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NEW QUESTION 54
An internal audit manager of a furniture manufacturing organization is planning an audit of the procurement process for kiln-dried wood. The procurement department maintains six procurement officers to manage 24 different suppliers used by the organization.
Which of the following controls would best mitigate the risk of employees receiving kickbacks from suppliers?
- A. A pre-award financial capacity analysis of suppliers.
- B. The periodic rotation of procurement officers' assignments to supplier accounts.
- C. Periodic inventories of kiln-dried wood at the organization's warehouse.
- D. An automated computer report,organized by supplier,of any invoices for the same amount.
Answer: B
NEW QUESTION 55
An internal auditor is conducting an engagement in the accounts payable department, which includes expressing an opinion at the micro level. According to IIA guidance, which of the following statements is true regarding micro-level opinions?
1. They are most effective when using a combination of current and prior engagement findings to draw conclusions.
2. They typically are based on defined procedures such as those found in an accounts payable reconciliation process.
3. They are discrete and not normally shared with senior management or the board.
4. They can rely on evidence taken from the work of other assurance activities across the organization.
- A. 1 and 2.
- B. 2 and 3.
- C. 1 and 3.
- D. 3 and 4.
Answer: B
NEW QUESTION 56
When an internal auditor applies due professional care to perform an assurance engagement, which of the following must she consider?
1. Findings of the last audit engagement performed.
2. Probability of significant errors, irregularities, or noncompliance.
3. Extent of work needed to achieve engagement objectives.
4. Cost of the engagement versus the potential benefits.
- A. 1, 2, 3, and 4
- B. 2 and 3 only
- C. 2, 3, and 4 only
- D. 1 and 4 only
Answer: C
Explanation:
Section: Volume E
NEW QUESTION 57
The internal audit staff lacks the expertise to perform a specific activity when auditing an organization.
Which of the following individuals is not an appropriate choice to perform this task?
- A. An expert within the department being audited.
- B. A consultant from an outside firm.
- C. A researcher affiliated with a college or university.
- D. A specialist from the staff of a government agency.
Answer: A
NEW QUESTION 58
Risk assessments are valuable to the internal audit activity's planning process because they assist in:
- A. Identifying the audit universe or auditable activities that need to be reviewed.
- B. Eliminating all areas with low risk from the audit plan.
- C. Educating management on the importance of keeping the internal audit activity informed of organizational changes.
- D. Identifying risks that management and the internal auditors have overlooked.
Answer: A
NEW QUESTION 59
According to the Standards, which of the following statements best describes the required content of the chief audit executive's (CAE) report to senior management and the board on the internal audit activity (IAA)?
- A. The CAE must report on significant risk exposures, control issues, and governance issues.
- B. The CAE must report on auditors' continuing education activities, staffing changes, and
any outsourcing to external parties. - C. The CAE must report on quality assurance techniques, statistical analysis methods, and other analytical processes used.
- D. The CAE must report on policies, procedures, and best practices of the IAA.
Answer: A
NEW QUESTION 60
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:
Department Risk Factor A B C Control structure 9 5 7
Nature of assets in department 2 7 9
Dollar value of assets 6 6 8
Complexity of transactions 3 4 8
Which of the following statements regarding risk in the departments 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 relative ranking of the departments in order of their risk, from greatest to least risk, is: A; C; B.
- C. 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
- D. 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.
Answer: D
NEW QUESTION 61
In an audit engagement, a group of internal auditors used an integrated test facility to test payroll processing.
The auditors identified the key controls and processing steps in the computer software, and then developed test data. Over the course of 24 months, they submitted test transactions on a regular basis but did not find any differences between payroll processing and integrated test facility results. Based on the data, what can the auditors conclude?
- A. Employees are properly submitting their hours to payroll.
- B. The computer application and its control procedures correctly processed payroll over the 24-month period.
- C. Payments to employees during the 24-month period were all correct.
- D. The computer software is flawed.
Answer: B
Explanation:
Section: Volume D
NEW QUESTION 62
Which of the following would not be a red flag for fraud?
- A. Several recent, large expenditures to a new vendor have not been documented.
- B. A weak control environment has been accepted by management to encourage creativity.
- C. A manager has bragged about multiple extravagant vacations taken within the last year, which are excessive relative to the manager's salary.
- D. New employees occasionally fail to meet established project deadlines due to staffing shortages.
Answer: D
NEW QUESTION 63
What is the purpose of a secondary control?
- A. It partially reduces the residual risk level when a key control does not operate effectively.
- B. It helps to ensure the completeness and accuracy of automated controls in a system environment.
- C. It replaces primary controls that are either ineffective or cannot fully mitigate a risk.
- D. lt combines with other controls to help reduce significant risk exposures to an acceptable level.
Answer: D
NEW QUESTION 64
Which of the following is characteristic of embezzlement?
- A. Stealing of material of value by unknown persons from outside the organization.
- B. Unlawful conversion of assets that are in the possession of an employee.
- C. Misrepresentation of material facts in order to mislead others to part with something of value.
- D. Favors from a supplier that is attempting to gain advantage when selling its products.
Answer: B
NEW QUESTION 65
During the planning phase of an audit of suspected overbilling on contracts for security services, an internal auditor should perform all of the following except:
- A. Obtain a copy of the contract between the two organizations.
- B. Interview an official of the security services company to determine the cause of recent increases in billings for services.
- C. Interview the manager who requested the audit engagement.
- D. Prepare an engagement program.
Answer: B
Explanation:
Section: Volume C
NEW QUESTION 66
Click the Exhibit.
