Deck 26: Internal and Governmental Financial Auditing and Operational Auditing

Question 1

Internal auditors are expected to provide value to the organization through improved operational effectiveness.

Answer 1

True

Question 2

Which of the following is most correct regarding external auditors use of internal auditors directly on the audit engagement?

A) discourage
B) prohibit
C) require
D) permit

Answer 2

D

Question 3

Internal auditing standards are included in the Blue Book.

Answer 3

False

Question 4

The International Standards for the Professional Practice of Internal Auditing include which two categories of standards?

A) attribute and performance
B) competency and professional skepticism
C) performance and integrity
D) ethics and rules of conduct

Question 5

Statements on Internal Auditing Standards are issued by the

A) AICPA.
B) SEC.
C) Internal Auditing Standards Board.
D) Auditing Standards Boards.

Question 6

External auditors would consider internal auditors effective if they

A) are independent of the operating units being evaluated.
B) are competent and well trained.
C) apply a systematic and disciplined approach, including quality control.
D) all of the above.

Question 7

Which of the following is a performance standard under the International Standards for the Professional Practice of Internal Auditing?

A) proficiency and due professional care
B) independence and objectivity
C) requirement that the internal audit must be a CPA
D) engagement planning

Question 8

The Internal Auditing Standards Board issues Statements on Internal Auditing Standards.

Question 9

External financial statement auditors must obtain evidence regarding what attributes of an internal audit department if the external auditors intend to rely on the internal auditor's work?

A)
B)
C)
D)

Question 10

Internal auditors are expected to add value to the organization through improved operational effectiveness. In addition, their responsibilities include all the following except

A) reviewing the reliability and integrity of information.
B) ensuring compliance with the company's accounting policies.
C) verifying accounting information for external users.
D) ensuring compliance with applicable governmental regulations.

Question 11

Because they spend all their time within one company, internal auditors have much greater knowledge about the company's operations and internal controls then external auditors.

Question 12

Integrity is one of the Institute of Internal Auditors' ethical principles.

Question 13

Which of the following is not a similarity between external and internal auditors?

A) Both must be independent of the company.
B) Both must be competent.
C) Both follow a similar methodology in performing their audits.
D) Both consider risk and materiality deciding the extent of their tests and evaluating results.

Question 14

Internal auditors are responsible to

A) the board of directors.
B) management.
C) both A and B.
D) neither A nor B.

Question 15

Under the International Standards for the Professional Practice of Internal Auditing, the performance standards deal with the education requirements of the internal auditor.

Question 16

The objectives of internal auditors are considerably broader than the objectives of external auditors.

Question 17

Current professional auditing standards prohibit external auditors from using internal auditors for direct assistance on external audits.

Question 18

The professional organization which is responsible for providing guidance for internal auditors is the

A) Association of Private Auditors.
B) Institute of Internal Auditors.
C) American Bar Association.
D) Association of Internal Auditors.

Question 19

Independence is a fundamental ethical principle for internal auditors.

Question 20

Professional guidelines for performing internal audits for companies are not as well-defined as for external audits.

Question 21

Name three expectations of today's internal auditors.

Question 22

The role of internal auditors in an organization have not expanded significantly in the last two decades.

Question 23

The primary source of authoritative literature for doing government audits is the

A) Purple Book.
B) Yellow Book.
C) Green Book.
D) Red Book.

Question 24

Internal audit reports are standardized, as the reporting needs are standardized from company to company.

Question 25

Internal auditors can have a significant impact on a company's operational efficiency and effectiveness, but not on earnings and cash flow.

Question 26

The New York Stock Exchange requires its registrants to have an internal audit function.

Question 27

The Institute of Internal Auditors has established Ethical Principles for its members. List each of the principles.

Question 28

Internal auditors and government auditors perform a significant amount of financial auditing, similar to that done by external CPA firms.

Question 29

Internal audit reports are relied on by both internal and external users.

Question 30

What is the Institute of Internal Auditors Professional Practices Framework definition of internal auditing?

