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Name: Practice of Internal Auditing
Exam Code: IIA-CIA-Part2
Certification: Certified Internal Auditor
Vendor: IIA
Total Questions: 501
Last Updated: July 07, 2025
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Which of the following tasks would be considered unusual for planning a control selfassessment workshop?
A. Conducting interviews to identify relevant issues for the discussion.
B. Identifying key stakeholders and ensuring they are represented in the group. C. Securing an external subject matter expert to arbitrate disputes. D. Ensuring that managers are willing to accept constructive criticism. Answer: C
C. Securing an external subject matter expert to arbitrate disputes.
D. Ensuring that managers are willing to accept constructive criticism.
ANSWER : C
Which of the following would be included in an internal audit department's qualityassurance and improvement program?1. Ongoing internal assessments of the performance of the internal audit department.2. Periodic internal reviews through self-assessments.3. Assessments conducted by a qualified external reviewer at least once every five years.
A. 1 only
B. 1 and 2 only
C. 2 and 3 only
D. 1, 2, and 3
ANSWER : D
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?
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
ANSWER : D
A chief audit executive (CAE) has decided to add an engagement to the current audit plan which will exceed available audit resources. Which of the following is the best course of action for the CAE to take?
A. Present the plan change to senior management and request additional resources before
going to the board of directors.
B. Seek approval from senior management and the board of directors for the plan change and advise them of the issue of limited resources.
C. Add this change to the plan and request senior management to indicate which other engagement should be deleted to keep the overall plan within resource constraints.
D. Immediately seek additional resources from senior management and the board of directors to meet the needs of the organization.
ANSWER : B
An internal auditor is planning an assurance engagement. The auditor first reviews the department's business objectives. What is the next step?
A. Review control activities.
B. Evaluate potential risks.
C. Establish risk management roles.
D. Set the scope of the engagement.
ANSWER : B
The chief audit executive's responsibility regarding control processes includes:
A. Assisting senior management and the audit committee in the development of an annual assessment about internal control.
B. Overseeing the establishment of internal control processes.
C. Maintaining the organization's governance processes.
D. Ensuring that the internal audit activity assesses all control processes annually.
ANSWER : A
The following audit observation was included in the final audit report:"Our review concluded that bank reconciliation statements for March and April did not showevidence of supervisory review. We recommend strict compliance with the controller'smanual, which requires the department head to place their initials on the reconciliationstatements to document their review."Which of the following attributes are missing from the above audit observation?1. Criteria.2. Condition.3. Cause.4. Effect.
A. 1 and 4 only
B. 2 and 3 only
C. 1, 3, and 4 only
D. 3 and 4 only
ANSWER : D
Which of the following conditions should a chief audit executive take into account whendeciding if a follow-up audit engagement is necessary?• The reported observations were significant and high risk.• Internal audit resources and the time it will require for follow-up.• Management may not have the resources to take action.• Management has previously decided not to take any action.
A. 1, 2, and 3 only
B. 1, 2, and 4 only
C. 1, 3, and 4 only
D. 2, 3, and 4 only
ANSWER : B
According to the International Professional Practices Framework, the internal audit activity's decision to defer follow-up of recommendations and management's corrective actions until the next scheduled engagement for the area is justified when:
A. The reported findings or recommendations are significant enough to require immediate
action by management.
B. The action taken by management to address the recommendation is sufficient when
weighed against the importance of the finding.
C. Management has adequately understood and appropriately accepted the risk of not
taking action to implement the recommendation.
D. The significance of the finding or recommendation will allow auditors to perform
monitoring by receiving periodic updates from management on corrective actions taken.
ANSWER : B
While preparing the annual audit plan, the newly assigned chief audit executive (CAE) learns that the organization has not yet implemented a risk framework. Which of the following would be the most appropriate action for the CAE to take regarding potential engagements?
A. Prioritize the engagements that were not done in previous years and schedule them for
the upcoming year.
