/40 Welcome to your Internal Audit Diploma Exam Read the full study material Study Material International Professional Practices Framework (IPPF) Start the exam ⇓ 1 / 40 The internal auditing activity (IAA) encounters a scope limitation from senior management that will affect its ability to meet its goals and objectives for a potential engagement client. The nature of the scope limitation should be: Communicated to the external auditors so they can investigate the area in more detail Noted in the engagement working papers, but the engagement should be carried out as scheduled and the scope limitation worked around, if possible Communicated to management stating that the limitation will not be accepted because it would impair the internal audit activity's independence Communicated, preferably in writing, to the board 2 / 40 Which of the following describes a control weakness? Purchasing procedures are well designed and are followed unless otherwise directed by the purchasing supervisor Normal operational purchases fall in the range from $500 to $1,000 with two signatures required for purchases over $1,000 Prenumbered blank purchase orders are secured within the purchasing department The purchasing agent invests in a publicly traded mutual fund that lists the stock of one of the organization's suppliers in its portfolio 3 / 40 Auditing standards state that "reports may include recommendations for potential improvements." Which of the following would be a valid justification for omitting recommendations in an audit report? The auditor: May lose independence by being perceived as making operational decisions May not always understand the true cause of the finding being reported Can avoid the confrontation by letting management solve its own problems Does not have sufficient time to formulate a recommendation due to audit budget pressures 4 / 40 One payroll audit objective is to determine if there is proper segregation of duties. Which of the following activities are incompatible? Preparing the payroll and filing payroll tax forms Signing and distributing payroll checks Hiring employees and authorizing changes to pay rates Preparing attendance data and preparing the payroll 5 / 40 Which of the following is an appropriate responsibility of an audit committee? Reviewing the engagement records of the public accounting firm to determine the firm's competence Reviewing the internal audit activity's engagement work schedule submitted by the chief audit executive Recommending the assignment of specific internal auditing staff members for specific engagements Performing a review of the procurement function of the organization 6 / 40 Which of the following controls would most likely minimize defects in finished goods because of poor quality raw materials? Determination of spoilage at the end of the manufacturing process Timely follow-up on unfavorable usage variances Proper handling of work-in-process inventory to prevent damage Implementation of specifications for purchases 7 / 40 As a staff auditor, which of the following actions would be considered a violation of the Standards or Code of Ethics? Inform the audit manager that you will be including the information in your working papers as an audit finding Disclose the matter to the external auditor without further discussion Resign from the audit department and company if further action is not taken on the matter Discuss the matter with the audit director without further discussion with the audit manager 8 / 40 Which of the following best defines control? Control accomplishes objectives and goals in an accurate, timely, and economical fashion Control is the result of proper planning, organizing, and directing by management Control is provided when cost-effective measures are taken to restrict deviations to a tolerable level Controls are statements of what the organization chooses to accomplish 9 / 40 A multinational corporation has an office in a foreign branch with a money transfer facility. Effective internal control requires that: The person making wire transfers not reconcile the bank statement The hiring of individual branch employees be approved by the headquarters office The branch manager not deliver payroll checks to employees Foreign currency translation rates be computed separately by two branch employees in the same department 10 / 40 An internal auditor observes that a receivables clerk has physical access to and control of cash receipts. The auditor worked with the clerk several years before and has a high level of trust in the individual. Accordingly, the auditor notes in the engagement working papers that controls over receipts are adequate. Based on this information, has the auditor exercised due professional care? Yes, the engagement working papers were annotated No, irregularities were not noted No, alertness to conditions most likely indicative of irregularities was not shown Yes, reasonable care has been taken 11 / 40 The Standards would not require the chief audit executive (CAE) to: Coordinate audit work with that of the external auditors Communicate to senior management and the board the results of evaluations of the coordination between internal and external auditors Communicate to senior management and the board the results of evaluations of the performance of external auditors Contribute resources for the annual audit of financial statements 12 / 40 Effective internal control: Is unaffected by changing circumstances and conditions encountered by the organization Reduces the need for management to review exception reports on a day-to-day basis Cannot be circumvented by management Eliminates risk and potential loss to the organization 13 / 40 The purposes of the Standards include all of the following except: Delineating basic principles that represent the practice of internal auditing as it should be Establishing the basis for the measurement of internal audit performance Guiding the ethical conduct of internal auditors Fostering improved organizational processes and operations 14 / 40 Due to professional care calls for: Consideration of the possibility of material irregularities during every engagement Detailed reviews of all transactions related to a particular function Testing in sufficient detail to give absolute assurance that noncompliance does not exist Infallibility and extraordinary performance when the system of internal control is known to be weak 15 / 40 An internal auditor who suspects fraud should: Recommend whatever investigation is considered necessary under the circumstances Identify the employees who could be implicated in the case Determine that a loss has been incurred Interview those who have been involved in the control of assets 16 / 40 Communication skills are important to internal auditors. They should be able to convey effectively all of the following to engagement clients except: The risk assessment used in selecting the area for investigation Recommendations that are generated in relationship to a specific engagement client The objectives designed for a specific engagement The engagement evaluations based on a preliminary survey 17 / 40 A working paper is complete when it: Complies with the internal audit activity's format requirements Is clear, concise, and accurate Satisfies the engagement objective for which it is developed Contains all of the attributes of an observation 18 / 40 An internal auditor's responsibility for reporting fraud includes: Notifying management if fraud has been established to a reasonable certainty Notifying management of fraud when the internal auditor has exhaustively reviewed all the data related to the fraud Issuing a written report at the conclusion of the investigation and not sooner Providing a draft of the report only to senior management 19 / 40 Which of the following activities is not presumed to impair the objectivity of an