Deck 14: Internal Auditing

Question 1

Standards relevant to operational auditing have been promulgated by all of the following except the:

A) Institute of Internal Auditors.
B) Australian Auditing and Assurance Standards Board.
C) Australian National Audit Office.
D) Australian Securities and Investments Commission.

Answer 1

D

Question 2

The specific performance criteria to be used in an operational audit are:

A) selected from existing relevant policy statements, manuals, laws, or regulations, or are defined by the auditor for each operational audit.
B) defined in Australian Accounting Standards.
C) the same as the criteria used in evaluating the internal control structure in an engagement to report on the internal control structure over financial reporting.
D) defined in Australian Auditing Standards.

Answer 2

A

Question 3

Which of the following is not a mandatory component of the IIAs International Professional Practices Framework?

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

Answer 3

D

Question 4

The types of operational audit reports given 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 5

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

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 6

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 7

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 8

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 9

The expectation that an internal auditor does not accept bribes or gifts that may impair judgment is based on the principle of:

A) integrity.
B) objectivity.
C) confidentiality.
D) competency.

Question 10

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.

Question 11

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

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 12

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 13

According to the Institute if Internal Auditors, the best description of internal auditing is that it:

A) certifies the reliability and integrity of financial and operating information.
B) furnishes management with information needed to effectively discharge its responsibilities.
C) appraises the economy and efficiency with which resources are used.
D) reviews the means of safeguarding assets and verifies the existence of those assets.

Question 14

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 15

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 16

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 17

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 18

Wendy Jones, 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) Jones flowcharts the work of the cash function but tests only a sample of the transactions.
B) Jones was extremely pleased with the internal controls and the operation of the cash function and in her report she states that she is sure no irregularities are currently present.
C) Jones reviews company records to ascertain that all employees who handle cash receipts and disbursements are covered by workers compensation.
D) Jones 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 19

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 20

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 21

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 22

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 23

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.

Question 24

In a recent study in the US, which types of risks were found to be the fastest growing area of internal audit focus?

A) Social and environmental risks.
B) Corporate governance risks.
C) Business risks.
D) Systems risks.

Question 25

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.