Question 1

Standards relevant to operational auditing have been promulgated by all of the following except the:
A) Institute of Internal Auditors.
B) Australian Auditing and Assurance Standards Board.
C) Australian National Audit Office.
D) Australian Securities and Investments Commission.

Accepted Answer

The Australian Securities and Investments Commission (ASIC) is not responsible for promulgating standards relevant to operational auditing. The Institute of Internal Auditors, Australian Auditing and Assurance Standards Board, and Australian National Audit Office all publish standards and guidance related to operational auditing.

Question 2

The specific performance criteria to be used in an operational audit are:
A) selected from existing relevant policy statements, manuals, laws, or regulations, or are defined by the auditor for each operational audit.
B) defined in Australian Accounting Standards.
C) the same as the criteria used in evaluating the internal control structure in an engagement to report on the internal control structure over financial reporting.
D) defined in Australian Auditing Standards.

Accepted Answer

The specific performance criteria to be used in an operational audit can vary greatly depending on the nature of the audit and the context of the organization being audited. As such, the criteria may come from existing policies, manuals, laws or regulations or may need to be newly defined by the auditor for each individual operational audit. Australian Accounting Standards and Auditing Standards are not directly relevant to the specific performance criteria for an operational audit. The criteria used in evaluating the internal control structure in an engagement to report on the internal control structure over financial reporting may be similar, but this does not necessarily mean they are always the same as those used in an operational audit.

Question 3

Which of the following is not a mandatory component of the IIAs International Professional Practices Framework?
A) Definition.
B) International Standards for the Professional Practice of Internal Auditing.
C) Code of Ethics.
D) International Auditing Standards.

Accepted Answer

The International Auditing Standards are not a mandatory component of the IIAs International Professional Practices Framework. While they are important for auditors to understand, they are developed by the International Auditing and Assurance Standards Board (IAASB) rather than the Institute of Internal Auditors (IIA). The mandatory components of the IIAs International Professional Practices Framework are the Definition, International Standards for the Professional Practice of Internal Auditing, and Code of Ethics.

Question 4

The types of operational audit reports given by an internal auditor are:
A) examination report, review report, or compilation report.
B) unqualified, qualified, adverse, or a disclaimer of opinion.
C) financial report or compliance report.
D) varied and are based on auditor judgment of how best to present the findings.

Accepted Answer

The types of operational audit reports given by internal auditors are varied and based on the auditor's judgment of how best to present the findings. This can depend on factors such as the scope of the audit, the nature of the findings, and the audience for the report. While there are certain standard formats and structures for audit reports, internal auditors have flexibility to tailor their reports to the specific needs of the organization they are serving. Therefore, option D is the best answer.

Question 5

The purpose of an internal auditor's review for effectiveness of the internal control structure is to ascertain if:
A) the system is functioning efficiently and economically.
B) the system is functioning as intended.
C) financial and operating data are reliable.
D) the entity's goals and objectives have been achieved.

Accepted Answer

The purpose of an internal auditor's review for effectiveness of the internal control structure is to evaluate whether the system is functioning as intended. It is not specifically to assess if the system is functioning efficiently and economically (choice A), if financial and operating data are reliable (choice C), or if the entity's goals and objectives have been achieved (choice D). While these may be factors considered during the evaluation and review, they are not the primary purpose of the review for effectiveness of internal control.

Question 6

Which of the following statements best describes internal auditing?
A) An activity located within an entity, primarily to detect fraud.
B) An accounting function located within an entity.
C) An activity located within an entity that determines the fiscal integrity of a financial report.
D) An independent and objective assurance activity within an entity.

Accepted Answer

Internal auditing is an independent and objective activity within an entity that evaluates and improves the effectiveness of risk management, control, and governance processes. While fraud detection may be a component of internal auditing, it is not the sole purpose. Additionally, internal auditing is not strictly an accounting function and does not solely determine the fiscal integrity of financial reports.

Question 7

According to the IIA Standards, the authority of the internal auditing department is limited to that granted by:
A) senior management and the Internal Auditing Standards.
B) the board of directors and the financial controller.
C) the audit committee and the chief financial officer.
D) management and the board of directors.

Accepted Answer

The Institute of Internal Auditors (IIA) Standards state that the authority of the internal auditing department is derived from management and the board of directors. This is because the internal audit function is established by management and its responsibilities and scope are approved by the board of directors, ensuring it operates with independence and objectivity.

Question 8

The internal auditing department provides information about control and quality of performance to:
A) a level in the entity sufficient to ensure acceptance of all recommendations.
B) management and the board.
C) any member of the entity upon request.
D) outside agencies for regulatory and financial compliance.

