Question 1

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:

Accepted Answer

Interviewing an official of the security services company is not typically part of the planning phase; it is more appropriate during the fieldwork phase when gathering evidence.

Question 2

Which of the following should an internal auditor possess in order to fulfill the responsibilities of the internal audit activity?

Accepted Answer

An internal auditor should have an understanding of management principles to evaluate deviations from good practices, which is essential for assessing and improving the effectiveness of risk management, control, and governance processes.

Question 3

An organization that outsources much of its internal audit work to an external service provider is planning for an external quality assessment. Which of the following options would accomplish this task and be in conformance with the Standards?

Accepted Answer

The answer of An organization that outsources much of its...

Question 4

An organization's sales professionals are potentially abusing the use of cellular phones, resulting in an alarming increase in telephone expenses. Which of the following controls is least likely to curb this abuse?

Accepted Answer

Requiring authorization of the cellular phone bill payment by the manager of the telecommunications department is least likely to curb abuse because it does not directly involve monitoring or controlling the usage by sales professionals.

Question 5

Which of the following sources of evidence would be least persuasive regarding potential waste and inefficiency on the part of a contractor?

Accepted Answer

The contractor's self-certification is the least persuasive because it is a self-reported statement without independent verification.

Question 6

Which of the following factors is not likely to affect the level of inherent risk associated with an application system?

Accepted Answer

Inherent risk is the risk that exists before any controls are applied. Reliable controls would reduce risk, but they do not affect inherent risk, which is assessed without considering controls.

Question 7

Which of the following would most likely function as a detective control?

Accepted Answer

Cycle counts are a detective control as they involve regularly checking inventory to detect discrepancies or errors.

Question 8

During a review of a division's operations, an internal auditor notes that sales and customer base are unchanged, while inventory and gross margin have increased significantly. Which of the following audit procedures would be most relevant in substantiating management's assertion that the gross margin increase is due to increased efficiency in manufacturing operations?

Accepted Answer

Comparing costs-per-unit and analyzing standard cost variances would help determine if the increase in gross margin is due to improved manufacturing efficiency.

Question 9

Some of an organization's payroll transactions were batch posted to the payroll file but were not uploaded correctly to the general ledger file on the mainframe. The best control to detect this type of error would be:

Accepted Answer

Validation of hash totals is a control that ensures all transactions are accounted for by comparing the total of a set of numbers before and after processing, helping to detect errors in data transfer between systems.

Question 10

Which of the following internal control weaknesses would an internal auditor most likely detect while reviewing a flowchart that depicts the purchasing function of an organization?

Accepted Answer

The answer of Which of the following internal control weaknesses...

Question 11

Which of the following statements best describes the competency requirement for an auditor regarding fraud risks encountered in an engagement execution?

Accepted Answer

The auditor must have sufficient knowledge to evaluate the risk of fraud and how it is managed, but they are not expected to have the same level of expertise as a fraud investigator.

Question 12

An internal auditor audited a department store's cash function. Which of the following actions would indicate a lack of due professional care by the auditor?

Accepted Answer

The auditor should not assure that no irregularities exist, as this is beyond the scope of an audit and indicates a lack of due professional care.

Question 13

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:

Accepted Answer

Sales management's data and information provide feedback control data, as they are reporting the effects of the new credit policies on sales and order entry, which can be used to assess and adjust the policies.

Question 14

Which of the following topics would a chief audit executive most likely include with their report to the board?

Accepted Answer

A significant level of senior management turnover is a critical issue that could impact the organization's governance, risk management, and internal control processes, making it a relevant topic for the board's attention.

Question 15

The work papers for an audit of hazardous-materials handling and disposal at an engineering research facility provide evidence that the following procedures were performed. Drums of hazardous waste not yet shipped off-site were inventoried. The physical count agreed with the company's inventory records. A sample of hazardous-waste shipments received at the disposal site was compared to bills of lading and company records. No errors were detected. The audit staff observed engineering personnel during the handling of hazardous materials. No company policy violations were noted. The reconciliation of waste drums to the inventory records provides evidence that:

Accepted Answer

The reconciliation of waste drums to the inventory records ensures that all hazardous-waste drums in inventory are accounted for, confirming the accuracy of the inventory records.

Question 16

An external quality assurance review which was authorized by the chief audit executive (CAE) indicated significant findings from the Standards. To whom should the final results of the quality assurance review be reported?

Accepted Answer

The final results of an external quality assurance review should be reported to the CAE, with copies to the board and senior management, to ensure transparency and accountability in addressing significant findings.

Question 17

Which of the following is the most appropriate outcome measure for assessing safety operations?

Accepted Answer

Reduction in machine down time due to accidents directly reflects the effectiveness of safety operations in preventing incidents that cause operational disruptions.

Question 18

Which of the following is the primary advantage of using a computer assisted audit technique (CAAT) to provide a higher level of assurance?

Accepted Answer

CAATs allow auditors to analyze entire datasets rather than just samples, which can identify exceptions and trends more comprehensively, providing a higher level of assurance.

Question 19

Which of the following statements is correct with regard to risk management?

Accepted Answer

The board is ultimately responsible for the total process of risk management, including the system of internal control.

Question 20

Which of the following results from computer assisted audit techniques provides the most significant indication that additional audit work is needed?

Accepted Answer

The answer of Which of the following results from computer...

Exam 3: The Internal Audit Activity Role in Governance, Risk, and Control