B. Consult with senior management and the board and make adjustments regarding risk.
C. Review all outstanding recommendations from prior audit engagements and focus on
them in the upcoming year.
D. Use the previous three-year audit plan to extrapolate potential engagements for the
upcoming year's schedule of engagement.
ANSWER : B
An organization has a large number of vendors supplying goods to its various branchesacross the region. The code of conduct statements signed by the employees specify thatthe employees or their families will not sell goods to the organization. However, during theinternal audit of a branch, the internal auditor suspected that some of the employees maybe supplying goods to the organization contrary to the code of conduct. The chief auditexecutive has requested that a thorough review be completed to identify the potentialemployee vendors. Of the following tests, it would be least useful to compare [List A] with[List B].[List A][List B]
A. Vendor bank account numbersEmployee bank account numbers
B. Dates of payments to vendorsDates of salary payments to employees
C. Addresses of vendors from the vendor databaseAddresses of employees from the employee database
D .Vendor namesEmployee names
ANSWER : B
According to IIA guidance, which of the following are benefits to the internal audit activity when conducting an assurance mapping exercise?
A. Identification of gaps in risk coverage, and minimization of duplicate assurance efforts.
B. Identification of gaps in risk coverage, and consolidation of risk reporting efforts.
C. Resolution of identified testing errors, and miminization of duplicate assurance efforts.
D. Resolution of identified testing errors, and consolidation of risk reporting efforts.
ANSWER : A
Which of the following would be the most important reason for the chief audit executive (CAE) to use inputs from management strategy to update the audit universe?
A. The audit charter requires the CAE to update the audit universe before embarking on
the selection of potential audit engagements.
B. The CAE wants to consider the organization's strategic plan including attitude toward
risk and the degree of difficulty to achieving planned objectives
C. The CAE wants to cover management planned activities for the upcoming year in the
audit plan.
D. The CAE
D. The CAE wants to determine internal audit resourcing requirements to cover the
organization's major processes and activities over time.
ANSWER : B
According to IIA guidance, which of the following is the least appropriate role for the internal audit activity in the organization's risk management program?
A. Conducting full investigations of suspected fraud.
B. Monitoring the organization's whistle-blower hotline.
C. Assessing the risk of fraudulent activity in the organization.
D. Providing ethics training sessions to organization staff.
ANSWER : C
In performance auditing, which of the following must first be determined by the internal auditor?
A. Which key performance indicators are in use.
B. Management's objectives for the process.
C. Whether management controls are appropriate.
D. Determination that appropriate benchmarks are in place.
ANSWER : B
According to the Standards, which of the following best describes what must be agreed upon to establish an understanding with clients prior to starting a consulting engagement?
A. The engagement objectives, access to clients records, and expectations.
B. The engagement objectives, scope, and time frame to complete the engagement.
C. The engagement scope, opportunities for making significant improvements, and client
expectations.
D. The engagement objectives, scope, respective responsibilities, and other client
expectations
ANSWER : D
While developing a risk based audit plan, which of the following sources of information would provide the least value to the chief audit executive?
A. Results from the organization's business process management program.
B. User acceptance testing of the organization's enterprise resource planning application.
C. Risk assessments conducted by the board.
D. Key business strategies adopted by the organization in the strategic plan.
ANSWER : B
Which of the following controls in a computerized consumer loan system of a major bank would be the least effective in detecting a fraudulent loan?
A. All log-in accounts become inaccessible after three incorrect password attempts.
B. Loan approvals over a pre-determined limit must have management approval.
C. Customer information is matched to payment data prior to funds disbursement.
D. System controls prevent supervisors from delegating their approval authority during
vacation periods.
ANSWER : A
During an audit of an ethics program, which of the following procedures are most appropriate to evaluate the effectiveness of the program? • Testing whether corrective actions taken on involved parties breaching the ethics program are adequate. • Testing whether all employees are mandated through policy to comply with the ethics program. • Testing whether all employees are required to confirm in writing their compliance with the ethics program. • Testing through surveys employee's level of understanding and commitment to the ethics program.
