Deck 14: Internal Auditing

Question 1

According to the recent definition of internal audit provided by the Institute of Internal Auditors, the principal benefit to management of there being an internal audit function is that:

A)it aids management in the areas of risk management, control and governance processes.
B)management is provided with assurance that the organisation is complying with legal requirements.
C)management is provided with assurance that fraudulent activities will be detected.
D)external audit costs are reduced.

Answer 1

A

Question 2

Which of the following would most likely be used as performance criteria for an internal audit?

A)Existing relevant policy statements, manuals, laws, or regulations, or defined by the auditor for each operational audit.
B)Australian Accounting Standards.
C)The same criteria used to report on the internal control structure over financial reporting.
D)Australian Auditing Standards.

Answer 2

A

Question 3

Which of the following is an attribute standard of the Institute of Internal Auditors?

A)Engagement planning.
B)Nature of work.
C)Managing the internal audit activity
D)Proficiency and due professional care.

Answer 3

D

Question 4

An internal auditor who had been supervisor of the accounts payable section should not audit that section:

A)until enough time has elapsed to allow the new supervisor to influence the system of controls over accounts payable.
B)because there is no way to measure a reasonable period of time in which to establish independence.
C)until it is clear that the new supervisor has assumed the responsibilities.
D)until after the next annual review of the external auditors.

Question 5

Which of the following best describes internal auditors' responsibilities regarding their entity's policies, plans, procedures and applicable laws and regulations? Internal auditors:

A)have a responsibility to develop appropriate policies, plans and procedures, and they are responsible for monitoring compliance with all applicable laws and regulations.
B)have no responsibility regarding these matters because becoming involved with them would make internal auditors members of management.
C)are responsible for evaluating whether the systems are adequate and effective and whether the activities that are audited comply with appropriate requirements.
D)are only responsible for compliance with policies, plans, procedures, laws and regulations that apply to internal audit.

Question 6

Which of the following is not a mandatory component of the IIA's International Professional Practices Framework?

A)Definition.
B)International Standards for the Professional Practice of Internal Auditing.
C)Code of Ethics.
D)International Auditing Standards.

Question 7

Elizabeth Cheng, CIA, works for a large department store.She is performing an audit of her company's cash function.Which of the following is an action in which due professional care is lacking?

A)Cheng flowcharts the work of the cash function but tests only a sample of the transactions.
B)Cheng is extremely pleased with the internal controls and the operation of the cash function and in her report states that she is sure no irregularities are currently present.
C)Cheng reviews company records to ascertain that all employees who handle cash receipts and disbursements are covered by workers compensation.
D)Cheng knows that the work of the cash function can be done effectively with one less employee.She includes this finding in her report even though she knows it will adversely affect employee morale in the cash function.

Question 8

Which of the following is a performance standard of the Institute of Internal Auditors?

A)Engagement planning.
B)Independence and objectivity.
C)Quality assurance and improvement program.
D)Proficiency and due professional care.

Question 9

Which of the following will best promote the independence of the internal auditing function?

A)Direct lines of communication between the audit committee and the director of internal auditing.
B)A quality control system within the internal auditing function designed to ensure that departmental objectives are met.
C)Direct reporting responsibilities to the entity's chief financial officer.
D)A review of the internal audit function by the external auditor.

Question 10

A company has outgrown its current computer system and the capabilities of its computer personnel.Management has asked the internal audit department to use its expertise to design and install a new computer system and help in hiring a new computer centre director.The internal audit department should:

A)reject the assignment, because making decisions concerning the design and installation of the system would impair the internal audit department's independence.
B)accept the assignment, because this would be very efficient and economical for the company.
C)accept the assignment but not participate in the hiring of the director, because this would cause a loss of independence.
D)reject the assignment, because it would interfere with the completion of other internal audit work.

Question 11

Which of the following is not a main goal of internal auditing?

A)Add value to an organisation's operations.
B)Help an organisation accomplish its objectives.
C)Provide reliable information to external users.
D)Improve the effectiveness of risk management of an organisation.

Question 12

The types of audit reports provided by an internal auditor are:

A)examination report, review report, or compilation report.
B)unqualified, qualified, adverse, or a disclaimer of opinion.
C)financial report or compliance report.
D)varied and are based on auditor judgment of how best to present the findings.

