

Accepted Answer

A)  External auditor. 
B)  Chief risk officer. 
C)  Engagement lead auditor. 
D)  Audit committee chair. 
A)  External auditor. 
B)  Chief risk officer. 
C)  Engagement lead auditor. 
D)  Audit committee chair.

Question 11

According to IIA guidance, which of the following actions might place the independence of the internal audit function in jeopardy?

Accepted Answer

A)  Having no active role or involvement in the risk management process. 
B)  Auditing the risk management process for reasonableness. 
C)  Coordinating and managing the risk management process. 
D)  Participating with management in identifying and evaluating risks. 
A)  Having no active role or involvement in the risk management process. 
B)  Auditing the risk management process for reasonableness. 
C)  Coordinating and managing the risk management process. 
D)  Participating with management in identifying and evaluating risks.

Question 12

During the quarterly review of the internal audit activity's performance, the chief audit executive (CAE) notes that actual engagement hours consistently exceed the budget. Which of the following strategies would most likely help the CAE address this problem? • The budget should consider time spent on similar engagements. • The budget should consider the proficiency of the assigned auditors. • The budget estimate should provide for unexpected delays. • The budget should be specific as to time for each work assignment.

Accepted Answer

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

Question 13

An audit engagement objective at a manufacturer is to determine the quality of raw materials purchased. Which of the following actions would best enable an internal auditor to satisfy this objective?

Accepted Answer

A)  Analyze the provision for sales allowances. 
B)  Analyze the percentage of scrap incurred during production. 
C)  Research the rationale for customer returns. 
D)  Evaluate the volume and characteristics of products rejected during processing. 
A)  Analyze the provision for sales allowances. 
B)  Analyze the percentage of scrap incurred during production. 
C)  Research the rationale for customer returns. 
D)  Evaluate the volume and characteristics of products rejected during processing.

Question 14

While reviewing the draft report of an audit engagement, the chief audit executive (CAE) is not in agreement with management's acceptance of the potential risk exposure resulting from an observed key control weakness. Which of the following actions by the CAE would be appropriate for addressing this concern? • Meet with the auditor-in-charge. • Discuss with senior management. • Monitor the result of the accepted risk. • Report the matter to the board.

Accepted Answer

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

Question 15

Which of the following is a weakness that is inherent in the use of the test data method to test internal controls in a computer-based accounting system?

Accepted Answer

A)  The auditor must test many transactions with the same condition in order to achieve assurance that the condition is being detected. 
B)  Conditions that were not specifically considered by the auditor may go untested. 
C)  The approach requires the creation of "dummy companies," possibly destroying or altering actual company data in the process. 
D)  Inclusion of atypical data in the test data may cause errors to be noted on the exception report. 
A)  The auditor must test many transactions with the same condition in order to achieve assurance that the condition is being detected. 
B)  Conditions that were not specifically considered by the auditor may go untested. 
C)  The approach requires the creation of "dummy companies," possibly destroying or altering actual company data in the process. 
D)  Inclusion of atypical data in the test data may cause errors to be noted on the exception report.

Question 16

An organization has acquired a new line of business. None of the organization's internal auditors have the required expertise to perform an internal audit of the new business line; therefore, the chief audit executive (CAE) has contracted the services of an external audit firm to perform the engagement. The CAE has assigned a member of the internal audit team to assist the external team with the engagement. According to the Standards, which of the following statements is true regarding supervision of the engagement?

Accepted Answer

A)  The CAE may rely upon the external firm's auditor in charge to supervise the engagement. 
B)  The external firm's auditor in charge must defer to the judgment of the CAE for any disputes. 
C)  The CAE is not responsible for the quality of an audit performed by an external firm. 
D)  The CAE should not assign an inexperienced staff member to assist with the engagement. 
A)  The CAE may rely upon the external firm's auditor in charge to supervise the engagement. 
B)  The external firm's auditor in charge must defer to the judgment of the CAE for any disputes. 
C)  The CAE is not responsible for the quality of an audit performed by an external firm. 
D)  The CAE should not assign an inexperienced staff member to assist with the engagement.

Question 17

During a consulting engagement, an internal auditor identifies new risks which will impact the scope and sufficiency of the engagement audit plan. According to the Standards, the internal auditor should:

Accepted Answer

A)  Discuss the potential impact on the scope with the client. 
B)  Modify the scope to incorporate the new risks and continue the engagement. 
C)  End the engagement, as the audit scope is no longer sufficient to meet the audit objective. 
D)  Continue the engagement but highlight the impacts on the audit scope in the final report. 
A)  Discuss the potential impact on the scope with the client. 
B)  Modify the scope to incorporate the new risks and continue the engagement. 
C)  End the engagement, as the audit scope is no longer sufficient to meet the audit objective. 
D)  Continue the engagement but highlight the impacts on the audit scope in the final report.