A. 1 and 2 only
B. 1 and 4 only
C. 2 and 3 only
D. 3 and 4 only
ANSWER : B
During an audit, an employee, who does not want to be identified, offers to provide information that would be damaging to the organization and may concern illegal activities. Which of the following actions by the auditor would not be consistent with the IIA Code of Ethics and Standards?
A. Promising to maintain the employee's anonymity and listening to the information.
B. Suggesting that the employee consider talking to legal counsel.
C. Informing the employee that an attempt will be made to keep the source of the information confidential while looking into the matter further.
D. Informing the employee of other methods of communicating this type of information.
ANSWER : A
A report prepared by the internal audit activity contains several observations that disclose proprietary information regarding the organization's manufacturing process. According to the International Professional Practices Framework, which of the following is the appropriate treatment for this report?
A. Distribute the report only to the board to protect disclosure.
B. Disclose and distribute this information in a separate report.
C. Remove the observations and report verbally to senior management.
D. Require a separate non-disclosure statement from each recipient.
ANSWER : B
A staff auditor, nearly finished with an audit engagement, discovers that the director of marketing has a gambling habit. The gambling issue is not directly related to the existing
engagement and there is pressure to complete the current engagement. The auditor notes
the problem and forwards the information to the chief audit executive but performs no
further follow-up. The auditor's actions woulD.
I.
Be in violation of the IIA Code of Ethics for withholding meaningful information.
II.
Be in violation of the Standards because the auditor did not properly follow up on a red flag
that might indicate the existence of fraud.
III.
Not be in violation of either the IIA Code of Ethics or Standards.
A. I only
B. II only
C. III only
D. I and II only
ANSWER : C
The most effective procedure to verify compliance with a requirement that materials be purchased from the lowest-priced source is to compare:
A. Prices paid for selected materials with prices listed on related purchase orders.
B. Bids obtained for selected purchases with related purchase orders.
C. Vendors' current prices with prices listed on related purchase orders.
D. Approved vendor lists with bids obtained for selected purchases.
ANSWER : B
The chief audit executive (CAE) notes during review of the final report of an assurance engagement that management has decided to accept the risks of two significant exposures identified by the audit. Which of the following actions by the CAE would be least prudent in these circumstances?
A. Implement follow-up procedures to monitor the potential impact of those risks.
B. Review the working papers and conclusions as to the perceived residual risk.
C. Meet with senior management to consider their reasoning for the decision.
D. Meet with the auditor-in-charge to review the conclusions.
ANSWER : A
According to the Standards, which of the following objectives is not required to ensure the appropriate completion of an engagement?
A. Determining audit team members are coordinated to ensure the efficient execution of all engagement procedures.
B. Confirming engagement working papers properly support the observations, recommendations and conclusions.
C. Providing structured learning opportunities for engagement auditors when and wherever possible.
D. Ensuring all engagement objectives are reviewed for satisfactory achievement and properly documented.
ANSWER : C
A chief audit executive (CAE) is evaluating four potential audit engagements based on the
following factors: the engagement's ability to reduce risk to the organization, the
engagement's ability to save the organization money, and the extent of change in the area
since the last engagement. The CAE has scored the engagements for each factor from low
to high, assigned points, and calculated an overall ranking. The results are shown below
with the points in parentheses:Risk ReductionCost SavingsChangesHigh (3)Medium (2)Low (1)High (3)Low (1)High (3)Low (1)High (3)Medium (2)Medium (2)Medium (2)High (3)
If the organization has asked the CAE to consider the cost savings factor to be twice as
important as any other factor, which engagements should the CAE pursue?
A. 1 and 2 only
B. 1 and 3 only
C. 2 and 4 only
D. 3 and 4 only
ANSWER : D
A major insurance company provides a discount on automobile insurance if the vehicle meets certain safety criteria. Which of the following audit tests would provide an internal auditor with the best evidence that all qualifying insured automobiles are receiving the discount?
