Question 1

The use of standard operating procedure questionnaires in audit fieldwork can be beneficial because.

Accepted Answer

Standard operating procedure questionnaires can help identify discrepancies in processes and also serve as an educational tool for clients by highlighting areas for improvement.

Question 2

An auditor is using an internal control questionnaire as part of a preliminary survey. Which of the following is the best reason for the auditor to interview management regarding the questionnaire responses?

Accepted Answer

Interviews allow the auditor to ask follow-up questions and explore areas that may require more detailed examination, providing deeper insights into the internal controls.

Question 3

In a sampling application, the group of items about which the auditor wants to estimate some characteristic is called the:

Accepted Answer

The population is the group of items about which the auditor wants to estimate some characteristic.

Question 4

An internal auditor is discussing an audit problem with an engagement client. While listening to the client, the internal auditor should:

Accepted Answer

The internal auditor should integrate the incoming information with what is already known to form a comprehensive understanding of the situation, which aids in effective problem-solving and decision-making.

Question 5

Which of the following would cause a company's accounts receivable turnover ratio to decrease steadily over a three-year period?

Accepted Answer

A more liberal credit policy would likely result in more customers taking longer to pay, thus increasing the average accounts receivable balance and decreasing the turnover ratio.

Question 6

A limitation of using ratio analysis in an audit engagement is that it:

Accepted Answer

Ratio analysis often relies on financial information provided by management, which may not have been independently verified for accuracy or reliability, potentially limiting its effectiveness in an audit.

Question 7

During an audit of a retail organization, an internal auditor found a scheme in which the warehouse director and the purchasing agent diverted approximately $500,000 of goods to their own warehouse, then sold the goods to third parties. The fraud was not found earlier since the warehouse director updated the perpetual inventory records and then forwarded receiving reports to the accounts payable department for processing. Which of the following procedures would have most likely led to the discovery of the missing materials and the fraud?

Accepted Answer

Taking an annual physical inventory and reconciling it with the perpetual inventory records would likely reveal discrepancies between the recorded and actual inventory, indicating potential fraud.

Question 8

An audit department has received anonymous information that an employee has allegedly been able to steal and cash checks sent to the organization by customers. What is the most efficient way for an auditor to determine how this type of fraud could occur and who might be the perpetrator?

Accepted Answer

The answer of An audit department has received anonymous information...

Question 9

An auditor used a questionnaire during an interview to gather information about the nature of credit sales processing. The questionnaire did not cover some pertinent information offered by the person being interviewed, and the auditor did not document the potential problems for further investigation. The primary deficiency with the above process is that:

Accepted Answer

The primary deficiency is that the auditor failed to consider the importance of the information offered, as they did not document the potential problems for further investigation.

Question 10

An appliance repair company is considering relocating the center that houses its service vehicles. An internal auditor wants to determine the potential reduction in average miles driven by the service vehicles if the center is relocated. Which of the following statistical sampling methods would be most appropriate for this test?

Accepted Answer

Mean-per-unit sampling is appropriate for estimating the average miles driven by service vehicles, as it focuses on measuring the central tendency of a quantitative variable.

Question 11

If an auditor used nonstatistical sampling instead of statistical sampling to estimate the value of inventory, which of the following would be true?

Accepted Answer

Nonstatistical sampling does not allow for the quantification of confidence levels because it does not rely on probability theory to make inferences about the population.

Question 12

Many questionnaires are made up of a series of different questions that use the same response categories (for example: strongly agree, agree, neither, disagree, strongly disagree). Some designs will have different groups of respondents answer alternate versions of the questionnaire that present the questions in different orders and reverse the orientation of the endpoints of the scale (for example: agree on the right and disagree on the left). The purpose of such questionnaire variations is to:

Accepted Answer

Reversing the order of questions and response categories helps to reduce the effects of pattern response tendencies, where respondents might otherwise fall into a habit of selecting the same response without fully considering each question.

Question 13

If management expects 100 percent compliance with a procedure, which of the following sampling approaches would be most appropriate?

Accepted Answer

Discovery sampling is used when the objective is to find at least one occurrence of a critical deviation, which aligns with the expectation of 100 percent compliance.

Question 14

Monetary-unit sampling is most useful when the internal auditor:

Accepted Answer

Monetary-unit sampling is most useful when the auditor is concerned with overstatements because it is designed to detect overstatements by giving larger balances a higher chance of being selected.

Question 15

Which of the following describes an internal auditor's responsibilities to include audit procedures to detect fraud in audits of a multinational organization?

Accepted Answer

Internal auditors should adjust their audit procedures to address potential fraud when significant control weaknesses are identified, as these weaknesses may indicate a higher risk of fraud.

Question 16

Which of the following factors would increase the confidence level in a variables sampling plan?

Accepted Answer

The answer of Which of the following factors would increase...

Question 17

If an auditor is sampling to test compliance with a particular company policy, which of the following factors should not affect the allowable level of sampling risk?

Accepted Answer

The experience and knowledge of the auditor should not affect the allowable level of sampling risk, as sampling risk is determined by factors related to the audit objectives and the consequences of errors, not the auditor's personal attributes.

Question 18

Checklists used to assess audit risk have been criticized for all of the following reasons except:

Accepted Answer

Checklists are criticized for providing a false sense of security, implying equal weight to items, and not capturing experience or reasoning, but they actually increase uniformity in data acquisition, not decrease it.

Question 19

If an auditor expects to find numerous discrepancies between recorded values and audited values of sample selections, which sampling technique would be most appropriate?

Accepted Answer

Difference estimation sampling is appropriate when an auditor expects to find numerous discrepancies, as it estimates the total error in a population by analyzing the differences between recorded and audited values.

Question 20

An internal auditor would most likely use attributes sampling when testing which of the following?

Accepted Answer

Attributes sampling is used to test the presence or absence of certain characteristics, such as the correct coding of accounts payable disbursement vouchers, which is a compliance test.

Exam 4: Conducting the Internal Audit Engagement