Exam 1: Certified Financial Services Auditor

Question 1

All of the following phrases are used to express the auditor's opinion EXCEPT:

A) Give a true and fair view
B) Present fairly, in all material respects
C) Timely and consistent opinion
D) Comprehensible and realistic view

Answer 1

Timely and consistent opinion

Question 2

Organization's Objectives are described in three general categories:

A) Effectiveness of operations, Efficiency of strategic plans, Reliability of internal and external reporting
B) Effectiveness of operations, Efficiency of strategic plans, Reliability of internal and external reporting, compliance with applicable laws and regulations
C) Effectiveness and Efficiency of operations, Compliance with applicable laws and regulations, Monitoring and management control system
D) Effectiveness and Efficiency of operations, Reliability of internal and external reporting, Compliance with applicable laws and regulations

Answer 2

Effectiveness and Efficiency of operations, Reliability of internal and external reporting, Compliance with applicable laws and regulations

Question 3

Which of the following statements is NOT related to competency principle of internal auditing? Internal auditors:

A) Shall continually improve their proficiency and effectiveness and quality of their services
B) Shall perform internal auditing services in accordance with the standards for the professional practice of internal auditing
C) Shall engage only in those services for which they have the necessary knowledge, skills and experience
D) Shall disclose all material facts known to them that, if not disclosed, may distort the reporting of activities under review

Answer 3

Shall disclose all material facts known to them that, if not disclosed, may distort the reporting of activities under review

Question 4

Management must ___________ assess business risk and develop clearly defined control objectives:

A) Continually
B) Annually
C) Periodically
D) Weekly

Question 5

Which one of the following statements is NOT the part of audit work schedule?

A) The extent and type of findings in the last audit
B) Loss of assets, errors and fraud
C) The availability of audit staff resources
D) Opportunities to achieve operations benefits

Question 6

Internal auditors, engaging in activities that are illegal and discreditable to the profession of internal auditing or the organization, violate which of the following principles:

A) Objectivity
B) Awareness
C) Integrity
D) Competence

Question 7

Nature of internal audit activities and quality criteria against which the performance of these services can be evaluated is best portrayed by:

A) Performance Standards
B) Attribute Standards
C) Implementation Standards
D) Evaluation Standards

Question 8

All these statements elaborate purpose of standards EXCEPT:

A) Foster improved organizational processes and operations
B) Establish the basis for the evaluation of internal audit performance
C) Subvert the framework for performing and promoting broad range of value-added internal audit activities.
D) Delineate basic principles that represent the practice of internal auditing as it should be

Question 9

"Ongoing monitoring activities are conducted to periodically reassess risk and the effectiveness of control risk," is an objective of:

A) Risk Identification
B) Risk Measurement
C) Risk Management Process
D) Risk Prioritization

Question 10

The responsibility for preparing and presenting the audited financial statements is that of:

A) Internal auditor
B) Engagement client/ Management of the entity
C) Process owner
D) Auditing Agency

Question 11

Risk is the probability that an event or action may adversely affect the organization or activity under review. In other words, risk is anything that can prevent an organization from achieving an objective. Major components of risk are as follows EXCEPT:

A) Non- Compliance with the laws, rules and regulations
B) An event or cause that can interfere with achieving the objective (e.g. What can go wrong?)
C) A probability or likelihood of occurrence
D) The negative consequences of not achieving the objective

Question 12

Risks inherent in the management process are known as:

A) Residual risks
B) Long-term risks
C) Control risks
D) Strategic risks

Question 13

Which of the following is a limitation in an audit that affects auditors' ability to detect material misstatements?