A. Compare the percentage of automobiles receiving discounts this year to that of last year.
B. Ask managers whether they are aware of the discount criteria and whether they are providing the discount to all qualifying automobiles.
C. Select a sample of automobiles that are not receiving the discount and determine if they have been properly excluded.
D. Select a sample of automobiles receiving the discount and determine that the required discount criteria are being met.
ANSWER : C
In addition to the internal auditor, which of the following parties should be present at an exitor closing conference?1. Audit committee members.2. The external auditor.3. The management responsible for the areas covered by the engagement.4. The chief executive officer.
A. 2 only
B. 3 only
C. 3 and 4 only
D. 1, 3, and 4 only
ANSWER : B
Cross-referencing individual payroll time cards to personnel department records and reports would allow an internal auditor to determine whether:
A. Individuals are bona fide employees.
B. Personnel department records agree with payroll accounting records.
C. Individuals were paid at the proper rates.
D. Individuals were paid only for time worked.
ANSWER : A
The internal audit activity of an organization obtained approval to add a senior auditor to its staff. The chief audit executive, audit manager, and audit supervisor each will interview the candidates. According to the Standards, which of the following best explains the involvement of management in the interview process?
A. Provides audit management with the opportunity to communicate expectations regarding ethical behavior standards.
B. Enables audit management to outline its quality assurance and improvement program with the senior auditor.
C. Assists audit management in planning by more effectively allocating the senior auditor to appropriate audits.
D. Allows audit management to explain the criteria that will be used to evaluate the senior auditor's performance.
ANSWER : C
Reviewing internal audit report drafts with clients is:1. Required according to the Standards.2. A form of courtesy.3. Ethically mandated.4. A form of validation
A. 1 and 2 only
B. 2 and 3 only
C. 2 and 4 only
D. 3 and 4 only
ANSWER : C
Which of the following actions has the least influence on the chief audit executive's development of an audit plan?
A. Input from senior management and the board.
B. An evaluation of the complexity of each audit engagement.
C. Changes in the organizations structure or budget.
D. An assessment of risk and exposures affecting the organization.
ANSWER : B
An organization has adopted an enterprise-wide risk management process and has appointed a chief risk officer (CRO) to manage the process. The board has requested that the audit committee have oversight over the risk management function. Which of the following statements is not true regarding this situation?
A. The audit committee should get assurance on the adequacy and effectiveness of the
risk management process from the CRO.
B. The chief audit executive has the mandate to conduct risk assessments and give
assurance to the audit committee.
C. The audit committee, on behalf of the board, has overall responsibility for the risk
management process in the organization.
D. Senior management is accountable to the board for monitoring the system of internal
controls.
ANSWER : A
Which of the following factors would not be considered in determining appropriate follow-up procedures?
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.
ANSWER : C
When planning an audit engagement, what should an internal auditor first consider when assessing the risk of fraud in the area to be audited?
A. Impact of and exposure to fraud.
B. Existence of evidence of fraud.
C. Organizational structure.
D. Management's risk appetite.
ANSWER : A
According to the Standards, which of the following is applicable to the internal audit activity's quality assurance and improvement program?
A. Periodic monitoring of the internal audit activity should be done.B. All aspects of the internal audit activity should be evaluated.
B. All aspects of the internal audit activity should be evaluated.
C. An external assessment should be obtained every three years.
D. The review of assurance services should be the primary focus.
ANSWER : B
An internal auditor noticed that employees with responsibilities for cash collection had recently issued an unusually large number of credit memos, indicating that the original charges had been made to the wrong customer accounts. From a control standpoint, the auditor would be concerned with the possibility that:
A. The organization is selling a large number of defective items.
B. Employees in this function are concealing a theft of cash collected from customers.
C. Credit memos are not being submitted on a timely basis.
D. The credit department has not been properly screening customers and, as a result, a large portion of the accounts receivable may not be collectible.
ANSWER : B
An internal auditor compared the number of human resources professionals per employee with industry standards. This comparison would assist the auditor in evaluating which of the following areas?
