Independent Study

Revision One

1. During an engagement to evaluate the entity’s accounts payable function, an internal auditor plans to confirm balances with suppliers. What is the source of authority for such contacts with the outside organisation?

A. Internal audit activity policies and procedures.B. The standards.C. The code of ethicsD. The internal audit activity’s charter

2. An element of authority that should be included in the charter of the internal audit activity is

A. Identification of organisational units where engagement are to be performed.B. Identification of the types of disclosures that should be made to the audit committee.C. Access to records, personnel, and physical properties relevant to the performance of engagements.D. Access to the external auditor’s engagement records

3. To avoid being the apparent cause of conflict between an organisation’s senior management and the audit committee, the chief audit executive should

A. Communicate all engagement results to both senior management and the audit committee.B. Strengthen the independence of the internal audit activity through organisational statusC. Discuss all reports to senior management with the audit committee first.D. Request board approval of policies that include internal audit activity relationships with the audit committee.

4. The audit committee of an organisation has charged the chief audit executive (CAE) with upgrading the internal activity. The CAE’s first task is to develop a charter. What item should be included in the statement of objectives?

A. Report all engagement results to the audit committee every quarter.B. Notify governmental regulatory agencies of unethical business practices by organisation management.C. Evaluate the adequacy and effectiveness of the organisation’s controls.D. Submit budget variance reports to management every month.

5. The authority of the internal audit activity is limited to that granted byA. The board and the controller.B. Senior management and the standardsC. Management and the boardD. The audit committee and the CFO.

6. Is it appropriate for an internal auditor to conduct an engagement that incorporates elements of both consulting and assurance activities into one consolidated report?

A. Yes, it is always appropriate.B. Yes, in some circumstances.C. No, unless the audit committee gives permissionD. No, this is never appropriate.

7. A charter is one of the more important factors positively affecting the internal audit activity’s independence. Which of the following is least likely to be a part of the charter?

A. Access to the records within the organisation.B. The scope of the internal audit activitiesC. The length of tenure of the chief audit executive.D. Access to personnel within the organisation.

8. Internal auditing has planned an engagement to evaluate the effectiveness of the quality assurance function as it affects the receipt of goods, the transfer of the goods into production, and scrap costs related to defective items. The engagement client argues that such an engagement is not within the scope of the internal audit activity and should come under the purview of the quality assurance department only. What is the appropriate response?

A. Refer to the internal audit activity charter and the approved engagement plan that includes the area designated for evaluation in the current time period.B. Because quality assurance is a new function, seek the approval from management as a mediator to set the scope of the engagement.C. Indicate that the engagement will evaluate the function only in accordance with standards set by, and approved by, the quality assurance function before beginning the engagement.D. Terminate the engagement because it will not be productive without the client’s cooperation.

9. The chief audit executive has assigned an internal auditor to perform a year-end engagement to evaluate payroll records. The internal auditor has contacted the director of compensations and has been refused access to the necessary documents. To avoid this problem,

A. Access to records relevant to performance of engagements should be specified in the IA activity’s charter.B. Internal auditing should be required to report to the CEO of the organisation.C. By following the long-range planning process, access to all relevant records should be guaranteed..D. Audit committee approval should be required for all scope limitations.

10. A charter id s being drafted for a newly formed internal audit activity. Which of the following best describes the appropriate organisational status that should be incorporated into the charter?

A. The CAE should report to the CEO but have access to the board of directors.B. The CAE should be a staff officer reporting to the CFO.C. The CAE should be e member of the audit committee of the board of directors.D. The CAE should report to an administrative vice president.

11. A written charter approved by the board that formally defines the internal audit activity’s purpose, authority, and responsibility enhance its

A. Exercise of due professional care.B. Proficiency.C. Relationship with management.D. Independence.

12. The status of the internal audit activity should be free from the effects of irresponsible policy changes by management. The effective way to assure freedom is to

A. Have the internal audit charter approved by the board.B. Adopt policies for the functioning of the internal audit activities. C. Establish an audit committee within the board.D. Develop written policies and procedures to serve as standards of performance for the internal audit activity.

13. Internal auditors may provide consulting services that add value and improve an organisation’s operations. The performance of these services

A. Impairs internal auditors’ objectivity with respect to an assurance service involving the same engagement client.B. Precludes generation of assurance from a consulting engagement.C. Should be consistent with the internal audit activity’s empowerment reflected in the charter.D. Imposes no responsibility to communicate information other than to the

engagement client.

