Question 1

Which of the following is an example of the verification of internal documentary evidence?

Accepted Answer

Verification of internal documentary evidence involves checking internal documents against other records or evidence. Vouching a copy of a sales invoice to receivables is an example of this, as it involves verifying the sales invoice (internal document) against the accounts receivable records.

Question 2

Productivity statistics are provided quarterly to a company's board of directors. An auditor checked the ratios and other statistics in the four most recent reports. The auditor used scratch paper and copies of the board reports to verify the accuracy of computations and compared the data used in the computations with supporting documents. The auditor wrote a note describing this work for the workpapers and then discarded the scratch paper and report copies. The auditor's note stated. "The ratios and other statistics in the quarterly board reports were checked for the last four quarters, and appropriate supporting documents were examined. All amounts appear to be appropriate." In this situation:

Accepted Answer

The auditor's workpapers are not sufficient because they lack detailed documentation of the procedures performed, such as the scratch paper and report copies used to verify computations.

Question 3

If an organization's chief audit executive wants to implement continuous auditing, what is the appropriate order in which key steps should be undertaken?

Accepted Answer

C

Question 4

In order to effectively elicit sensitive information from an employee during an audit engagement, an auditor should:

Accepted Answer

Explaining the importance of confidentiality and the auditor's reputation for integrity can help build trust and encourage the employee to share sensitive information.

Question 5

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

The answer of Company A has a formal comprehensive corporate...

Question 6

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

Accepted Answer

Value analysis is a systematic approach to improving the value of a product or process by examining its function, performance, and cost, making it the best technique for analyzing performance and cost.

Question 7

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

Accepted Answer

The answer of In which of the following situations would...

Question 8

Which of the following data collection strategies systematically tests the effects of various factors on an outcome?

Accepted Answer

Modeling systematically tests the effects of various factors on an outcome by creating representations of systems or processes to analyze the impact of different variables.

Question 9

Direct staff as a percentage of total staff is an example of which of the following types of efficiency measures?

Accepted Answer

The operating ratio measures the efficiency of a company's management by comparing operating expenses to net sales. Direct staff as a percentage of total staff is a type of operating ratio that assesses how efficiently staff resources are being utilized.

Question 10

Which of the following would be an appropriate and effective control self-assessment approach in an organization with an authoritative culture?

Accepted Answer

In an authoritative culture, management has the power and authority to make decisions and set the direction for the organization. Therefore, a management-produced analysis (III) would be an appropriate and effective control self-assessment approach because it would provide management with the information it needs to make informed decisions about the organization's controls. A facilitated meeting (I) could also be an effective approach, as it would allow management to gather input from a variety of stakeholders. However, a survey (II) would not be as effective in an authoritative culture, as it would not provide management with the level of control over the process that they need.

Question 11

Which of the following situations would best support the decision of a chief audit executive (CAE) to defer follow-up activity at a branch office until the next audit engagement?

Accepted Answer

The CAE and management agreeing that the corrective action taken to date is sufficient indicates that the issue may have been adequately addressed, justifying deferring follow-up until the next audit engagement.

Question 12

The following is an excerpt from an audit engagement workpaper: A Company Accounts Receivable Date Objective. To determine if the computer system is correctly recording all accounts receivable transactions. Procedures: Judgmental selection of a sample of all accounts receivable balances greater than $50,000 for positive confirmation of balances. Conclusion: Based on the results of testing wherein all but three confirmations were returned, the accounts receivable balance is fairly presented in all material respects. Which of the following is true regarding the workpaper?

Accepted Answer

The audit procedures used (judgmental selection of a sample for confirmation) may not fully align with the objective of determining if the computer system is correctly recording all accounts receivable transactions, as this objective might require a more comprehensive or systematic approach.

Question 13

When conducting research, which of the following is most important?

Accepted Answer

Providing documentation of the reference sources is crucial in research to ensure credibility, allow verification of information, and give credit to original authors.

Question 14

A company's policy requires that all customers be treated in a fair and consistent manner. Which of the following audit procedures would provide the most persuasive evidence that the policy was followed?

Accepted Answer

Comparing the sales discounts offered to each customer would provide evidence of whether customers are being treated fairly and consistently, as it directly relates to the terms and conditions offered to them.

Question 15

The balanced scorecard approach differs from traditional performance measurement approaches because it adds which of the following measures?

Accepted Answer

The answer of The balanced scorecard approach differs from traditional...

Question 16

Which of the following files, when compared with billing records, would provide the best source of information for determining if all goods shipped are billed to customers?

Accepted Answer

Pre-numbered shipping documents provide a record of all goods that have been shipped. By comparing these with billing records, one can verify that all shipments have been billed to customers.

Question 17

What does the following scatter gram suggest?

Accepted Answer

The scatter gram suggests a relationship between sales revenue and training costs, indicating that as training costs increase, sales revenue also tends to increase.

Question 18

Which of the following audit procedures is most suitable for verifying that all sales transactions have been recorded?

Accepted Answer

Tracing is used to ensure that all sales transactions have been recorded by following the transaction from the source documents to the accounting records.

Question 19

Which of the following trends found on financial reports would most likely indicate a possible problem?

Accepted Answer

A material decrease in the receivables turnover suggests that the company is taking longer to collect its receivables, which could indicate potential cash flow problems or issues with credit policies.

Question 20

During a routine audit of a customer service hotline, an internal auditor noticed that an unusually high number of customer complaints pertained to payments not being applied to the customers' accounts. Which of the following would most likely be the reason for the high volume of complaints?

Accepted Answer

Check tampering by an employee could lead to payments not being applied to customer accounts, resulting in a high volume of complaints.

Exam 4: Conducting the Internal Audit Engagement