A. Sufficiency of controls over payroll rate increases.
B. Current level of performance of the human resources department.
C. Adequacy of controls over hiring new employees.
D. Degree of compliance with human resources policies.
ANSWER : B
Ordinarily, which of the following would not be an objective of an internal audit quality assurance review?
A. Ensuring that the internal audit activity meets the external auditor's expectations.
B. Ensuring that the internal audit activity has an audit charter approved by the board of
directors
C. Complying with specific standards for the professional practice of internal auditing.
D. Ensuring the adequacy of the goals, mission and vision of the internal audit activity.
ANSWER : A
Which of the following actions is related to the preliminary survey process?
A. Determining if controls are effective.
B. Preparing the engagement work program.
C. Identifying the current controls.
D. Completing a detailed test of controls.
ANSWER : C
In advance of a preliminary survey, a chief audit executive sends a memorandum and questionnaire to the supervisors of the department to be audited. What is the most likely result of that procedure?
A. It creates apprehension about the audit engagement.
B. It involves the engagement client's supervisory personnel in the audit.
C. It is an uneconomical approach to obtaining information.
D. It is only useful for audits of distant locations.
ANSWER : B
What is the most likely source of information for a detailed schedule of a company's insurance policies in force?
A. Original journal entries found in the cash disbursements journal, along with supporting checks processed by the bank.
B. Policies and procedures governing insurance coverage.
C. The current fiscal year's budget for insurance, together with the beginning balance of the prepaid insurance account.
D. The files containing insurance policies with various carriers.
ANSWER : D
Which of the following tasks is typically performed in the analysis phase of a benchmarking consulting engagement?
A. Identifying business capabilities.
B. Developing data collection tools.
C. Determining benchmarked process attributes.
D. Determining sample size.
ANSWER : C
An organization has recently incurred significant cost overruns on one of its construction
projects. Management suspects that these overruns were caused by the contractor
improperly charging for costs related to contract change orders. Which of the following
procedures are appropriate for testing this suspicion?
1. Determine if the contractor has received proper approval of change orders from
management.
2. Determine if the contractor has billed for original contract work cancelled by the change
orders.
3. Determine if the contractor has charged change orders with costs already billed to the
original contract.
4. Determine if the contractor has been paid for change orders that have not yet been
completed.
A. 1 and 2 only
B. 1 and 3 only
C. 2 and 3 only
D. 3 and 4 only
ANSWER : C
After becoming aware of control weaknesses indicating that a fraud could have been committed, which of the following actions should an internal auditor take next?
A. Issue a written report identifying the control weaknesses.
B. Perform tests directed toward the identification of other fraud indicators.
C. Notify external auditors of the suspicion that fraud has been committed.
D. Recommend that a fraud investigation be conducted involving internal auditors, lawyers, investigators, security personnel, and other specialists, as appropriate.
ANSWER : B
Which of the following would most likely include recommendations for processimprovements?• Due diligence engagement. • Forensic investigation.• Internal audit engagement.• Consulting engagement.
A. 1, 2, and 3 only
B. 1, 2, and 4 only
C. 1, 3, and 4 only
D. 2, 3, and 4 only
ANSWER : D
Which of the following best describes the primary concern of the audit manager upon review of engagement working papers of an auditor?
A. To ensure adequate control over the custody of working papers is exercised by the auditor.
B. To ensure that as part of the documentation the auditor collected original documents that can corroborate the audit findings.
C. To ensure that the work papers create background for subsequent reviews.
D. To ensure that the audit programs are followed by the auditor.
ANSWER : D
Which of the following would have the least impact (either positive or negative) on an assessment of a department's control environment?
A. The department managed long-term investments, including investment in derivatives and other financial instruments, to maximize return.
B. The department manager sets a tone of honesty and integrity in all business dealings and this tone is emulated by department personnel.
C. Many department functions were duplicated or verified by other department employees as part of the department's normal procedures.
