Question 1

Which of the following statements is true regarding the communication of audit engagement observations?

Accepted Answer

Criteria, condition, cause, and effect should be communicated for all engagement observations to ensure clarity and understanding of the issues identified during the audit.

Question 2

Which of the following statements is correct regarding the use of a program evaluation and review technique (PERT) model? • It makes use of a probability model to arrive at a realistic estimate of time necessary for completion of the audit engagement. • It requires that activities are performed in sequence such that each task is completed before the commencement of the next activity. • It remains fixed once completed to act as a baseline for measuring the performance of the audit staff following completion of the engagement. • It begins with the auditor-in-charge identifying the overall scope and then breaking down the audit engagement into identifiable activity units.

Accepted Answer

The PERT model uses a probability model to estimate time (statement 1) and involves breaking down the project into identifiable activities (statement 4).

Question 3

According to IIA guidance, which of the following actions might place the independence of the internal audit function in jeopardy?

Accepted Answer

Coordinating and managing the risk management process can compromise the independence of the internal audit function, as it involves taking on management responsibilities.

Question 4

When internal auditors provide consulting services, the scope of the engagement is primarily determined by:

Accepted Answer

The scope of consulting services provided by internal auditors is primarily determined by the engagement client, as these services are tailored to meet the specific needs and objectives of the client.

Question 5

According to IIA guidance,when performing a compliance audit of data security standards for a large e-commerce retailer, which of the following would represent the least likely area of risk exposure?

Accepted Answer

Physical security risks are generally less of a concern for data security in e-commerce, as the primary focus is on digital access and data protection rather than physical access.

Question 6

The chief audit executive of a large publicly held bank is using a risk based approach to update the annual audit plan. Which of the following sources of information will have the least impact on the plan?

Accepted Answer

The answer of The chief audit executive of a large...

Question 7

The most effective way for internal auditors to enhance the reliability of computerized financial and operating information is by:

Accepted Answer

Internal auditors enhance reliability by ensuring that controls over record keeping and reporting are adequate and effective, which directly impacts the accuracy and reliability of financial and operating information.

Question 8

During the quarterly review of the internal audit activity's performance, the chief audit executive (CAE) notes that actual engagement hours consistently exceed the budget. Which of the following strategies would most likely help the CAE address this problem? • The budget should consider time spent on similar engagements. • The budget should consider the proficiency of the assigned auditors. • The budget estimate should provide for unexpected delays. • The budget should be specific as to time for each work assignment.

Accepted Answer

The answer of During the quarterly review of the internal...

Question 9

During an operational audit of a chain of pizza delivery stores, an auditor determined that cold pizzas were causing customer dissatisfaction. A review of oven calibration records for the last six months revealed that adjustments were made on over 40 percent of the ovens. Based on this, the auditor:

Accepted Answer

The auditor needs to conduct further inquiries to determine if the oven variations are directly impacting the pizza temperature and causing customer dissatisfaction.

Question 10

Which of the following situations justifies the release of an interim report to management and the board? • The internal auditor is convinced that the audit observations require immediate attention. • The internal auditor would like to communicate a change in engagement scope for the activity under review. • The internal auditor notes that the engagement may extend over a longer time period. • The audit supervisor believes that issuing interim reports eases supervisory review and controls over working papers.

Accepted Answer

Interim reports are justified when audit observations require immediate attention, when there is a change in engagement scope, or when the engagement may extend over a longer period.

Question 11

According to IIA guidance, which of the following would not be a consideration for the internal audit activity (IAA) when determining the need to follow-up on recommendations?

Accepted Answer

The IIA guidance suggests that follow-up considerations should focus on the significance and impact of the corrective actions, not on the resources required for the follow-up itself.

Question 12

Which of the following would be a red flag that indicates the possibility of inventory fraud?

Accepted Answer

The answer of Which of the following would be a...

Question 13

The chief audit executive (CAE) of a large retail operation believes that senior management has accepted a level of risk that exceeds the organization's current risk tolerance with respect to a major expansion. The CAE plans to meet with senior management to discuss these concerns. According to IIA guidance, which of the following would be an appropriate course of action in preparation for this meeting? • Understand management's basis for the decision. • Advise the board of the concern and upcoming meeting. • Ascertain which members of management have accepted the risk. • Determine if management has the authority to accept the risk.

Accepted Answer

Understanding management's basis for the decision and determining if management has the authority to accept the risk are appropriate actions to ensure the CAE is fully informed and prepared for the discussion.

Question 14

An internal auditor for a large telecommunications organization identified potential risk factors related to a planned billing system conversion. Which of the following risk factors would present the least potential exposure to the organization?

Accepted Answer

The answer of An internal auditor for a large telecommunications...

Question 15

An audit engagement objective at a manufacturer is to determine the quality of raw materials purchased. Which of the following actions would best enable an internal auditor to satisfy this objective?

Accepted Answer

Evaluating the volume and characteristics of products rejected during processing directly relates to assessing the quality of raw materials, as poor quality raw materials often lead to higher rejection rates.

Question 16

An audit of management's quality program includes testing the accuracy of the cost-of-quality reports provided to management. Which of the following internal control objectives is the focus of this testing?

Accepted Answer

The focus of testing the accuracy of cost-of-quality reports is to ensure the reliability and integrity of the information provided to management.

Question 17

When assessing the risk associated with an activity, an internal auditor should:

Accepted Answer

An internal auditor's role is to provide assurance on the effectiveness of risk management processes, not to manage or modify them directly.

Question 18

While reviewing the draft report of an audit engagement, the chief audit executive (CAE) is not in agreement with management's acceptance of the potential risk exposure resulting from an observed key control weakness. Which of the following actions by the CAE would be appropriate for addressing this concern? • Meet with the auditor-in-charge. • Discuss with senior management. • Monitor the result of the accepted risk. • Report the matter to the board.

Accepted Answer

The CAE should discuss the concern with the auditor-in-charge (1), senior management (2), and report the matter to the board (4). Monitoring the result of the accepted risk (3) is not an appropriate action for the CAE to take.

Question 19

Which of the following situations might allow an employee to steal checks sent to an organization and subsequently cash them?

Accepted Answer

Restrictively endorsing checks upon receipt limits the ability of anyone to cash them fraudulently, as it specifies that the check is for deposit only to the organization's account. Without this endorsement, an employee could potentially steal and cash the checks.

Question 20

According to IIA guidance, which of the following are benefits to the internal audit activity when conducting an assurance mapping exercise?

Accepted Answer

Assurance mapping helps identify gaps in risk coverage and minimizes duplicate assurance efforts, aligning with IIA guidance.

Exam 4: Conducting the Internal Audit Engagement