Question 1

An internal auditor found that the cost of some material installed on capital projects had been transferred to the inventory account because the capital budget had been exceeded. Which of the following would be an appropriate technique for the auditor to use to determine the extent of the problem?

Accepted Answer

A)  Identify variances between amounts capitalized each month and the capital budget. 
B)  Analyze a sample of capital transactions each quarter to detect instances in which installed material was transferred to inventory. 
C)  Review all journal entries that transferred costs from capital to inventory accounts. 
D)  Compare inventory receipts with debits to the inventory account and investigate discrepancies.

Question 2

The chief audit executive established an internal audit activity (IAA) performance standard requiring all audit reports to be issued within 48 hours of the exit meeting with the client. Which of the following describes an exit meeting strategy that would best help the IAA meet this performance standard?

Accepted Answer

A)  The objective of the exit meeting is to reach agreement on audit observations. 
B)  The objective of the exit meeting is to solicit action plans for audit observations. 
C)  The objective of the exit meeting is to confirm final details of fieldwork. 
D)  The objective of the exit meeting is to confirm understanding of audit results

Question 3

Which of the following methods would an auditor most likely use to document a complex sales order process?

Accepted Answer

A)  Develop a horizontal flowchart, with supporting documentation for key control points. 
B)  Create a critical path method chart, noting the processes involved for each step. 
C)  Perform a process review, assigning time and cost to each step of the process to develop a hierarchy flowchart. 
D)  Utilize a systems narrative, which can be updated during subsequent audits.

Question 4

During the development of a purchasing system, an auditor reviewed the payment authorization program. Which of the following actions should the auditor recommend for a situation in which the quantity invoiced is greater than the quantity received?

Accepted Answer

A)  Issue an exception report. 
B)  Pay the amount billed and adjust the inventory account for the difference. 
C)  Return the invoice to the vendor for correction. 
D)  Authorize payment of the full invoice, but maintain an open purchase order record for the missing goods.

Question 5

According to IIA guidance,when performing a compliance audit of data security standards for a large e-commerce retailer, which of the following would represent the least likely area of risk exposure?

Accepted Answer

A)  Operational risks. 
B)  Change or configuration risks. 
C)  Access risks. 
D)  Physical security risks.

Question 6

An internal auditor and engagement client are deadlocked over the auditor's differing opinion with management on the adequacy of access controls for a major system. Which of the following strategies would be the most helpful in resolving this dispute?

Accepted Answer

A)  Conduct a joint brainstorming session with management. 
B)  Ask the chief audit executive to mediate. 
C)  Disclose the client's differing opinion in the final report. 
D)  Escalate the issue to senior management for a decision.

Question 7

According to IIA guidance, which of the following accurately describes the responsibilities of the chief audit executive with respect to the final audit report? 1. Coordinate post-engagement conferences to discuss the final audit report with management. 2. Include management's responses in the final audit report. 3. Review and approve the final audit report. 4. Determine who will receive the final audit report.

Accepted Answer

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

Question 8

Which of the followings statements describes a best practice regarding assurance engagement communication activities?

Accepted Answer

A)  All assurance engagement observations should be communicated to the audit committee. 
B)  All assurance engagement observations should be included in the main section of the engagement communication. 
C)  During the "communicate" phase of an assurance engagement, it is best to define the methods and timing of engagement communications. 
D)  A detailed escalation process should be developed during the planning stage of an assurance engagement.

Question 9

Which of the following best describes the four components of a balanced scorecard?

Accepted Answer

A)  Customers, innovation, growth, and internal processes. 
B)  Business objectives, critical success factors, innovation, and growth. 
C)  Customers, support, critical success factors, and learning. 
D)  Financial measures, learning and growth, customers, and internal processes.

Question 10

Which of the following statements is false regarding audit criteria?

Accepted Answer

A)  Audit criteria should be consistent across audit assignments. 
B)  Audit criteria should represent reasonable standards against which to assess existing conditions. 
C)  Audit criteria should provide flexibility but allow identification of nonadherence. 
D)  Audit criteria should equate to good or acceptable management practices.