D. Audit tests designed to verify compliance with control procedures detected a general failure to follow standard procedures for transaction authorization.
ANSWER : A
During an engagement, an internal auditor discovered that an organization’s policy on delegation of authority listed six individuals who were no longer employed with the organization. In addition, four individuals acting with disbursement authority were not identified in the policy as having such authority. Which of the following is the most effective course of action to address the control weakness?
A. Immediately initiate a complete audit of the disbursement function to determine if
significant frauds have occurred.
B. Recommend that management review the process supporting the policy and make improvements.
C. Advise management to add the four additional names and remove the incorrect names from the policy to make it current.
D. Review further to ensure that the four individuals do not have the appropriate authority through delegation.
ANSWER : B
An organization has developed a large database that tracks employees, employee benefits, payroll deductions, job classifications, and other similar information. The internal auditor reviews the retirement benefits plan and determines that the pension and medical benefits have been changed several times in the past ten years. The auditor wishes to determine whether there is justification to perform further audit investigation. The most appropriate audit procedure would be to:
A. Review the trend of overall retirement expense over the last ten years. If the retirement expense increased, it would indicate the need for further investigation.
B. Use generalized audit software to select a monetary-unit sample of retirement pay, and determine whether each retired employee was paid correctly.
C. Review reasonableness of retirement pay and medical expenses on a per-person basis stratified by which plan was in effect when the employee retired.
D. Use generalized audit software to select an attributes sample of retirement pay, and perform detailed testing to determine whether each person chosen was given the proper benefits.
ANSWER : C
Which of the following data sources would provide the least valid data for an audit of a retail store's customer service?
A. A graph that compares staffing levels for selected times with store traffic (number of customers) over the same time period.
B. A random survey of customer satisfaction given to customers as they leave the store.
C. Interviews of randomly selected service personnel regarding the quality of service that they provide.
D. A graph of customer service training across stores, comparing training with overall levels of service satisfaction.
ANSWER : C
In evaluating the validity of different types of audit evidence, which of the following conclusions is not correct?
A. Recomputation, though highly valid, is limited in usefulness due to its limited scope.
B. The validity of documentary evidence is independent of the effectiveness of the control system in which it was created.
C. Internally created documentary evidence is considered less valid than externally created documentary evidence.
D. The validity of confirmations varies directly with the independence of the party receiving the confirmation.
ANSWER : B
An auditor evaluating excessive product rejection rates should investigatE.I. Communication between sales and production departments on sales returns.II. Volume of product sales year-to-date in comparison to prior year-to-date.III. Changes in credit ratings of customers versus sales to those customers.IV. Detailed product scrap accounts and accumulations.
A. I and III only
B. I and IV only
C. II, III, and IV only
D. I, II, III, and IV.
ANSWER : B
Production managers for a manufacturing company are authorized to prepare emergency purchase orders for raw materials. These manually prepared orders do not go through the purchasing department and do not require a receiving report. The managers forward the invoice and purchase order to the accounting department for payment. Which of the following internal controls would efficiently prevent abuse of this system?
A. Institute a company policy requiring rotation of orders among several suppliers.
B. Require a manual receiving report from the warehouse prior to payment.
C. Forbid the use of emergency purchase orders.
D. Review the level of safety stock.
ANSWER : B
Which of the following statements is true?
A. If management chooses not to take action on internal audit's assurance engagement
observation, the chief audit executive (CAE) has a responsibility to propose an action plan
to the board.
B. Internal audit's responsibility for an assurance engagement observation ends when
management implements changes to remediate the observation.
C. When management decides to accept the risk of not taking action on an assurance
observation, the (CAE) is responsible for judging whether or not that decision is prudent.
D. An assurance engagement observation is considered remediated when management's
corrective action plan is approved by the board.
ANSWER : C
While performing a follow-up of a concern about equipment-inventory tracking, which course of action is not necessary for the auditor to take?