A) Scope of an audit
B) The use of testing
C) Over- generalization
D) Unidentifiable risks

Question 14

Following statements define risk EXCEPT:

A) Organization has knowledge of facts constituting a dangerous condition
B) Organization voluntarily exposes itself to the danger
C) The element of assurance in an undertaking
D) Measured in terms of impact and likelihood

Question 15

Low-risk scores are those with an average of scores:

A) 2.25 or less
B) 2.75 or less
C) 2.00 or less
D) 3.25 or less

Question 16

Enterprise risk management encompasses all EXCEPT:

A) Aligning risk appetite and strategy
B) Enhancing risk responsibilities and decisions
C) Increasing Operational Surprises
D) Seizing Opportunities

Question 17

There are multiple sets of attribute and performance standards:

A) false
B) true
C) True- In specific conditions
D) False- In specific conditions

Question 18

Strategic planning is the process of taking a long-term view of the organization, the longer the view, the greater the uncertainty of risks and opportunities. Such reservations can better be handled by:

A) Timely decisions
B) Flexible/ Adaptive plans and processes
C) Periodic risk assessments
D) Focusing on current period organizational activity

Question 19

"Internal auditors make a balanced assessment of all the relevant circumstances and are not unduly influenced by their own interests or by others in forming judgments." This statement best explains one of the following principles:

A) Competency
B) Confidentiality
C) Objectivity
D) Integrity

Question 20

Both residual and control risk need to be_______________ dealt with in project management.

A) Timely
B) Implicitly
C) Professionally
D) Explicitly

Question 21

Factor/s that influences/influence the state of an organization's control environment is/are:

A) Organizational history of control weakness or violations
B) Whether management emphasizes and values competence, integrity, and ethical behavior
C) An inconsistent or unfair employee performance evaluation, compensation and promotion system.
D) All of these

Question 22

The extent to which an organization has implemented controls to minimize the actual occurrences of the risk determines the vulnerability to the risk actually occurring, or the "_______"

A) Inherent Risk
B) Understanding Risk
C) Control Risk
D) Disguised Risk

Question 23

A manager of a very controversial program may have stolen only $200, but the controversy and public accountability aspects may make the 200 significant, where it would not be material private sector financial statement opinion audit. It means

A) Auditors should be aware that the concepts of materiality and significance take on different meanings in the public and private sector
B) During the planning and reporting processes, government auditors may need to consider qualitative factors such as the visibility of the program under audit, or the newness of the program or changes in its condition
C) Both of these
D) None of these

Question 24

Compliance testing is designed primarily to:

A) Hold detection risk to an acceptable level
B) Determine whether policies and procedures have been followed
C) Determine that account balances exit, are accurate, and are properly classified
D) Provide evidence about monetary misstatements

Question 25

If more funds than expected are needed to cover loans losses in a given period, the reserve must be increased and the difference is charged to:

A) Administration expenses
B) Prepaid assets
C) Operating expenses
D) Loan expenses

Question 26

___________ result from a failure to follow the logic of a series of statements.

A) Deductive fallacies
B) Inductive fallacies
C) Corrective controls
D) None of These

Question 27

Which one of the following is NOT an indicator of control weakness in derivatives?

A) Application of inappropriate valuation models
B) Management not involved
C) Evidence of a "Star Manager" syndrome
D) Absence of fiduciary mentality

Question 28

An organization might decide that the risk of fire is high so it will pay a high premium on its fire insurance policy to transfer the risk as much as possible. However, the organization will still have to pay deductible amount on the policy if a fire occurs. This scenario depicts:

A) Assessment of the likelihood that a given risk will occur
B) Control the risk
C) Accept the risk
D) Transfer the risk

Question 29

An example of an invalid deductive argument is as follows: Major premises: All employees who are committing fraud drive luxury cars. Minor premises: __________ Conclusion: Therefore, John Doe is committing fraud. What will be the minor premise in this example?

