A manufacturing organization is considering a merger with a similar firm, and requests that the chief audit executive (CAE) perform a due diligence audit. During the preliminary survey, the CAE notes that inventory management is a high risk area. In consultation with the external auditors and legal advisors, the CAE learns that they share those concerns. Which of the following is the CAE's best course of action?
According to IIA guidance, which of the following strategies would be the least effective in helping a chief audit executive build a stronger relationship with the board?
According to the International Professional Practices Framework, which of the following is correct regarding conducting and reporting follow-up activities by the internal audit activity (IAA)?
During the audit of a large decentralized supply chain function, the chief audit executive (CAE) receives serious allegations of fraud concerning the vice president responsible for this function. The CAE engages a third party to provide forensic audit services and lead the investigation portion of the engagement. As part of this team, which of the following would be an appropriate role for the investigator?
1. Authenticate the original approval signatures on contracts.
2. Interview personnel to understand the supply chain processes.
3. Provide certified copies of relevant original documents for the audit file.
4. Identify variances in pixels on original electronic documents.
According to the International Professional Practices Framework, which of the following situations is an indicator of a healthy relationship between the audit committee and the internal audit function?
According to the International Professional Practices Framework, which of the following would not be considered when performing an initial risk assessment in engagement planning?
Which of the following documents should the chief audit executive review and approve?
1. Workpaper retention policy.
2. Audit committee meeting minutes.
3. Internal audit handbook.
4. Quarterly financial statements.
Which of the following is correct with respect to roles within an enterprise-wide risk management process?
1. The board provides oversight to the risk management process.
2. Executive management owns the risk management framework.
3. Senior management is assigned ownership of risks.
4. Internal audit modifies the risk assessment determined by management.
Which of the following conditions should a chief audit executive take into account when deciding 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.
Which of the following is a preventive control strategy against fraud?
According to IIA guidance, which of the following are potential benefits of using an assurance map?
The following audit observation was included in the final audit report:
"Our review concluded that bank reconciliation statements for March and April did not show evidence of supervisory review. We recommend strict compliance with the controller's manual, which requires the department head to place their initials on the reconciliation statements to document their review."
Which of the following attributes are missing from the above audit observation?
1. Criteria.
2. Condition.
3. Cause.
4. Effect.
Which of the following would most likely include recommendations for process improvements?
• Due diligence engagement.
• Forensic investigation.
• Internal audit engagement.
• Consulting engagement.
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?
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?
Which of the following statements is true?
The chief audit executive of a large publicly held bank is using a risk based approach to update the annual audit plan. Which of the following sources of information will have the least impact on the plan?
The chief audit executive (CAE) is adding a new audit position to the team. According to the International Professional Practices Framework, which of the following candidates would the CAE be least likely to accept for the position?
A company owns a machine that will produce 100 light switches in four hours. Due to increased demand, a second machine capable of producing 100 light switches in three hours has been added.
Approximately how many hours will it take to produce 100 light switches using both machines working together?
One method for dealing with the uncertainty of demand forecasts used in linear programming is to extend the model solution to include.
A post-audit questionnaire sent to audit clients is an effective mechanism for:
Which of the following conclusions would be appropriate for a beginning auditor performing an audit of a payroll department?
Which of the following must an auditor establish in order to demonstrate that fraud has occurred?
Which of the following activities would be performed during a benchmarking consulting engagement?
I. Collect data relevant to the benchmarking process.
II. Review all business processes.
III. Define critical success factors.
IV. Identify performance gaps.
The internal audit activity can be involved with systems development continuously, immediately prior to implementation, after implementation, or not at all. An advantage of continuous internal audit involvement compared to the other types of involvement is that:
A recent survey indicated that residents of a small town take the train to a nearby city eight times per month, on average. The same survey showed that the number of train trips that a resident takes per month (y) is determined by the number of days per month that the resident works in the nearby city (x), according to the equation: y = 2 + 2x. A person who never works in the nearby city is expected to take the train:
Which of the following factors is least essential to a successful control self-assessment workshop?
Which of the following best defines an audit opinion?
During a systems development audit, software developers indicated that all programs were moved from the development environment to the production environment and then tested in the production environment. What should the auditor recommend?
I. Implement a test environment to ensure that testing is not performed in the production environment.
II. Require developers to move modified programs from the development environment to the test environment and from the test environment to the production environment.
III. Eliminate access by developers to the production environment.
In preparing to facilitate a control self-assessment session, an auditor would be least likely to ensure that:
Which of the following is the most appropriate step for the chief audit executive to take in order to avoid defamation of character of the principal suspect in a fraud investigation?