A. Ensure that the steps being taken resolve the condition disclosed by the initial finding.
B. Ensure that controls have been implemented to prevent the issue from occurring again.
C. Ensure that the entity has begun to experience benefits as a result of resolving the issue.
D. Ensure that the inherent risk has been eliminated as a result of resolving the issue.
ANSWER : D
When performing a compliance audit of the organization’s outsourced services, which of the following is considered the primary engagement objective?
A. Verifying that the organization does not have the appropriate knowledge and resources in-house.
B. Ensuring the provider has adequate internal controls in order to protect the quality of their service.
C. Evaluating the efficiency, effectiveness, economy, and sufficiency of the services provided.
D. Assessing the provider's adherence to contract and regulatory requirements.
ANSWER : D
Audit supervision includes approval of the engagement report in order to ensure that:
A. The client's objectives are met.
B. Senior management supports the report's conclusions.
C. Report style and grammar are appropriate.
D. Report findings are substantiated.
ANSWER : D
Which of the following types of sampling techniques should an internal auditor use when testing the effectiveness of internal controls?
A. Mean-per-unit sampling.
B. Attributes sampling.
C. Variables sampling.
D. Dollar-unit sampling.
ANSWER : B
Which of the following would be a legitimate action for the internal auditor to take whenmonitoring audit engagement results?1. Disregard a certain risk because management and the board accepted the risk in thepast.2. Abdicate the responsibility for a particular risk because it is not part of the audit plan.3. Obtain agreement from senior management that unresolved audit issues will be reportedto the board. Request corrective action from management in writing.
A. 1 and 3 only
B. 2 and 3 only
C. 3 and 4 only
D. 1, 2, and 4 only
ANSWER : C
Which of the following types of contracts would provide the least incentive for a contractor to achieve economy and efficiency?
A. Lump-sum contract.
B. Cost-plus contract.
C. Unit-price contract.
D. Indefinite delivery contract.
ANSWER : B
Which of the following risks assumes an absence of compensating controls in the area being reviewed?
A. Control risk.
B. Detection risk.
C. Inherent risk.
D. Sampling risk
ANSWER : C
An audit engagement objective at a manufacturer is to determine the quality of raw materials purchased. Which of the following actions would best enable an internal auditor to satisfy this objective?
A. Analyze the provision for sales allowances.
B. Analyze the percentage of scrap incurred during production.
C. Research the rationale for customer returns.
D. Evaluate the volume and characteristics of products rejected during processing.
ANSWER : D
The chief audit executive (CAE) of a multinational entity with highly automated and complex operations has just completed the update of the risk-based audit plan. Interviews with management revealed the introduction of new technology and a significant increase in both the number and severity of technology-based risk exposures. According to the International Professional Practices Framework, which of the following would be the best course of action for the CAE to undertake next?
A. Develop a detailed audit plan that makes the most efficient use and reallocation of
existing internal audit resources.
B. Arrange for the outsourcing of some technology intensive audit processes and procedures based on the plan changes.
C. Evaluate whether appropriate skills and knowledge required to perform the necessary audit work currently exist in the department.
D. Begin planning to recruit information technology audit specialists and other expert personnel into the internal audit activity.
ANSWER : C
Persuasive evidence indicates that a member of senior management has been involved in insider trading that would be considered fraudulent. However, the evidence was encountered during an operational audit and is not considered relevant to the audit. Which of the following is the most appropriate action for the chief audit executive to take?
A. Report the evidence to external legal counsel for investigation. Report the legal counsel findings to management.
B. Report the evidence to the chairperson of the audit committee and recommend an investigation.
C. Conduct sufficient audit work to conclude whether fraudulent activity has taken place, then report the findings to the chairperson of the audit committee and to government officials if appropriate action is not taken.
D. Discontinue audit work associated with the insider trading since it is not relevant to the existing audit.
ANSWER : B
Because of a new marketing initiative, an organization has reduced requirements for extending credit to new customers. As a result, outstanding accounts receivable as a percentage of revenue has increased significantly during the past two years. Which of the following would be least useful in monitoring this finding?