A) John Doe is an employee
B) John Doe drives a luxury car
C) John Doe is a senior management level employee
D) John Doe drives an ordinary car

Question 30

Auditors can use background information to define and modify:

A) Scope of the audit
B) The likelihood that a risk will occur
C) Activity reports
D) Audit Criteria (Reasonable, attainable, and relevant)

Question 31

Following elements should be documented in the audit scope EXCEPT:

A) Time period to be covered by audit tests
B) Available data: No. of records Locations Need to create data Form Reliability
C) Prioritizing risks
D) Both A and B

Question 32

Data gathering and evaluation during field work includes:

A) Gaining and understanding of the activity, system, or process under review
B) Observing conditions and operations
C) Interviewing people and examining assets and accounting, and other operational business, and other operational records.
D) All of these

Question 33

The major benefit of risk assessment is:

A) To staff the plans and financial budgets
B) To consider factor that may affect risk and giving the highest priority to audit areas that have the highest potential for adverse consequences
C) To identify the possible adverse effects based solely on the type of activity, the type of resources, amount of assets or complexity of transactions
D) Failure to achieve the organization's goal and objectives

Question 34

Carefully crafted audit objectives are important BECAUSE:

A) Objectives provide direction
B) Limit collection of unneeded information
C) Control scope, methodology, timing and nature of audit work
D) All of the above

Question 35

Which of the following is NOT included in the list of principles for formulating well- stated audit objectives?

A) Clearly identify the client
B) Clearly identify the type of performance to be audited and separate objectives if more than one element of performance is to be reviewed
C) Frame objectives that consider a realistic scope and methodology
D) Onsite Observation

Question 36

If principal is paid on a loan after it has been placed on non-accrual status, the bank must determine whether it should record the payment as a reduction of:

A) The loan principal amount
B) Income interest
C) Both of these
D) Any one of these

Question 37

The risk analysis process involves all of the following steps EXCEPT:

A) Identifying auditable activities (e.g. programs, accounts, contracts, transactions)
B) Identifying relevant risk factors (e.g. Complexity of programs, size of program, adequacy of internal control system)
C) Prioritizing Risks
D) Determine the need for external assistance of outsourcing

Question 38

Considerations for determining required audit resources include:

A) Training needed by the audit staff to meet the audit objectives
B) Contractual assistance needed to meet the audit objectives
C) Both A and B
D) None of these

Question 39

Audit evidence:

A) Is sufficient when it is factual and would convince an informed person to reach the same conclusion
B) Is competent if it consistently produces the same outcomes
C) Is relevant when it is directly related to audit comments, recommendations and conclusions
D) All of these

Question 40

Entrance Conference- The entrance conference may be the auditor's first face-to-face contact with client. The objective/s of the entrance conference is/are to:

A) Explain preliminary audit scope
B) Present projected audit milestone dates and completion dates
C) Identify key contacts and desired communication protocols
D) All of these

Question 41

Some small businesses keep funds in a savings account to gain interest on:

A) Fixed assets
B) Liquid assets
C) Loans
D) All of these

Question 42

Financial institutions regularly identify uncollectible accounts and charge them off against the reserve of:

A) Unearned loan revenue
B) Loan losses
C) Loan expenses
D) All of these

Question 43

Which one of the following activities is not related to the trust committee activities that should be reviewed?

A) Whether regular meetings are held and documented by meeting minutes
B) Whether the trust committee contains at least one member who is not a bank officer
C) Whether there is adequate oversight of the trust committee's activities by board of directors
D) None of these

Question 44

Demand deposit account allows customers to transfer money through the use of:

A) Checks
B) ATMs and EFTs
C) Point of sale (POS) terminals
D) All of these

Question 45

An index method that credits index-linked interest based on any increase in index value from the index level at the beginning of the contract's term to the highest index value at various points during the contract's term is called:

A) Point to point method
B) Annual retuned
C) The high watermarks method
D) The low water mark method

Question 46

Which one of the following audit objectives and steps should not be considered when performing an audit of deposit account?

A) Determine whether dormant accounts are closed in a timely manner and in accordance with policies
B) Determine whether there are adequate controls to prevent unauthorized access and change to customer accounts
C) Determine whether applicable fees and penalties are properly assessed and posted
D) None of these

Question 47

The actual amount of payment the annuitant pays is based on:

A) Amount of money invested and interest rate
B) Length of the time principle has been invested
C) No of annuity payment to be made
D) All of the above

Question 48

Which one of the following generally pays higher rates of interest than saving accounts?