Question 31

The Institute of Internal Auditors' Position Paper, "The Role of Internal Auditing in Enterprise-wide Risk Management," highlights six roles internal audit should not undertake within a company related to ERM activities. Name those six roles or activities.

Question 32

Recent research shows the board of directors is delegating oversight of management's enterprise risk management (ERM) responsibilities to the internal audit department in place of a board level committee.

Question 33

The American Institute of Certified Public Accountants (AICPA) has established a highly regarded certification program resulting in the designation of Certified Internal Auditor (CIA).

Question 34

External auditors typically consider internal auditors effective if they meet three criteria. What are these criteria?

Question 35

When a state or local government agency receives federal funds, it is subject to the audit requirements of

A)
B)
C)
D)

Question 36

What are three similarities between internal and external auditors?

Question 37

The International Standards for the Professional Practice of Auditing list seven performance standards. List three.

Question 38

Statements on Internal Auditing Standards (SIASs) are issued by the Auditing Standards Board of the American Institute of Certified Public Accountants (AICPA).

Question 39

Companies employ their own internal auditors to perform operational auditing, but not financial auditing.

Question 40

Internal auditors do not have the same amount of knowledge about internal controls and the company's operations as the external auditors do.

Question 41

An audit designed to provide reasonable assurance of detecting material misstatements resulting from noncompliance with provisions of contracts or grant agreements that have a material and direct effect on the financial statements would be called a(n)

A) performance audit.
B) management audit.
C) operational audit.
D) compliance audit.

Question 42

In addition to an opinion on whether the financial statements are in accordance with GAAP, identify four other reports required by the OMB Circular A-133/2 CFR 200 subpart F.

Question 43

Extensive professional development is necessary for auditors doing governmental audits.

Question 44

The Single Audit Act requires that an audit be conducted for recipients who receive total federal funds in any fiscal year of more than

A) $1,000,000.
B) $750,000.
C) $500,000.
D) $100,000.

Question 45

How do the risk and materiality thresholds change in a government audit compared to a financial statement audit of a public company?

Question 46

Auditors involved in planning, performing, or reporting on audits under Generally Accepted Government Auditing Standards (GAGAS) must complete ________ hours of continuing professional education in each two-year period.

A) 20
B) 40
C) 60
D) 80

Question 47

An audit conducted in accordance with the Yellow Book must include an audit report that states the audit was performed in accordance with

A) Generally Accepted Auditing Standards (GAAS).
B) Generally Accepted Government Auditing Standards (GAGAS).
C) Generally Accepted Standards on Auditing (GASA).
D) Statements on Auditing Standards (SAS).

Question 48

Government auditing standards are included in the Yellow Book.

Question 49

The Single Audit Act applies only to audits of state and local governments.

Question 50

Which of the following is not a difference between operational auditing and financial auditing?

A) Both must be performed by a CPA.
B) Operational audit reports are usually of a restricted distribution while financial audit reports are widely distributed.
C) Operational audits often cover nonfinancial issues while financial audits do not.
D) None of the above is a difference.

Question 51

Operational audits are primarily geared towards improving a company's operational efficiency and effectiveness.

Question 52

At least 24 of the 80 hours of continuing professional education required under GAGAS must be in subjects related to governmental auditing or the governmental environment.

Question 53

Government Auditing Standards recognize that because of public accountability over governmental activities the acceptable tolerable misstatement as compared to commercial businesses may be

A) equal.
B) lower.
C) higher.
D) indeterminable.

Question 54

The formal name of the Yellow Book is Government Auditing Standards.

Question 55

Which one of the following is not a major difference between operational and financial auditing?

A) purpose of the audit
B) distribution of the report
C) testing the effectiveness of internal controls
D) inclusion of nonfinancial areas

Question 56

Which of the following is most correct with regard to the comparison of the financial auditing standards of the Yellow Book with the principles of the AICPA auditing standards?