Question 13

The internal auditing department provides information about control and quality of performance to:

A)a level in the entity sufficient to ensure acceptance of all recommendations.
B)management and the board.
C)any member of the entity upon request.
D)outside agencies for regulatory and financial compliance.

Question 14

Which of the following statements is true to ensure individual objectivity of internal auditors as per IIA Standards?

A)Internal audit should be involved in the design of internal control systems, because of the knowledge of controls, but should not operate such systems.
B)It is not appropriate for internal auditors to design, install or operate systems or write procedures manuals for systems.
C)It is permissible for the internal auditor to be involved in designing and installing internal control systems (but not be involved in their operation), providing the head of internal audit reports to the board of directors or audit committee.
D)The internal auditor should prepare procedures manuals for systems, but should not be involved in their design, installation or operation.

Question 15

Which of the following is not explicitly a part of the IIA's definition of internal auditing?

A)Internal auditing is an objective assurance activity.
B)Internal auditors should help external auditors complete the annual financial statement audit.
C)Internal auditing should help an organisation accomplish its objectives.
D)Internal auditing is designed to add value and improve an organisation's operations.

Question 16

Which of the following statements is not correct with regards the differences between internal and external audit?

A)External auditors report primarily to shareholders while internal auditors report primarily to the board via the audit committee.
B)External auditors' work is governed by international auditing standards while internal auditors' work is governed by the IIA's Professional Practices Framework.
C)External auditors' area of focus is organisation wide while internal auditors' area of focus is finance and accounting.
D)External auditors do not include recommendations in their auditor's report while internal auditors do include such recommendations in their report.

Question 17

According to the IIA Standards, the authority of the internal auditing department is limited to that granted by:

A)senior management and the Internal Auditing Standards.
B)the board of directors and the financial controller.
C)the audit committee and the chief financial officer.
D)management and the board of directors.

Question 18

Which of the following aspects does not help ensure organisational independence of internal audit?

A)The board of directors or audit committee being required to approve the removal of the head of Internal Audit.
B)Reporting to the board of directors or audit committee.
C)External audit coordinating their work more closely with internal audit.
D)Management being kept informed of internal audit work schedules and budget requirements.

Question 19

The purpose of an internal auditor's review for effectiveness of the internal control structure is to ascertain whether:

A)the system is functioning efficiently and economically.
B)the system is functioning as intended.
C)financial and operating data are reliable.
D)the entity's goals and objectives have been achieved.

Question 20

Which of the following statements best describes internal auditing?

A)An activity located within an entity, primarily to detect fraud.
B)An accounting function located within an entity.
C)An activity located within an entity that determines the fiscal integrity of a financial report.
D)An independent and objective assurance activity within an entity.

Question 21

Which of the following components is not an element of the Australian Risk Management Standard, AS/NZS ISO 31000?

A)Establish the context.
B)Identify risks.
C)Analyse risks.
D)Separate risks.

Question 22

When evaluating risks in accordance with the Australian Risk Management Standard AS/NZS ISO 31000, what is the order of steps that it is recommended be undertaken?

A)Identify risks, analyse risks, evaluate risks, treat risks.
B)Identify risks, analyse risks, treat risks, evaluate risks.
C)Identify risks, evaluate risks, treat risks, analyse risks.
D)Identify risks, evaluate risks, analyse risks, treat risks.

Question 23

Major issues confronting internal audit include the following, except for:

A)the difficulties of changing the profile of internal audit with regards to image and status.
B)the outsourcing of internal audit.
C)an increase in the expectation gap between what internal auditors believe they should do and what financial report users believe internal auditors should do.
D)the advent of specialised audit groups.

Question 24

Which of the following is not one of the interrelated components and principles of the COSO Enterprise Risk Management Framework 2013?

A)Risk assessment.
B)Control activities.
C)Substantive testing.
D)Information and communication.

Question 25

Factors currently driving change in internal audit include all of the following, except for:

A)the ability of internal audit to demonstrate its value-adding nature to an organisation.
B)the provision of a broader range of assurance services by the external auditor.
C)increased emphasis on corporate governance and business risk management.
D)the increased ability to benchmark against internal audit best practice.