14. Independence is most likely impaired by an internal auditor’s a). Continuation on an engagement at a division for which he will soon be

responsible as the result of a promotion. b). Reduction of the scope of an engagement due to budget restrictions. c). Participating on a task force that recommends standards for control of a

new distribution system. d). Review of a purchasing agent’s contract drafts prior to their execution

15. In which of the following situations does an internal auditor potentially lack integrity?

a). An internal auditor reviews the procedures for a new electronic data exchange (EDI) connection to a major customer before it is implemented.

b).A former purchasing assistant performs a review of internal controls over purchasing 4 months after being transferred to the internal auditing department.

c). An internal auditor recommends standards of control and performance measures for a contract with a service organisation for the processing of payroll and employees benefits.

d).A payroll accounting employee assists an internal auditor in verifying the physical inventory of small motors.

16. Which of the following activities is not presumed to impair the objectivity of an internal auditor?

i. Recommending standards of control for a new information system application.ii. Drafting procedures for running a new computer application to ensure that proper controls are installed.iii. Performing reviews of procedures for a new computer application before it is installed.A. i only.B. ii only.C. iii onlyD. i and iii only.

17. Internal auditors must be objective in performing their work. Assume the CAE received annual bonus as part of that individual package. The bonus may impair the CAE’s objectivity if

A. The bonus is administered by the board of directors or its salary administered committee.B. The bonus is based on monetary amounts recovered or recommended future savings as a result of engagements.

C. The scope of the internal audit work is evaluating control rather than account balances.D. All the answers are correct.

18. An internal auditor has recently received an offer from the manager of the marketing department of a weekend’s free use of his beachfront condo. No engagement is currently being conducted in the marketing department, and none is scheduled. The internal auditor

a). Should reject the offer and report it to the appropriate supervisor. b). May accept the offer because its value is immaterial. c). May accept the offer because no engagement is being planned or

conducted. d. May accept the offer if it is being approved by the appropriate

supervisor.

19. Management has requested the internal audit activity to perform an engagement to recommend procedures and policies for improving management control over the telephone operations of a major division. The CAE should

A. Not accept the engagement because recommending controls would impair future objectivity regarding operations.B. Not accept the engagement because internal audit activities are presumed to have expertise regarding accounting controls, not marketing controls.C. Accept the engagement, but indicate to management that, because recommending controls impair independence, future engagements in the area will be impaired.D. Accept the engagement because objectivity will not be impaired.

20. When faced with an imposed scope limitation, the CAE should

A. Refuse to perform the engagement until the scope limitation is removed.B. Communicate the potential effects of the scope limitation to the audit committee and the board of directors.C. Increase the frequency of engagements concerning the activity in question.D. Assign more experience personnel to the engagement.

21. Prior to performing consulting services, the CAE should get approval from whom?

A. The audit committee.B. The board of directors.C. The CEO.D. The external auditor.

22. An organisation is in the process of establishing a new internal audit activity. The controller has no previous experience with internal auditors. Due to lack of experience, the controller advised the applicants that the CAE will be reporting to the external auditors. However, the new CAE will have free access to the controller to report anything important. The controller will then convey the CAE’s concern to the board. The IAA will

A. Be independent because the CAE has direct access to the board.B. Not be independent because the CAE reports to the external auditors.C. Not be independent because the controller has no experience with the internal auditors.D. Not be independent because the entity did not specify that the applicants must be certified internal auditors.

23. The reporting relationship within the organisation’s management structure that facilitates the day-to-day operations of the IA function is referred to as

A. Administrative.B. Financial reporting.C. Management reporting.D. Functional reporting.

24. An external quality assessment team was evaluating the independence of an IA activity. The IA activity performs engagement concerning all of the elements included in the scope. Which of the following reporting responsibilities is most likely to impair the independence of the IA activity? Reporting to

A. President.B. Treasurer.C. Executive VP.D. Audit Committee.

25. During the performance of an engagement to evaluate a division’s control over purchasing, the chief purchasing agent asked asked why the internal auditor requested documents pertaining to transactions with a particular supplier. The auditor’s response is to

A. Treat the inquiry as a scope limitation.B. Explain the reason for the information request to promote cooperation with the engagement client.C. Refuse to explain the information request to preserve the integrity of the engagement process.D. Consider the specific circumstances before deciding whether to disclose the reasons for the information request.

26. Independence permits an IA to render impartial and unbiased judgements. The best

way to achieve independence is through

A. Individual knowledge and skills.B. Organisational status and objectivity.C. Supervision.D. Organisational knowledge and skills.

27. The IA function should be free to audit and report on any activity that also reports to its administrative head if it deems that coverage appropriate for the plan. Any limitation in scope or reporting of results of these activities should be brought to the attention of whom?

