Question 1

An auditor analyzed a payroll system's data files for unusual activity, such as excessive overtime hours, unusual fluctuations in pay rates, and excessive vacation time. The application controls being verified by this analysis are:

Accepted Answer

A)  Edit and validation controls. 
B)  Rejected and suspense item controls. 
C)  Controls over update access to the database. 
D)  Programmed balancing controls.

Question 2

Which of the following activities would be performed during a benchmarking consulting engagement?

Accepted Answer

A)  Collect data relevant to the benchmarking process. II. Review all business processes. III. Define critical success factors. IV. Identify performance gaps. 
B)  I and III only 
C)  II and IV only 
D)  I, II, and III only 
E)  I, III, and IV only

Question 3

Which of the following is the least relevant when preparing the internal audit activity's annual engagement plan?

Accepted Answer

A)  Senior management's requests for internal audit engagements. 
B)  A rotation of internal audit engagements selected on a time basis. 
C)  The organization's current risk priority and exposure. 
D)  Coordination with the audit plans of the external auditor.

Question 4

Which of the following would most likely include recommendations for process improvements? • Due diligence engagement. • Forensic investigation. • Internal audit engagement. • Consulting engagement.

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

Question 5

An auditor decides to vouch a sample of ledger entries back to their original documentation. In terms of whether all transactions had been recorded, this test would be:

Accepted Answer

A)  Relevant to the completeness objective. 
B)  Irrelevant to the completeness objective. 
C)  A more timely test of completeness than evidence from interviews. 
D)  A more biased test of completeness than evidence from interviews.

Question 6

The chief executive officer has requested that the chief audit executive (CAE) coordinate the establishment of an enterprise risk management (ERM) program for the organization. Which of the following would be the most appropriate action for the CAE?

Accepted Answer

A)  Accept the request as the role of coordinating ERM is a core function of internal audit. 
B)  Decline the request as this role compromises the CAE's objectivity. 
C)  Accept the request after consulting with the board and adhering to proper safeguards. 
D)  Decline the request as internal audit has limited knowledge and experience of risk at the enterprise level to undertake the assignment.

Question 7

Access control software on an organization's mainframe computer records detailed information concerning both successful and unsuccessful log-on attempts to applications. Which of the following audit tools would be best suited to review the access information that has been recorded?

Accepted Answer

A)  Generalized audit software. 
B)  Flowcharting. 
C)  Integrated test facility. 
D)  Test data.

Question 8

An appliance repair company is considering relocating the center that houses its service vehicles. An internal auditor wants to determine the potential reduction in average miles driven by the service vehicles if the center is relocated. Which of the following statistical sampling methods would be most appropriate for this test?

Accepted Answer

A)  Attributes sampling. 
B)  Discovery sampling. 
C)  Probability-proportional-to-size sampling. 
D)  Mean-per-unit sampling.

Question 9

A bakery chain has a statistical model that can be used to predict daily sales at individual stores based on a direct relationship to the cost of ingredients used and an inverse relationship to rainy days. What conditions would an internal auditor look for as an indicator of employee theft of food from a specific store?

Accepted Answer

A)  On a rainy day, total sales are greater than expected when compared to the cost of ingredients used. 
B)  On a sunny day, total sales are less than expected when compared to the cost of ingredients used. 
C)  Both total sales and cost of ingredients used are greater than expected. 
D)  Both total sales and cost of ingredients used are less than expected.

Question 10

Which of the following is the first step in the process where auditors and clients work together to evaluate the clients' system of internal control?

Accepted Answer

A)  Assess risks. 
B)  Develop questionnaires. 
C)  Identify and assess controls. 
D)  Identify objectives.

Question 11

Which of the following best defines an audit opinion?

Accepted Answer

A)  A summary of the significant audit observations and recommendations. 
B)  An auditor's evaluation of the effects of the observations and recommendations on the activities reviewed. 
C)  A conclusion which must be included in the audit report. 
D)  A recommendation for corrective action.

