Question 1

Which of the following would be the best audit procedure to use to determine if a division's unusually high sales and gross margin for November and December were the result of fraudulently recorded sales?

Accepted Answer

A)  Trace a sample of shipping documents to related sales invoices to verify proper billing. 
B)  Confirm accounts receivable balances with customers. 
C)  Compare sales and gross margin totals with those of the previous ten months and the first month of the following year. 
D)  Use regression analysis techniques to estimate the sales and cost of goods sold for November and December.

Question 2

Five brand managers in a consumer products company met to determine how well certain promotions had performed. The data that they needed to analyze consisted of approximately 50 gigabytes of daily point-of-sale (POS) data for each month. The brand managers tried to download the POS data from the mainframe and import it into microcomputer spreadsheets for analysis. Their efforts were unsuccessful, most likely because of:

Accepted Answer

A)  The complexity of the mainframe data structure and the large volume of data. 
B)  The difficulty of establishing access privileges for each subset of the mainframe data. 
C)  Inconsistencies in the mainframe data due to lack of integrity constraints on the data files. 
D)  Error-prone transmission links for downloading the data from the mainframe data files.

Question 3

When interviewing an individual suspected of fraud, what type of questions would be asked after the introductory questions?

Accepted Answer

A)  Informational questions. 
B)  Admission-seeking questions. 
C)  Assessment questions. 
D)  Closing questions.

Question 4

In which of the following situations would it be most appropriate to employ the services of a forensic specialist?

Accepted Answer

A)  Detection of unauthorized changes to source documents. 
B)  Review for misapplication of general computer controls over accounts receivable. 
C)  Investigation of ghost employees in a large business. 
D)  Verification of fixed assets in a manufacturing company.

Question 5

A company's cellular phone costs vary significantly by sales representative and by month. Which of the following would be the most appropriate approach for a consulting project concerning this issue?

Accepted Answer

A)  Control self-assessment involving sales representatives. 
B)  Benchmarking with other cellular phone users. 
C)  Business process review of cellular phone needs. 
D)  Performance measurement and design of the budgeting process.

Question 6

Company A has a formal comprehensive corporate code of ethics while company B does not. Which of the following statements regarding the existence of the code of ethics in company A can be logically inferred?

Accepted Answer

A)  l.Company A exhibits a higher standard of ethical behavior than does company B 
II. Company A has established objective criteria by which an employee's actions can be evaluated. 
III. The absence of a formal corporate code of ethics in company B would prevent a successful audit of ethical behavior in that company. 
B)  II only 
C)  III only 
D)  I and II only 
E)  II and III only

Question 7

According to the International Professional Practices Framework, which of the following is not an objective of the exit conference?

Accepted Answer

A)  Receive client feedback and clarification. 
B)  Review audit recommendations. 
C)  Plan future engagements. 
D)  Resolve disagreements.

Question 8

Which of the following is the best problem-solving technique to use when analyzing performance and cost?

Accepted Answer

A)  Value analysis. 
B)  Attribute listing. 
C)  Brainstorming. 
D)  Component analysis.

Question 9

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.

Accepted Answer

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

Question 10

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 Reduction Cost Savings Changes High (3) Medium (2) Low (1) 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?

Accepted Answer

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

Question 11

When setting the scope for the identification and assessment of key risks and controls in a process, which of the following would be the least appropriate approach?

Accepted Answer

A)  Develop the scope of the audit based on a bottom-up perspective to ensure that all business objectives are considered. 
B)  Develop the scope of the audit to include controls that are necessary to manage risk associated with a critical business objective. 
C)  Specify that the auditors need to assess only key controls, but may include an assessment of non-key controls if there is value to the business in providing such assurance. 
D)  Ensure the audit includes an assessment of manual and automated controls to determine whether business risks are effectively managed.

Question 12

What decision-making approach should a facilitator initiate if a group addresses an unfamiliar situation during a control self-assessment session?

Accepted Answer

A)  Spontaneous agreement. 
B)  Consensus building. 
C)  Majority voting. 
D)  Compromise.

Question 13

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:

Accepted Answer

A)  A design review. 
B)  An application control review. 
C)  A source code review. 
D)  An access control review.

Question 14

Which of the following would be the least important reason for a company to merge with another company?

Accepted Answer

A)  To diversify risk. 
B)  As a response to new government policy. 
C)  To reduce labor costs. 
D)  To increase stock prices.

Question 15

Which of the following would be the most effective method to prevent installation of new equipment that does not meet environmental permit requirements, or to prevent modification of current processes in such a way that they no longer meet permit requirements?

Accepted Answer

A)  Require that the environmental compliance department perform regular inspections of the manufacturing facility to identify new equipment or process modifications in progress. 
B)  Rely on annual inspections by various regulatory agencies to identify equipment or processes that require a permit. 
C)  Require that the staff of the environmental compliance department attend monthly safety meetings in different parts of the facility so that they can hear directly from the workers about any changes. 
D)  Include the environmental compliance department in the review of proposed process changes and equipment purchases affecting permit requirements.

Question 16

According to the Standards, which of the following objectives is not required to ensure the appropriate completion of an engagement?

Accepted Answer

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.

Question 17

Which of the following is true of engagement recommendations?

Accepted Answer

A)  Specific suggestions for implementation must be included. II. The internal auditor's observations and conclusions may serve as the basis. III. Actions to correct existing conditions or improve operations may be included. IV. Approaches to correcting or enhancing performance may be suggested. 
B)  I only 
C)  III only 
D)  I, III, and IV only 
E)  II, III, and IV only

Question 18

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:

Accepted Answer

A)  The cost of audit involvement can be minimized. 
B)  There are clearly defined points at which to issue audit comments. 
C)  Redesign costs can be minimized. 
D)  The threat of lack of audit independence can be minimized.

Question 19

Which of the following statements describes an engagement planning best practice?

Accepted Answer

A)  It is best to determine planning activities on a case-by-case basis because they can vary widely from engagement to engagement. 
B)  If the engagement subject matter is not unique, it is not necessary to outline specific testing procedures during the planning phase. 
C)  The engagement plan includes the expected distribution of the audit results, which should be kept confidential until the audit report is final. 
D)  Engagement planning activities include setting engagement objectives that align with audit client's business objectives.

Question 20

During an audit of executive travel, an auditor noted that the president's travel expense reimbursements were approved by an executive secretary who reported to the president. The organization's reimbursement policy requires all travel expense reimbursements to be approved by the traveler's supervisor, but it does not address the president's reimbursements. Which of the following represents the auditor's best recommendation in this situation?

Accepted Answer

A)  The organization's reimbursement policy should be amended to grant the president's executive secretary the authority to approve the president's travel expense reimbursements. 
B)  The approval policy for executive travel should be considered at the next meeting of the audit committee of the board of directors. 
C)  The president's travel expense reimbursements should be reviewed and approved by the chief financial officer. 
D)  The president's noncompliance should be considered immaterial.

Exam 4: Conducting the Internal Audit Engagement