A. CEO.B. CFO.C. External auditor.D. Audit committee.

28. The administrative line of the CAE should be to whom?

A. The audit committee.B. Line management.C. Board of directors.D. CEO or equivalent.

29. An internal auditor who had been supervisor of accounts payable section should not perform an assurance review of that section

a). Because there is no way to measure a reasonable period of time in which to establish independence.

b). Until a reasonable time has elapsed. c). Until after the next annual review by the external auditors.

d). Until it is clear that the new supervisor has assumed responsibility30. Assuming that the internal auditing staff possesses the necessary experience and

training, which of the following services is most appropriate for the IA to undertake?

a). Substitute for the accounts payable supervisor while she is on sick leave.

b). Determine the profitability of the alternative investment acquisitions and select the best alternative.

c).As part of the evaluation team, review vendor accounting software, internal controls and rank according to exposure.

d). Participate in an internal audit of the accounting department shortly after transferring from the accounting department.

31. a. List and briefly explain the three main types of audits

b. Distinguish between an internal and an external auditorc. List some basic attributes or skills that an internal auditor should possessd. List and briefly the main components of the Internal audit charter

32. a. List and briefly explain four principles or rules of conduct of the internal audit code of ethics

b. List and explain five situations that may give rise to a breach of the internal auditor’s code of ethics

c. Recommend ways to alleviate the breaches aboved. Briefly explain an assurance service and list the parties involvede. Briefly explain a consultancy service and list the parties involvedf. Distinguish between the performance and the attribute standard

33. Internal audit activities may involve which of the following?

A. Assurance servicesB. Consulting services C. Both assurance and consulting servicesD. Non on the above

34. The most accurate term for the procedures used by the representatives of the organization’s stakeholders to provide oversight of processes administered by management is

A. GovernanceB. ControlC. Risk managementD. Monitoring

35. Internal audit is an assurance and consulting activitiy. An example of an assurance service is a(n)

A. Advisory serviceB. Facilitation serviceC. Training engagementD. Compliance service

36. Kevin is the new internal auditor of XYZ. Kevin was in charge of payroll for XYZ just 10 months ago. Performing what services in regard to payroll is considered an impairment of independence or objectivity if performed by Kevin ?

A. ConsultingB. AssuranceC. A or B.D. Neither A or B

37. The chief audit executive is best defined as the

A. Inspector GeneralB. Person responsible for the IA functionC. Outside provider of IA servicesD. Person responsible for overseeing the contract with the outside provider

of IA services

38. Which of the following is the most accurate term for attitudes and actions of the board and management regarding the significance of control within the entity?

A. Control ProcessesB. Control environmentC. Governance D. Management philosophy and operating styles

39. Which of the following action should the chief audit executive take when he/she believes that senior management has accepted a level of risk that is unacceptable to the entity?

A. Report the matter to the boardB. Report the matter to the policeC. Discuss the matter with the independent auditorsD. Discuss the matter with senior management

40. Which of the following is the main purpose of the internal auditing profession?

a. To find errors and fraud.b. to act as managementc. to prosecute fraudulent mattersd. to serve as an independent, objective, assurance and consulting activity to add value and improve the organisation’s operations.

41. Which of the following is not a main type of audit?

a.Fraud auditb. Operational auditc. Compliance auditd. financial audit

42. 17. Which of the following audit has a focus of improving an entity’s operations?a. financialb. operationalc. complianced. fraud.

43. Which of the following audit seeks to ensure that the entity is in agreement with government policies?

a. financialb. operationalc. fraud.d. compliance

44. An audit that seeks to ensure that an entity is adhering to the local companies act:a. operationalb. compliancec. financiald. external

45. Which of the following auditors mostly practice operational audits?

a. government auditorsb. forensicc. internald. external

46. Which of the following is the most appropriate title for the body that regulates the profession?

a. Institute of internal auditingb. Institute of internal auditorsc. Institute for internal auditd. institute of internal audit

47. Which of the following is not a characteristic of the internal auditor?

a. An employee of the clientb. Professional that performed operational auditsc. Individuals independent of managementd. An employee who cannot be independent.

48. Which of the following is not a reason for the development of the internal audit profession?

a. Increase complexityb.Increase in entity’s sizec. Technological sophisticationsd.All of the above are valid reasons

49. Which of the following concerns the traits of the internal auditors

a. Attribute standards

b. Performance standardsc. Implementation standards.d. None of the above

50. Where can the internal auditor locate the purposes, authority and responsibility of the internal audit function?

a. the engagement letterb. the charterc. the representation letterd. the management letter