In response to an accounts receivable confirmation, a customer indicated that the invoice listed on the confirmation letter had been paid two months earlier.
This may indicate that:
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.
The following are potential sources of evidence regarding the effectiveness of a division's total quality management program. The least persuasive evidence would be a comparison oF.
A bank is developing an integrated customer information system. The type of audit involvement that would most likely help avoid implementation of a system that does not cover all types of accounts would be:
An audit of a company's accounts payable found that the individuals responsible for maintaining the vendor master file could also enter vendor invoices into the accounts payable system. During the exit conference, management agreed to correct this problem. When performing a follow-up engagement of accounts payable, the auditor should expect to find that management has:
An auditor-in-charge is preparing her audit team for a consulting engagement at one of the organization's foreign subsidiaries. According to the Standards, which of the following would not be a necessary step prior to beginning the engagement?
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?
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?
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?
An internal auditor has completed an audit of an organization's activities and is ready to issue a report. However, the client disagrees with the internal auditor's conclusions. The auditor should:
The chief audit executive's responsibility regarding control processes includes:
When interviewing an individual in relation to a fraud investigation, which course of action should the internal auditor follow?
Which of the following is an advantage of an interim report?
I.
An interim report provides timely feedback to the audit engagement client.
II.
An interim report provides a mechanism for communicating information on red flags promptly while they are being investigated.
III.
An interim report provides an opportunity for auditor follow-up of findings before the engagement is completed.
IV.
An interim report increases the probability that corrective action will be initiated more quickly.
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?
The most effective procedure to verify compliance with a requirement that materials be purchased from the lowest-priced source is to compare:
Which of the following factors would not be considered in determining appropriate follow-up procedures?
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?
What is the most likely source of information for a detailed schedule of a company's insurance policies in force?
An internal auditor has been assigned to perform a quality audit on a manufacturing plant. Which course of action should the auditor perform first?
Which of the following statements is correct regarding the assessment of risk in the annual audit planning process?
1. Activities requested by management should be considered higher risk than those requested by the audit committee.
2. Activities with lower budgets can be as high risk as those with higher budgets.
3. The potential financial or adverse exposure should always be considered in the assessment of risk.
Information gathered in a forensic investigation of business fraud is usually gathered with which of the following standards in mind?
According to the Standards, which of the following describes the condition attribute when applied to the observations and recommendations contained in the audit report?
Under what circumstances would internal audit not become involved when intentional misconduct is suspected?
Which of the following does not represent a difficulty in using red flags as fraud indicators?
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?
Which of the following audit procedures is most suitable for verifying that all sales transactions have been recorded?
Which of the following would provide the best evidence of compliance with an airline's standard of having aircraft refueled and cleaned within a specified time of arrival at an airport?
A company's policy requires that all customers be treated in a fair and consistent manner. Which of the following audit procedures would provide the most persuasive evidence that the policy was followed?
Which of the following will be an appropriate course of action when an auditor disagrees with a client about a well-documented audit finding?
A manufacturing process could create hazardous waste at several production stages, from raw materials handling to finished goods storage. If the objective of a pollution prevention audit engagement is to identify opportunities for minimizing waste, in what order should the following opportunities be considered?
I. Recycling and reuse.
II. Elimination at the source.
III. Energy conservation.
IV. Recovery as a usable product Treatment.
In forming a team to investigate an organization's potential adoption of an activity-based costing system, the best reason to include an internal auditor on the team would be the auditor's knowledge of:
Which of the following would provide the greatest assurance of the accuracy of a computer program's computation of freight charges for catalog sales?
A film company determined that income level impacts the number of films that people watch per month, as shown by the graph below:
The graph indicates that:
The most common motivation for management fraud is the existence of:
During an audit of a retail organization, an internal auditor found a scheme in which the warehouse director and the purchasing agent diverted approximately $500,000 of goods to their own warehouse, then sold the goods to third parties. The fraud was not found earlier since the warehouse director updated the perpetual inventory records and then forwarded receiving reports to the accounts payable department for processing. Which of the following procedures would have most likely led to the discovery of the missing materials and the fraud?
During a routine audit of a customer service hotline, an internal auditor noticed that an unusually high number of customer complaints pertained to payments not being applied to the customers' accounts.
Which of the following would most likely be the reason for the high volume of complaints?
If an organization's chief audit executive wants to implement continuous auditing, what is the appropriate order in which key steps should be undertaken?