Question 11

Risk assessments can vary in format, but generally include: 1. A description of identified risks. 2. Tests of audit controls. 3. A system of rating risks. 4. Sample size identification.

Accepted Answer

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

Question 12

An auditor is using an internal control questionnaire as part of a preliminary survey. Which of the following is the best reason for the auditor to interview management regarding the questionnaire responses?

Accepted Answer

A)  Interviews provide the opportunity to insert questions to probe promising areas. 
B)  Interviews are the most efficient way to upgrade the information to the level of objective evidence. 
C)  Interviewing is the least costly audit technique when a large amount of information is involved. 
D)  Interviewing is the only audit procedure which does not require confirmation of the information that is obtained.

Question 13

Which of the following tests must an internal auditor perform in order to ensure that inbound electronic data interchange (EDI) transactions are received and translated accurately?

Accepted Answer

A)  Computerized tests to assess transaction reasonableness and validity. II. Review of log books to ensure that transactions are logged upon receipt. III. Edit checks to identify unusual transactions. IV. Verification of limitations on the authority of users to initiate specific EDI transactions. 
B)  I and IV only 
C)  II and III only 
D)  I, II, and III only 
E)  I, II, III, and IV.

Question 14

The scope of a business process review primarily involves:

Accepted Answer

A)  Appraising the environment and comparing against established criteria. 
B)  Assessing the organization's system of internal controls. 
C)  Reviewing routine financial information and assessing the appropriateness of various accounting treatments. 
D)  Evaluating organizational and departmental structures, including assessments of transaction flows.

Question 15

Which of the following statements is true pertaining to interviewing a fraud suspect? 1. Information gathered can be subjective as well as objective to be useful. 2. The primary objective is to obtain a voluntary written confession. 3. The interviewer is likely to begin the interview with open-ended questions. 4. Video recordings always should be used to provide the highest quality evidence.

Accepted Answer

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

Question 16

All of the following tools are employed to control large-scale projects except:

Accepted Answer

A)  Program evaluation and review technique (PERT). 
B)  Critical path method. 
C)  Statistical process control. 
D)  Gantt charts.

Question 17

Which of the following items should be addressed in an organization's privacy statement?

Accepted Answer

A)  Intended use of collected information. II. Data storage and security. III. Network/infrastructure authentication controls. IV. Data retention policy of the organization. Parties authorized to access information. 
B)  I and II only 
C)  I and IV only 
D)  I, II, and V only 
E)  II, III, IV, and V only

Question 18

Which of the following is true regarding roles and responsibilities in risk management processes?

Accepted Answer

A)  Setting strategic direction resides with senior management. 
B)  Ownership of risks resides with the board. 
C)  Acceptance of residual risk resides with executive management level. 
D)  Identifying, assessing, mitigating and monitoring activities on a continuous basis rests with the internal audit activity.

Question 19

An organization's internal audit plan includes a recurring assurance review of the human resources (HR) department. Which of the following statements is true regarding preliminary communication between the auditor in charge (AIC) and the HR department? 1. The AIC should notify HR management when the draft audit plan is being developed, as a courtesy. 2. The AIC should notify HR management before the planning stage begins. 3. The AIC should schedule formal status meetings with HR management at the start of the engagement. 4. The AIC should finalize the scope of the engagement before communicating with HR management.

Accepted Answer

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

Question 20

A consumer electronics company is considering acquiring a small flash memory manufacturer. An internal auditor has been assigned to determine if the manufacturer's accounts payable contain all outstanding liabilities. Which audit procedure is not relevant for this objective?

Accepted Answer

A)  Verify the period of liability of subsequent cash disbursements using related supporting documentation. 
B)  Send confirmations, including zero-balance accounts, to vendors with whom the manufacturer normally does business. 
C)  Trace receiving reports issued before the period end to the accounts payable list and vendor invoices. 
D)  Verify a sample of accounts payable by using related invoices, receiving reports, and purchase orders.

Exam 4: Conducting the Internal Audit Engagement