A. Updates from the manager of accounts receivable regarding collection of outstanding receivables.
B. Updates from the information technology division regarding development of a new accounts receivable system.
C. Updates from the controller regarding the status of corrective actions.
D. Updates from the credit and marketing personnel tasked with reevaluating credit policies.
ANSWER : B
Which of the following would most likely contribute to discrepancies between receiving reports and the number of units in a shipment?
A. Failing to compare the quality of goods received with specifications.
B. Using inadequate vendor selection procedures.
C. Accepting improper authorization for purchases.
D. Indicating the quantities ordered on the receiving department's copy of the purchase order.
ANSWER : D
The chief audit executive (CAE) notes that management has adopted the option of not taking action on an audit issue involving a sizeable risk which has been accepted in the past. Which would be an appropriate action by the CAE?
A. Close the issue by noting that follow-up will be completed as part of the next
engagement.
B. Discuss the matter with management to determine a resolution.
C. Accept management's decision as the same risk has been accepted in the past.
D. Report the situation to the board for immediate resolution.
ANSWER : B
A bank uses a risk analysis matrix to quantify the relative risk of auditable entities. The analysis involves rating auditable entities on risk factors using a scale of 1 to 10, with 10 representing the greatest risk. A partial list of risk factors and the ratings given to three of the bank's departments is provided below:_Pic_1.PNG)
Which of the following statements regarding risk in the department is true?
A. As compared to departments A and C, department B has a stronger control system to compensate for the greater complexity of the department's transactions and dollar value of its assets.
B. The internal audit activity should schedule audits of department B more often than audits of department C because of the relative control strength of department C as compared to department B.
C. The nature of department A's control structure may be justified by the nature of the department's assets and the complexity of its transactions.
D. The relative ranking of the departments in order of their risk, from greatest to least risk, is: A; C; B.
ANSWER : C
What type of analysis is performed when an auditor tests for unusual variations in information by comparing the number of employees working at a factory site with the direct cost of production each month over a period of one year?
A. Trend analysis.
B. Ratio analysis.
C. Regression analysis.
D. Horizontal analysis.
ANSWER : C
An internal auditor has been assigned to perform a quality audit on a manufacturing plant. Which course of action should the auditor perform first?
A. Compare the planned outputs with the actual outputs.
B. Ascertain the costs of materials purchased.
C. Evaluate the plant's ability to meet production quotas.
D. Review the levels of scrap and rework.
ANSWER : D
Which of the following is least likely to vary when conducting audit engagements in different regions of an international organization?
A. Application of governmental regulations to business activities.
B. Work schedules and holidays of the individual regions.
C. Level of workpaper documentation needed to support audit observations.
D. Availability of technology and technical support.
ANSWER : C
Which of the following would be the least desirable criteria against which to judge current operations of an organization's treasury function?
A. The operations of the treasury function as documented during the last audit engagement.
B. Company policies and procedures delegating authority and assigning responsibilities.
C. Finance textbook illustrations of generally accepted good treasury function practices.
D. Codification of best practices of the treasury function in relevant industries.
ANSWER : A
An internal auditor notices that a division has recorded uncharacteristically high sales and gross margins for the past three months and now suspects the division is reporting fictitious sales. Which course of action should the auditor follow to determine whether fraud has occurred?
A. Trace a sample of shipping documents to related sales invoices to verify proper billing.
B. Send accounts receivable balance confirmations to customers.
C. Compare the division's sales and gross margins to those of the prior three-month period.
D. Estimate the sales and cost of goods sold for the three-month period by using regression analysis.
ANSWER : B
Which of the following is not likely to be included as an audit step when assessing vendor performance policies?
A. Determine whether agreed-upon lot sizes were sent by vendors.
B. Determine whether only authorized items were received from vendors.
C. Determine whether the balances owed to vendors are correct.
D. Determine whether the quality of the goods purchased from the vendors has been satisfactory.
ANSWER : C
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