A) Money market deposit accounts
B) Certificates of deposit
C) Term loans
D) Asset-based financing

Question 49

Some wills specify that more than one responsible party share the trustee's responsibilities of an estate .The condition depicts relation with which one of the following trust services:

A) Guardians of estates
B) Co-fiduciary
C) Estate settlement
D) Trusts

Question 50

Funds held in trust cannot be reinvented in:

A) Term deposits
B) Savings accounts
C) Financial institution's own securities
D) Floor-plan financing

Question 51

"Insurers guarantee a minimum rate of interest dunning the time that the account is growing and periodic payment amounts of a specified amount for a stated period (either specific period 10 years indefinite period etc)." This statement is related to:

A) Variable annuities
B) Life time annuities
C) Term period annuities
D) Fixed annuities

Question 52

Annuities provide the annuitants with ________________.

A) Tax-deferred earnings
B) Tax-accrued earnings
C) Tax-free earnings
D) Maximum level of earnings

Question 53

Interest rates offered on new CDs changes:

A) Daily at most banks
B) Twice a day at most banks
C) Weekly at most banks
D) Monthly at most banks

Question 54

Which one of the following is/are NOT the type of retirement plans that banks may administer?

A) Pension plans
B) Self-employed retirements trust
C) Group retirement accounts
D) Post-requirement accounts

Question 55

Non-interest bearing accounts including checking accounts and escrow accounts are known as:

A) Term deposit accounts
B) Demand deposit accounts
C) Fixed deposit accounts
D) Both A and C

Question 56

Corporations, government entities and other organizations use banks as trustee to handle the ______________function associated with a stock or bond issue.

A) Issuance and redemption of stocks or bonds
B) Transfer and record keeping of stock or bonds
C) None of these
D) Both of these

Question 57

Certificates of deposit may be:

A) Bearable or registered
B) Negotiable or non-negotiable
C) None of these
D) Both of these

Question 58

In case of an annuity with a spread of 3%, if the index gained 9%, the return credited to the annuity would be:

A) 11%
B) 27%
C) 6%
D) 3%

Question 59

Stock transfer agent, Bond registrar, stock registrar and dividend reinvestments agent are the additional duties of:

A) Brokers/Brokerage houses
B) Corporate trust departments
C) Mutual funds agencies
D) None of these

Question 60

Many businesses generally find CDs to be a:

A) Satisfactory money management approach
B) More than satisfactory money management approach
C) Less than satisfactory money management approach
D) Dissatisfactory money management approach

Question 61

The interagency statement calls for these disclosures to be provided EXCEPT:

A) Orally during any sales presentation
B) Orally when investment advice concerning the non deposit investment products is provided
C) In advertisement and other promotional materials as specified in the interagency statement
D) None of these

Question 62

Basic control/s to consider when auditing derivates strategies is/are:

A) "Created" Reports
B) Risk or position limits
C) Highly volatile markets or illiquid markets
D) Board-approved guidelines

Question 63

Derivatives can be:

A) Exchange traded securities
B) Exchange traded options
C) Over-the-counter traded securities
D) Either A or C

Question 64

The purpose of audits of financial statements is to issue an opinion on the fairness of the financial statements and to evaluate all of the following assertions (explicit or implicit) by management EXCEPT:

A) Existence or occurrence assertions address whether available information addresses actual transactions, assets, and liabilities
B) completeness assertions address whether all material financial information is included in financial statements
C) Rights and obligations assertions address whether the entity has legal rights to the assets and obligations to the liabilities disclosed on the financial statements
D) Presentation and disclosure assertions address whether the elements of the financial statements are properly organized, classified and disclosed

Question 65

Electronic financial services audits should focus on whether there are adequate internal controls in place to protect customer transactions information, and assets. Some key steps in clued all of the following EXCEPT:

A) Determine whether disaster contingency plans for the failure of internet transactions or communication are adequate, regularly updated
B) Determine whether disaster contingency plans for the failure of internet transactions or communication are adequate, regularly tested, and regularly updated
C) Determine whether an access is controlled by a firewall
D) Stress test analyzing changes in market and credit conditions are appropriate. The market assumptions are reasonable