Accepted Answer

The internal auditing department provides information about control and quality of performance to management and the board, who are responsible for overseeing and ensuring the effectiveness of the entity's operations. While the internal auditing department may provide information to other parties, such as regulatory agencies, their primary audience is management and the board. Choice A is incorrect because not all recommendations may be accepted, and it is not necessary for the level of the entity to accept all recommendations. Choice C is incorrect because it is unlikely that any member of the entity can request and receive all information about control and quality of performance from the internal auditing department. Choice D is incorrect because while the internal auditing department may provide information for regulatory and financial compliance, this is not their primary purpose.

Question 9

The expectation that an internal auditor does not accept bribes or gifts that may impair judgment is based on the principle of:
A) integrity.
B) objectivity.
C) confidentiality.
D) competency.

Accepted Answer

The principle of objectivity requires internal auditors to be impartial and unbiased in their work. Accepting bribes or gifts could impair their judgment and compromise their objectivity. Therefore, it is expected that internal auditors do not accept such offerings.

Question 10

According to the recent definition of internal audit provided by the Institute of Internal Auditors, the principal benefit to management of there being an internal audit function is that:
A) it aids management in the areas of risk management, control and governance processes.
B) management is provided with assurance that the organisation is complying with legal requirements.
C) management is provided with assurance that fraudulent activities will be detected.
D) external audit costs are reduced.

Accepted Answer

The Institute of Internal Auditors defines the principal benefit of having an internal audit function as aiding management in the areas of risk management, control, and governance processes. While detecting fraudulent activities may be a benefit of the internal audit function, it is not the principal benefit according to this definition. Similarly, the existence of an internal audit function may potentially lead to reduced external audit costs, but this is not the principal benefit for management.

Question 11

Which of the following is not explicitly a part of the definition of internal auditing contained on the IIA's website?
A) Internal auditing is an objective assurance activity.
B) Internal auditors should help external auditors complete the annual financial statement audit.
C) Internal auditing should help an organisation accomplish its objectives.
D) Internal auditing is designed to add value and improve an organisation's operations.

Accepted Answer

The IIA's website does not mention anything about internal auditors helping external auditors complete the annual financial statement audit. The other options, A, C, and D, are all explicitly stated in the definition of internal auditing.

Question 12

Which of the following statements is true to ensure individual objectivity of internal auditors as per IIA Standards?
A) Internal audit should be involved in the design of internal control systems, because of the knowledge of controls, but should not operate such systems.
B) It is not appropriate for internal auditors to design, install or operate systems or write procedures manuals for systems.
C) It is permissible for the internal auditor to be involved in designing and installing internal control systems (but not be involved in their operation) providing the head of internal audit reports to the board of directors or audit committee.
D) The internal auditor should prepare procedures manuals for systems, but should not be involved in their design, installation or operation.

Accepted Answer

According to IIA Standards, it is not appropriate for internal auditors to design, install, or operate systems or write procedures manuals for systems since this creates a conflict of interest and compromises their objectivity. It is important for internal auditors to maintain an independent and unbiased approach when conducting their audits. Therefore, choice B is the correct statement.

Question 13

According to the Institute if Internal Auditors, the best description of internal auditing is that it:
A) certifies the reliability and integrity of financial and operating information.
B) furnishes management with information needed to effectively discharge its responsibilities.
C) appraises the economy and efficiency with which resources are used.
D) reviews the means of safeguarding assets and verifies the existence of those assets.

Accepted Answer

Internal auditing is primarily focused on providing management with information that they need to perform their job effectively. While internal audits will also address issues around financial and operating information, asset safeguarding, and resource efficiency, the primary purpose is to support management in their decision-making processes. Choice A is incorrect as internal auditing does not certify the reliability and integrity of financial and operating information (that is the role of external auditing). Choice C is not the best answer as it only covers one aspect of internal auditing's purpose, and Choice D is also not the best answer as it only covers one of the areas that internal auditing reviews.

Question 14

Which of the following best describes internal auditors' responsibilities regarding their entity's policies, plans, procedures and applicable laws and regulations? Internal auditors:
A) have a responsibility to develop appropriate policies, plans and procedures, and they are responsible for monitoring compliance with all applicable laws and regulations.
B) have no responsibility regarding these matters because becoming involved with them would make internal auditors members of management.
C) are responsible for evaluating whether the systems are adequate and effective and whether the activities that are audited comply with appropriate requirements.
D) are only responsible for compliance with policies, plans, procedures, laws and regulations that apply to internal audit.

Accepted Answer

Internal auditors are responsible for evaluating whether the policies, plans, procedures, and activities that are audited comply with appropriate requirements. They do not have the responsibility to develop policies and plans or to monitor compliance with all applicable laws and regulations. However, they are responsible for ensuring that the systems are adequate and effective and that the activities comply with the appropriate requirements. They are also responsible for providing reasonable assurance that the information provided is reliable, accurate, and timely.

Question 15

An internal auditor who had been supervisor of the accounts payable section should not audit that section:
A) until enough time has elapsed to allow the new supervisor to influence the system of controls over accounts payable.
B) because there is no way to measure a reasonable period of time in which to establish independence.
C) until it is clear that the new supervisor has assumed the responsibilities.
D) until after the next annual review of the external auditors.