A) the same as
B) quite different from
C) incompatible with
D) consistent with

Question 57

The auditing standards of the Yellow Book are consistent with the ten generally accepted auditing standards of the AICPA. There are, however, important additions/modifications in the Yellow Book. For example, the Yellow Book recognizes that materiality and risk are lower due to the nature of the government enterprise. Discuss the other additions/modifications.

Question 58

A typical objective of an operational audit is to determine whether an entity's

A) internal control is adequately operating as designed.
B) financial statements present fairly the results of operations.
C) specific operating units are functioning efficiently and effectively.
D) operational information is in accordance with generally accepted government auditing standards.

Question 59

The correct title of the Yellow Book is

A) Government Auditing Standards.
B) Institute of Internal Auditors (IIA) Practice Standards.
C) Statement of Responsibilities of Internal Auditing.
D) Statement of Standards on Accounting and Review Services.

Question 60

Which of the following is not one of the major differences between financial and operational auditing?

A) The financial audit is oriented to the past, but an operational audit concerns performance for the future.
B) The financial audit report has widespread distribution, but the operational audit report has limited distribution.
C) Financial audits deal with the information on the financial statements, but operational audits are concerned with the information in the ledgers.
D) Financial audits are limited to matters that directly affect the fairness of the financial statement presentation, but operational audits cover any aspect of efficiency and effectiveness.

Question 61

Effectiveness is concerned with whether defined goals are achieved, whereas efficiency is concerned with whether the goals are achieved with a minimum use of resources.

Question 62

One disadvantage of functional auditing is the failure to evaluate interrelated functions.

Question 63

Efficiency refers to the degree to which costs are reduced without changing effectiveness.

Question 64

Effectiveness refers to the degree to which costs are reduced without reducing efficiency.

Question 65

Which of the following best describes an audit that emphasizes how efficiently and effectively functions interact?

A) operational
B) compliance
C) financial
D) organizational

Question 66

Which of the following is not a purpose of a program audit as performed by government auditors?

A) determination of the extent to which the desired results established by the legislature are being achieved
B) determination of the causes of inefficiencies in sponsored programs
C) determination of the effectiveness of organizations, programs, activities, or functions
D) determination as to whether the entity has complied with laws and regulations applicable to the program

Question 67

What distinguishes internal control evaluation and testing for financial and operational auditing?

A) purpose of the work
B) scope of the work
C) both A and B
D) neither A nor B

Question 68

Auditors can insist that the changes that they recommend as the result of an operational audit be implemented by the company.

Question 69

Unlike financial statement auditors, operational auditors cannot benefit from the use of data analytical tools to identify opportunities for improvements in operational efficiency and effectiveness.

Question 70

Discuss three major differences between operational and financial auditing.

Question 71

Which of the following can affect the independence of operational auditors?

A)
B)
C)
D)

Question 72

Which of the following groups could be involved in an operational audit?

A) CPA firms
B) internal auditors
C) government auditors
D) All of the above could be involved.

Question 73

Which of the following statements regarding types of operational audits is likely incorrect?

A) A functional audit has the advantage of permitting specialization by auditors.
B) An advantage of functional auditing is its ability to evaluate interrelated functions.
C) The emphasis in an organizational audit is on how efficiently and effectively functions interact.
D) Special operational auditing assignments arise at the request of management.

Question 74

Effective internal controls are designed to help organizations achieve which of the following objectives?

A) reliability of financial reporting
B) efficiency and effectiveness of operations
C) compliance with applicable laws and regulations
D) all of the above

Question 75

Operational audits are often categorized as functional, organizational, or special assignments.

Question 76

Operational audits may be performed by internal auditors and government auditors, but not by external auditors.

Question 77

________ is the degree to which the organization's objectives are accomplished.

A) Effectiveness
B) Efficiency
C) Goal optimization
D) Performance

Question 78

For financial auditing, the audit report typically goes to many users of financial statements, whereas operational audit reports are intended primarily for management.

Question 79

The two most important qualities for an operational auditor are

A) personality and appearance.
B) independence and competence.
C) competence and technical training.
D) academic background and sufficient experience.

Question 80

The two most important qualities for an operational auditor to possess are independence and competence.