Internal auditors are asked to keep track of how many hours per day they spend planning the audit, conducting the engagement, and writing the audit report. The data for two days has been collected as follows:
Day 1
Day 2
Planning the audit
2 hours
3 hours
Conducting the engagement
1 hour
1 hour
Writing the audit report
2 hours
4 hours
Which of the following graphs depicts the data accurately?
- A. Neither A nor B.
- B. Graph A only
- C. Graph B only
- D. Both A and B.
Answer: D
NEW QUESTION 67
Which of the following controls would most likely prevent the input of an unreasonable number of labor hours into a costing system?
- A. Consistency checks of data in input fields.
- B. Recalculation tests during processing.
- C. Programmed limit tests of input fields.
- D. Reconciliation of input control totals.
Answer: C
NEW QUESTION 68
The audit committee has asked the chief audit executive (CAE) to assist in the selection of a new external audit firm. Which of the following is an appropriate action by the CAE?
- A. The CAE, chief financial officer, and controller review the bids, interview two firms, and recommend one of the two firms to the audit committee for its approval.
- B. The CAE and two managers from the audit staff review the bids and select one firm to meet with the audit committee for the committee's approval.
- C. The CAE develops a formal set of criteria for the audit committee to use in selecting the external auditor.
- D. The CAE declines to participate in the process because providing this assistance would result in compromising the internal audit activity's objectivity.
Answer: C
NEW QUESTION 69
When performing benchmarking during the planning phase of a performance audit, an internal auditor should:
- A. Identify comparative organizations.
- B. Determine the current performance gap.
- C. Develop functional action plans.
- D. Project future performance levels.
Answer: A
NEW QUESTION 70
During an interview with a data-entry clerk in the human resources department, an internal auditor recognizes a potentially significant weakness with a database system used to track employee performance ratings. Which of the following actions should the auditor take after discovering the weakness?
- A. Immediately document the weakness and write a report to the data-entry clerk's superior.
- B. Question the data-entry clerk indirectly to help obtain more factual information about the weakness.
- C. Avoid either directly or indirectly confronting the data-entry clerk about the system weakness.
- D. Schedule a series of follow-up interviews with the data-entry clerk.
Answer: B
NEW QUESTION 71
Allegations have been made that an organization's share price has been manipulated. Which of the following would provide an internal auditor with the most objective evidence in this case?
- A. Former members of management.
- B. Major shareholders of the organization.
- C. Large customers of the organization.
- D. Former financial consultants.
Answer: D
NEW QUESTION 72
An internal auditor makes a series of observations when performing an analytical review of division operations. The auditor notes the following things: the current ratio is increasing and the quick ratio is decreasing, sales and current liabilities have remained constant, and the number of day sales in inventory is increasing. Which conclusion should the auditor draw from this data?
- A. Cash or accounts receivable has decreased.
- B. The gross margin has increased.
- C. The gross margin has decreased.
- D. The division produced fewer items this year than in prior years.
Answer: A
NEW QUESTION 73
Which of the following, other than the internal audit charter, is most likely to define the purpose, authority, and responsibility of the internal audit activity (IAA)?
- A. The chief audit executive job description.
- B. The organization's charter to conduct operations.
- C. The IAA vision statement.
- D. The internal audit policy statement.
Answer: D
Explanation:
Section: Volume C
NEW QUESTION 74
According to the Standards,a review team must express an opinion on which of the
following when performing an external assessment of an internal audit activity?
1.Conformance with the Standards and IIA Code of Ethics.
2.Effectiveness of continuous improvement activities.
3.Feedback from internal audit customers and other stakeholder groups.
4.Efficiency and effectiveness of the internal audit activity's administration processes.
- A. 1only
- B. 3only
- C. 1 and 2only
- D. 2 and 4only
Answer: A
NEW QUESTION 75
Which of the following statements is true regarding assurance services provided to clients outside of the organization?
- A. The nature of assurance services for outside clients is the same as for internal clients.
- B. Assurance services for outside clients must be approved on a case-by-case basis by the board of directors.
- C. The nature of assurance services for outside clients should be defined in the internal audit charter.
- D. Assurance services for outside clients are not covered under the internal audit charter.
Answer: C
NEW QUESTION 76
The chief audit executive needs to revise the internal audit activity's (IAA) charter. The revision must address the element of authority. Which of the following statements meets this requirement?
- A. Following its assessment, the IAA shall recommend risk control processes and resource management strategies.
- B. The IAA shall deliver an initial report of its findings to the organization's board within 120 days of the beginning of the engagement.
- C. The IAA shall identify and assess all potential risks to the operations of the organization.
- D. The IAA shall be granted access to all records relevant to the performance of its duties.
Answer: D
NEW QUESTION 77
An internal audit activity (IAA) provided assurance services for an activity it was responsible for during the preceding year.
As a result, which IIA Code of Ethics principle is presumed to be impaired?
- A. Objectivity.
- B. Competence.
- C. Independence.
- D. Flexibility.
Answer: A
NEW QUESTION 78
A manufacturing organization discovers that the waste water released has failed to meet permitted limits.
Which control function will be least effective in correcting the issue?
- A. Performing a chemical analysis of the water, prior to discharge, for components specified in the permit.
- B. Diluting pollutants by flushing sinks and floor drains daily with large volumes of clean water.
- C. Establishing a preventive maintenance program for the pretreatment system.
- D. Posting signs that tell employees which substances may be disposed of via sinks and floor drains within the facility.
Answer: B
NEW QUESTION 79
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