Question 12

Which of the following is the primary reason the chief audit executive should consider the organization's strategic plans when developing the annual audit plan?

Accepted Answer

A)  Strategic plans reflect the organization's business objectives and overall attitude toward risk. 
B)  Strategic plans are helpful to identify major areas of activity, which may direct the allocation of internal audit activity resources. 
C)  Strategic plans are likely to show areas of weak financial controls. 
D)  The strategic plan is a relatively stable document on which to base audit planning.

Question 13

Which of the following would be an appropriate and effective control self-assessment approach in an organization with an authoritative culture?

Accepted Answer

A)  Facilitated meeting II. Survey III. Management-produced analysis 
B)  I only 
C)  I and III only 
D)  II and III only 
E)  I, II, and III

Question 14

According to the International Professional Practices Framework, which of the following should be excluded from a final communication for a performance audit engagement?

Accepted Answer

A)  Recommendations and conclusions. 
B)  The internal auditor's unbiased opinion. 
C)  Timely and relevant information. 
D)  Legal opinions related to illegal acts.

Question 15

In a payroll audit, a staff auditor suspects that signatures on some of the documents being sampled for examination are not authentic. What action should the auditor take before proceeding with the examination?

Accepted Answer

A)  Suggest to the payroll manager that the suspicious documents should be sent to the organization's security department for forensic review. 
B)  Keep the suspicious documents in the workpaper file until the end of the engagement, and then discuss the suspicions with the payroll manager. 
C)  Discuss the suspicious documents with payroll staff to seek their views on the authenticity of the signatures. 
D)  Review the suspicious documents with the chief audit executive and seek advice concerning further examination.

Question 16

Which of the following factors would not be considered in determining appropriate follow-up procedures?

Accepted Answer

A)  The significance of the audit finding. 
B)  The effort and cost needed to correct the reported condition. 
C)  The availability of funds in the audited department's budget to correct the reported condition. 
D)  The potential consequences if the corrective action fails.

Question 17

Due to price risk from the foreign currency purchase of aviation fuel, an airliner has purchased forward contracts to hedge against fluctuations in the exchange rate. When recalculating the exchange losses from individual purchases of jet fuel, which of the following details does the internal auditor need to validate? 1. The hedge documentation designating the hedge. 2. The spot exchange rate on the transaction date. 3. The terms of the forward contract. 4. The amount of fuel purchased.

Accepted Answer

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

Question 18

A manager of one of a retailer's several retail outlets is stealing cash from cash sales, recording the sales as accounts receivable, and subsequently writing off the fictitious accounts receivable as bad debts. Which of the following comparisons would be most effective in signaling the possibility of such a fraud?

Accepted Answer

A)  Bad debt expense as a percentage of sales, compared to that of the other outlets. 
B)  Bad debt expense as a percentage of sales, compared to that of previous years. 
C)  Percentage of past-due accounts receivable, compared to that of the other outlets. 
D)  Percentage of past-due accounts receivable, compared to that of previous years.

Question 19

The most effective way for internal auditors to enhance the reliability of computerized financial and operating information is by:

Accepted Answer

A)  Determining if controls over record keeping and reporting are adequate and effective. 
B)  Reviewing data provided by information systems to test compliance with external requirements. 
C)  Determining if information systems provide management with timely information. 
D)  Determining if information systems provide complete information.

Question 20

Insurance companies often receive electronic hospitalization claims directly from hospitals. Which of the following control procedures would be most effective in detecting fraud in such an environment?

Accepted Answer

A)  Use integrated test facilities to test the accuracy of processing in a manner that is transparent to data processing. 
B)  Develop monitoring programs to identify unusual types of claims or an unusual number of claims by demographic class for investigation by the claims department. 
C)  Use generalized audit software to match the claimant identification number with a master list of valid policyholders. 
D)  Develop batch controls over all items received from a particular hospital and process those claims in batches.

Exam 4: Conducting the Internal Audit Engagement