I. Identify business applications that require access.
II. Implement steps to continuously assess risks and controls.
III. Define objectives of continuous auditing.
IV. Manage and report results.
New credit policies have been implemented in an automated order-entry system to improve the collection of receivables. Sales management has compiled several examples that show decreased sales and delayed order entry, and contends that these examples are a direct result of the new credit-policy constraints. Sales management's data and information provide.
An audit department has received anonymous information that an employee has allegedly been able to steal and cash checks sent to the organization by customers. What is the most efficient way for an auditor to determine how this type of fraud could occur and who might be the perpetrator?
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?
Which of the following, if observed, would not indicate the need to extend the search for other indicators of fraud in a purchasing department?
The chief audit executive can illustrate the value of the internal audit activity by reporting which of the following to the board?
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.
An organization has a health and safety division that conducts audits to meet regulatory requirements. The chief health and safety officer reports directly to the CEO. Which of the following describes an appropriate role for the chief audit executive (CAE) with regard to the organization's health and safety program?
The chief audit executive (CAE) of a small internal audit activity (IAA) plans to test conformance with the Standards through a quality assurance review. According to the Standards, which of the following are acceptable practice for this review?
1. Use an external service provider.
2. Conduct a self-assessment with independent validation.
3. Arrange for a review by qualified employees outside of the IAA.
4. Arrange for reciprocal peer review with another CAE.
According to IIA guidance, which of the following statements are true regarding the internal audit plan?
1. The audit plan is based on an assessment of risks to the organization.
2. The audit plan is designed to determine the effectiveness of the organization's risk management process.
3. The audit plan is developed by senior management of the organization.
4. The audit plan is aligned with the organization's goals.
To effectively communicate the acceptance of risk in an organization a chief audit executive must first consider which of the following?
Which of the followings statements describes a best practice regarding assurance engagement communication activities?
The chief audit executive (CAE) for a manufacturing company included in this year s audit plan a review of the company's laboratory, using an experienced external service provider. The audit plan was approved by the audit committee without any changes At the time of engaging the external service provider, the CAE also secured the approval from the CEO. Who is responsible for ensuring that the conclusions reached for this exercise are adequately supported7
An internal auditor completed a review of expenses related to the launch of a new project. The auditor sampled 45 transactions approved by a senior project manager and identified 30 with questionable vendor documentation. Which of the following is the most appropriate conclusion for the auditor to include in the audit report?
According to IIA guidance, which of the following is true regarding audit supervision?
1. Supervision should be performed throughout the planning, examination, evaluation, communication, and follow-up stages of the audit engagement.
2. Supervision should extend to training, time reporting, and expense control, as well as administrative matters.
3. Supervision should include review of engagement workpapers, with documented evidence of the review.
The external auditor has identified a number of production process control deficiencies involving several departments. As a result, senior management has asked the internal audit activity to complete internal control training for all related staff. According to IIA guidance, which of the following would be the most appropriate course of action for the chief audit executive to follow?
When constructing a staffing schedule for the internal audit activity (IAA), which of the following criteria are most important for the chief audit executive to consider for the effective use of audit resources?
1. The competency and qualifications of the audit staff for specific assignments.
2. The effectiveness of IAA staff performance measures.
3. The number of training hours received by staff auditors compared to the budget.
4. The geographical dispersion of audit staff across the organization.
What is the primary purpose of issuing a preliminary communication to management of the area under review?
Which of the following best describes the four components of a balanced scorecard?
The internal audit activity (IAA) wants to measure its performance related to the quality of audit recommendations. Which of the following client survey questions would best help the IAA meet this objective?
In a health care organization the internal audit activity provides overall assurance on governance, risk and control The chief audit executive advises and influences senior management, and the audit strategy leverages the organization's management of risk According to HA guidance which of the following stages of internal audit maturity best describes this organization?
A draft internal audit report that cites deficient conditions generally should be reviewed with which of the following groups?
1. The client manager and her superior.
2. Anyone who may object to the report’s validity.
3. Anyone required to take action.
4. The same individuals who receive the final report.
Which of the following actions are appropriate for the chief audit executive to perform when identifying audit resource requirements?
1. Consider employees from other operational areas as audit resources, to provide additional audit coverage in the organization.
2. Approach an external service provider to conduct internal audits on certain areas of the organization, due to a lack of skills in the organization.
3. Suggest to the audit committee that an audit of technology be deferred until staff can be trained, due to limited IT audit skills among the audit staff.
4. Communicate to senior management a summary report on the status and adequacy of audit resources.