Question 66

System tailoring is accomplished by setting optional system parameters and, therefore, has an impact on system performance and security. Control techniques for system's software include:

A) Setting appropriate system parameters and security options for operating system
B) Verifying the accuracy of output through manual or automated reconciliation activities
C) Using the security features of security software effectively
D) Controlling procurement and maintainace of software licenses

Question 67

A sound data classification scheme sets the foundation for the effective implementation of access control to ensure that data is adequately protected. The elements of a data classification scheme are as follows EXCEPT:

A) Reporting
B) Storing
C) Collection
D) Public information

Question 68

Which of the following does NOT come under the consideration of systematic or interconnection risk?

A) Risk management systems that include limits or controls on interconnection risk to which the entity is willing to expose itself.
B) Provisions for monitoring systematic risk effectively
C) Contingency plans setting forth actions to be taken when system-wise market disruptions occur
D) Due diligence of enforcement activities

Question 69

Cash equivalent may include:

A) Commercial Papers
B) Returned Checks
C) Spotted debits
D) Only A & B

Question 70

"An element of information, from a transaction to an entire system, is appropriately entered, developed, changed, or used with proper authority." Which of the following element of integrity supports this statement?

A) Authorized
B) Accurate
C) Complete
D) Timely

Question 71

In option- type securities contracts the option's price is called:

A) Mark up
B) Premium
C) Return value
D) Both A&B

Question 72

The entity has comprehensive, written credit risk management policies and procedures for derivative activities. This addresses to:

A) Counterparty Risk
B) Market risk
C) Market liquidity Risk
D) Legal Risk

Question 73

Feasibility studies and cost benefit analysis Approval process for initiating system development and implementation of systems that are developed Change control procedures for new system developments and modifications to existing systems to ensure that only authorized changes are moved to production General and detailed design specification Project review, including periodic milestones reviews and post-implementation reviews Contracting procedures that include the requirements for describing expected project deliverables such as system components and source codes, project timeframes, estimated hours, and the maximum allowable expenses for each phase These are some of the standards of:

A) System development methodology
B) Output controls
C) Security controls
D) Collection of Classified information

Question 74

Elements of information and process integrity are that it should be authorized, accurate, complete, timely, recorded processed, and reported in the proper time. Each of the elements in the above has a relationship to the:

A) Selection of data
B) Collection of data
C) Classification of data
D) All of these

Question 75

Non-deposit investment product includes:

A) Fixed annuities
B) Variable annuities
C) Mixed annuities
D) Both A&B

Question 76

I- Restrict access to data by business need-to-know II- Assign Unique ID t each person with computer access III-Restrict physical access to cardholder data The above requirements of PCI (Payment Card Industry) achieve which one of the following goals?

A) Implementation of Strong access control measures
B) Protection of card holder
C) Maintenance of information data security policy
D) Building and maintenance of a secure network

Question 77

COBIT (Control Objectives for Information and Related Technology) is based on existing Information Systems Audit and Control Foundation, control objectives enhanced with existing and emerging international technical, professional, regulatory, and industry-specific standards. COBIT has four domains or high-level classifications. Which is of the following is NOT out of those domains?

A) Planning and organization
B) Acquisition and implementation
C) Delivery and support
D) Evaluation

Question 78

Under the interagency statement when a bank recommends or sells non-deposit investment product it should inform the customer that the product is:

A) Having high interest rate
B) Not insured by FDIC
C) Not a deposit or other obligation of, or guaranteed by the depository institution
D) Only B&C

Question 79

Visa and MasterCard have teamed up to develop payment card Industry ( PCI) Data Security standards to govern the safekeeping of account information. Which of the following is NOT out of the major goals of PCI standards?

A) Build and maintain secure network
B) Protect Card holder Data
C) Maintain vulnerability management program and regularly monitor and test networks
D) Annual review of an information security policy

Question 80

Which one of the annuities, mentioned below, is not regulated by the SEC:

A) Fixed annuities
B) Variable annuities
C) Mixed annuities
D) Expired annuities