Question 18

Because of an abundance of high priority requests from management, an internal audit activity no longer has the resources to meet all of its commitments contained in the annual audit plan. Which of the following would be the best course of action for the chief audit executive to follow?

Accepted Answer

A)  Continue with the plan and seek opportunities to adjust priorities and reallocate resources. 
B)  Present a reassessment of the plan to the board and senior management for consideration. 
C)  Reassess the plan and either cancel or divert resources away from the lowest priority activities. 
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)  Present a reassessment of the plan to the board and senior management for consideration. 
C)  Reassess the plan and either cancel or divert resources away from the lowest priority activities. 
D)  Advise the board immediately and seek their support for additional resources to meet the needs of the plan.

Question 19

Controls are implemented to:

Accepted Answer

A)  Eliminate risk and reduce the potential for loss. 
B)  Mitigate risk and eliminate the potential for loss. 
C)  Mitigate risk and reduce the potential for loss. 
D)  Eliminate risk and eliminate potential for loss. 
A)  Eliminate risk and reduce the potential for loss. 
B)  Mitigate risk and eliminate the potential for loss. 
C)  Mitigate risk and reduce the potential for loss. 
D)  Eliminate risk and eliminate potential for loss.

Question 20

Which of the following is typically not a reason for committing financial statement fraud?

Accepted Answer

A)  To dispel negative market perception. 
B)  To disguise a duplicate payment to a vendor. 
C)  To obtain more favorable terms on financing. 
D)  To receive performance-related bonuses. 
A)  To dispel negative market perception. 
B)  To disguise a duplicate payment to a vendor. 
C)  To obtain more favorable terms on financing. 
D)  To receive performance-related bonuses.

An auditor evaluating excessive product rejection rates should investigate:

The following are potential sources of evidence regarding the effectiveness of a division's total quality management program. The least persuasive evidence would be a comparison of:

An internal auditor has been assigned to facilitate a risk and control self-assessment for the finance group. Which of the following is the most appropriate role that she should assume when facilitating the workshop?

Which of the following statements is true?

What type of analysis is performed when an auditor tests for unusual variations in information by comparing the number of employees working at a factory site with the direct cost of production each month over a period of one year?

When interrogating an individual who is suspected of fraud, it is appropriate to:

According to IIA guidance, which of the following actions might place the independence of the internal audit function in jeopardy?

An audit engagement objective at a manufacturer is to determine the quality of raw materials purchased. Which of the following actions would best enable an internal auditor to satisfy this objective?

Which of the following is a weakness that is inherent in the use of the test data method to test internal controls in a computer-based accounting system?

During a consulting engagement, an internal auditor identifies new risks which will impact the scope and sufficiency of the engagement audit plan. According to the Standards, the internal auditor should:

Because of an abundance of high priority requests from management, an internal audit activity no longer has the resources to meet all of its commitments contained in the annual audit plan. Which of the following would be the best course of action for the chief audit executive to follow?

Controls are implemented to:

Which of the following is typically not a reason for committing financial statement fraud?

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Exam 4: Conducting the Internal Audit Engagement

An auditor evaluating excessive product rejection rates should investigate:

The following are potential sources of evidence regarding the effectiveness of a division's total quality management program. The least persuasive evidence would be a comparison of:

An internal auditor has been assigned to facilitate a risk and control self-assessment for the finance group. Which of the following is the most appropriate role that she should assume when facilitating the workshop?

Which of the following statements is true?

What type of analysis is performed when an auditor tests for unusual variations in information by comparing the number of employees working at a factory site with the direct cost of production each month over a period of one year?

When interrogating an individual who is suspected of fraud, it is appropriate to:

According to IIA guidance, which of the following actions might place the independence of the internal audit function in jeopardy?

An audit engagement objective at a manufacturer is to determine the quality of raw materials purchased. Which of the following actions would best enable an internal auditor to satisfy this objective?

Which of the following is a weakness that is inherent in the use of the test data method to test internal controls in a computer-based accounting system?

During a consulting engagement, an internal auditor identifies new risks which will impact the scope and sufficiency of the engagement audit plan. According to the Standards, the internal auditor should:

Because of an abundance of high priority requests from management, an internal audit activity no longer has the resources to meet all of its commitments contained in the annual audit plan. Which of the following would be the best course of action for the chief audit executive to follow?

Controls are implemented to:

Which of the following is typically not a reason for committing financial statement fraud?

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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