Accepted Answer

It is important for the auditor to wait until enough time has passed for the new supervisor to implement their own system of controls over accounts payable. This ensures that the auditor is independent and unbiased in their evaluation of the accounts payable section.

Question 16

A company has outgrown its current computer system and the capabilities of its computer personnel. Management has asked the internal audit department to use its expertise to design and install a new computer system and help in hiring a new computer centre director. The internal audit department should:
A) reject the assignment because making decisions concerning the design and installation of the system would impair the internal audit department's independence.
B) accept the assignment because this would be very efficient and economical for the company.
C) accept the assignment, but not participate in the hiring of the director because this would cause a loss of independence.
D) reject the assignment because it would interfere with the completion of other internal audit work.

Accepted Answer

Designing and installing a new computer system and participating in hiring decisions for a computer centre director would impair the internal audit department's independence by involving them in management and operational decisions.

Question 17

Which of the following will best promote the independence of the internal auditing function?
A) Direct lines of communication between the audit committee and the director of internal auditing.
B) A quality control system within the internal auditing function designed to ensure that departmental objectives are met.
C) Direct reporting responsibilities to the entity's chief financial officer.
D) A review of the internal audit function by the external auditor.

Accepted Answer

Direct lines of communication between the audit committee and the director of internal auditing will promote independence by allowing the internal auditing function to report directly to an oversight body that is independent of management and can provide support and protection to the internal auditing function. Choices B, C, and D do not necessarily promote independence as they all involve some degree of influence or oversight from management or external parties.

Question 18

Wendy Jones, CIA, works for a large department store. She is performing an audit of her company's cash function. Which of the following is an action in which due professional care is lacking?
A) Jones flowcharts the work of the cash function but tests only a sample of the transactions.
B) Jones was extremely pleased with the internal controls and the operation of the cash function and in her report she states that she is sure no irregularities are currently present.
C) Jones reviews company records to ascertain that all employees who handle cash receipts and disbursements are covered by workers compensation.
D) Jones knows that the work of the cash function can be done effectively with one less employee. She includes this finding in her report even though she knows it will adversely affect employee morale in the cash function.

Accepted Answer

Jones's statement that she is sure no irregularities are currently present lacks due professional care because it is overly confident and not based on evidence. Auditors should avoid absolute assurances and instead provide conclusions based on the evidence gathered.

Question 19

Which of the following aspects does not help ensure organisational independence of internal audit?
A) The board of directors or audit committee being required to approve the removal of the head of Internal Audit.
B) Reporting to the board of directors or audit committee.
C) External audit coordinating their work more closely with internal audit.
D) Management being kept informed of internal audit work schedules and budget requirements.

Accepted Answer

External audit coordinating their work more closely with internal audit may undermine the independence of internal audit since they may feel pressure to change their findings or conclusions to align with those of the external audit. A, B, and D help ensure the independence of internal audit by providing oversight, reporting channels, and appropriate resourcing.

Question 20

Which of the following is not a main goal of internal auditing?
A) Add value to an organisation's operations.
B) Help an organisation accomplish its objectives.
C) Provide reliable information to external users.
D) Improve the effectiveness of risk management of an organisation.

Accepted Answer

Internal auditing is primarily focused on serving the organization by adding value, helping it accomplish its objectives, and improving risk management effectiveness. Providing reliable information to external users is the main goal of external auditing.

Quiz 14: Internal Auditing

Standards relevant to operational auditing have been promulgated by all of the following except the:

The specific performance criteria to be used in an operational audit are:

Which of the following is not a mandatory component of the IIAs International Professional Practices Framework?

The types of operational audit reports given by an internal auditor are:

The purpose of an internal auditor's review for effectiveness of the internal control structure is to ascertain if:

Which of the following statements best describes internal auditing?

According to the IIA Standards, the authority of the internal auditing department is limited to that granted by:

The internal auditing department provides information about control and quality of performance to:

The expectation that an internal auditor does not accept bribes or gifts that may impair judgment is based on the principle of:

According to the recent definition of internal audit provided by the Institute of Internal Auditors, the principal benefit to management of there being an internal audit function is that:

Which of the following is not explicitly a part of the definition of internal auditing contained on the IIA's website?

Which of the following statements is true to ensure individual objectivity of internal auditors as per IIA Standards?

According to the Institute if Internal Auditors, the best description of internal auditing is that it:

Which of the following best describes internal auditors' responsibilities regarding their entity's policies, plans, procedures and applicable laws and regulations? Internal auditors:

An internal auditor who had been supervisor of the accounts payable section should not audit that section:

Which of the following will best promote the independence of the internal auditing function?

Wendy Jones, CIA, works for a large department store. She is performing an audit of her company's cash function. Which of the following is an action in which due professional care is lacking?

Which of the following aspects does not help ensure organisational independence of internal audit?

Which of the following is not a main goal of internal auditing?