internal auditor? Recommending standards of control for a new information system application Drafting procedures for running a new computer application to ensure that proper controls are installed Performing reviews of procedures for a new computer application before it is installed 1 and 3 Only 2 Only 1 Only 3 20 / 40 An appropriate internal auditing role in a feasibility study is to: Serve on the task force for the preliminary survey Ascertain if the feasibility study addresses cost-benefit relationships Participate in the drafting of recommendations for the computer acquisition and implementation Determine the requirements for preparing a manual of specifications 21 / 40 An element of authority that should be included in the charter of the internal audit activity (IAA) is: Access to records, personnel, and physical properties relevant to the performance of engagements Access to the external auditor's engagement records Identification of the organizational units where engagements are to be performed Identification of the types of disclosures that should be made to the audit committee 22 / 40 Independence permits internal auditors to render impartial and unbiased judgments. The best way to achieve independence is through: Supervision within the organization Individual knowledge and skills Organizational status and objectivity Organizational knowledge and skills 23 / 40 Budgets are a necessary component of financial decision making because they help provide a(n): Efficient allocation of resources Means to check managerial discretion Automatic corrective mechanism for errors Means to use all the firm's resources 24 / 40 The internal auditors' responsibility for the prevention of fraud includes all of the following except: Determining whether the organizational environment fosters control consciousness Ensuring that fraud will not occur Being aware of activities in which fraud is likely to occur Evaluating the effectiveness of actions taken by management to deter fraud 25 / 40 Who should have the least influence on the appointment of the chief audit executive (CAE)? The audit committee The controller The chief executive officer (CEO) The external auditor 26 / 40 Due to professional care implies reasonable care and competence, not infallibility or extraordinary performance. Thus, which of the following is unnecessary? The conduct of examinations and verifications to a reasonable extent The consideration of the possibility of material irregularities The reasonable assurance that compliance does exist The conduct of extensive examinations 27 / 40 Internal auditors often include summaries within their working papers. Which of the following best describes the purpose of such summaries? Summaries document that the internal auditor has considered all relevant information Summaries are usually required to complete each section of an engagement work program Internal auditors often include summaries within their working papers. Which of the following best describes the purpose of such summaries? Summaries distill the most useful information from several working papers into a more usable form 28 / 40 To minimize the risk that agents in the purchasing department will use their positions for personal gain, the organization should: Direct the purchasing department to maintain records on purchase prices paid, with review of such being required each 6 months Specify that all items purchased must pass value-per-unit-of-cost reviews Rotate purchasing agent assignments periodically Request internal auditors to confirm selected purchases and accounts payable 29 / 40 A key feature that distinguishes fraud from other types of crime or impropriety is that fraud always involves the: Deceitful wrongdoing of management-level personnel Violent or forceful taking of property False representation or concealment of a material fact Unlawful conversion of property that is lawfully in the custody of the perpetrator 30 / 40 An internal auditor who had been supervisor of the accounts payable section should not perform an assurance review of that section: Until it is clear that the new supervisor has assumed the responsibilities Until a reasonable period of time has elapsed Until after the next annual review by the external auditors Because there is no way to measure a reasonable period of time in which to establish independence 31 / 40 Proficiency is required of internal auditors with respect to which discipline? Accounting principles and techniques Management principles Internal auditing procedures and techniques Marketing techniques 32 / 40 An activity appropriately performed by the internal auditing activity (IAA) is: Drafting procedures for systems of control Reviewing systems of control before implementation Installing systems of control Designing systems of control 33 / 40 If the internal audit activity does not have the skills to perform a particular task, an outside service provider could be brought in from: The organization's external audit firm. An outside consulting firm The engagement client A college or university 1,2 and 4 1 and 2 2 and 4 1,2 and 3 34 / 40 The procedure requiring preparation of a prelisting of incoming cash receipts, with copies of the prelist going to the cashier and to accounting, is an example of which type of control? Corrective Preventive Directive Detective 35 / 40 The audit committee strengthens the control processes of an organization by: Approving internal audit activity policies Following up on recommendations made by the chief audit executive Assigning the internal audit activity responsibility for interaction with governmental agencies Using the chief audit executive as a major resource in selecting the external auditors 36 / 40 Which of the following most seriously compromises the independence of the internal audit activity? Internal auditors frequently draft revised procedures for departments whose procedures they have criticized in an engagement communication The internal audit activity is included in the review cycle of the organization's contracts with other organizations before the contracts are executed The internal audit activity and the organization's external auditors engage in joint planning of total engagement coverage to avoid duplicating each other's work The chief audit executive has dual reporting responsibility to the organization's chief executive officer and the board of directors 37 / 40 Assuming that the internal auditing staff possesses the necessary experience and training, which of the following services is most appropriate for a staff internal auditor to undertake? As part of an evaluation team, review vendor accounting software internal controls and rank according to exposures Substitute for the accounts payable supervisor while (s)he is on sick leave Determine the profitability of alternative investment acquisitions and select the best alternative Participate in an internal audit of the accounting department shortly after transferring from the accounting department 38 / 40 A primary purpose for establishing a code of conduct within a professional organization is to: Reduce the likelihood that members of the profession will be sued for substandard work Promote an ethical culture among professionals who serve others Ensure that all members of the profession perform at approximately the same level of competence Require members of the profession to exhibit loyalty in all matters pertaining to the affairs of their organization 39 / 40 Which of the following gives the internal auditor the authority to investigate fraud? Management The Standards The Institute of Internal Auditors Code of Ethics Common law 40 / 40 Formal internal quality assessment of the internal audit activity (IAA) primarily serve the needs of: The internal audit activity's staff Senior management The board of directors The chief audit executive 0% Restart quiz
