Deck 16: Internal Audits, Governmental Audits, and Fraud Examinations

Question 1

Internal auditors perform audits and consulting engagements.

Answer 1

True

Question 2

The goal of sustainability auditing is to help managers discharge their management responsibilities and improve profitability.

Answer 2

False

Question 3

The Single Audit Act of 1984 requires the auditors of the financial statements to include a paragraph in the audit report on the appropriate spending of money received through government grants.

Answer 3

False

Question 4

Governmental and internal auditors are more concerned with compliance with laws,regulation and policy than are external auditors.

Question 5

Forensic accounting is a term used solely to describe work that is performed when evidence of fraud exists in an organization.
Question also found in study guide

Question 6

Internal auditing is an independent,objective assurance and consulting activity designed to provide and opinion on the fair presentation of financial information.

Question 7

To ensure an internal auditor's independence it is preferable for the internal auditor to report directly to the audit committee.

Question 8

A stated objective of internal auditing is to add value to the organization.

Question 9

Under the Single Audit Act of 1984,CPAs and the GAO auditors coordinate their audits such that the government entity receives a "single audit."

Question 10

The GAO emphasizes the risk management in government for the efficient,economical,and effective use of public funds and resources.

Question 11

Auditors are concerned about internal control strengths and weaknesses; fraud investigators are mostly concerned about fraud weaknesses.
Question also found in study guide

Question 12

Internal auditors are responsible for providing a report on internal controls that is included in the 10K.

Question 13

The GAO standards go beyond the AICPA's GAAS in a number of respects.
Question also found in study guide

Question 14

The auditing standards of the Institute of Internal Auditors required internal auditors to follow the ethics standards established by the AICPA.

Question 15

An expert in detecting and investigating fraud is a certified fraud investigator.

Question 16

Internal auditors should be independent when obtaining evidence in the sense of being free financial relationships such as owning stock.

Question 17

The Government Accountability Office (GAO)is provides auditing standards that are followed by internal auditors and governmental auditors.

Question 18

Auditors are responsible for establishing key measures in order to evaluate the efficiency,economy,and program outputs.

Question 19

External auditors accepting engagements to audit federal grants and programs must follow both GAAS and the GAO standards.
Question also found in study guide

Question 20

Performance audits determine whether an entity's program has resulted in the desired outcomes.

Question 21

The Standards for the Professional Practice of Internal Auditing of the Institute of Internal Auditors (IIA)does not include the broad category of

A)proficiency and due care.
B)nature of work.
C)performance of the engagement.
D)quality control.

Question 22

The definition of internal audit includes all of the following except

A)independence and objectivity.
B)provision of assurance and consulting activity.
C)determination of efficient and effective performance.
D)additional value and improved operations.

Question 23

The primary difference between operational auditing and financial auditing is that in operational auditing,the auditor

A)is concerned only with the audited activity's adherence to company policy and procedures.
B)is seeking to help management use resources in the most effective manner possible.
C)starts the process with the financial statements of an activity being audited and works backward to the basic processes involved in producing them.
D)can use analytical skills and tools that are not necessary in financial auditing.

Question 24

When dealing with standards,measurements,and comparisons,input measurements are most important for audits of

A)economy.
B)efficiency.
C)program results.
D)financial statements.

Question 25

During the audit of the quality control area,an auditor identified that a specific product has a 3 percent failure rate when tested.The specification calls for a failure rate of less than 1.8 percent.Product failure might lead to customer injury and in turn lawsuits against the company.The auditor has communicated this to management.Which of the following is not an acceptable response from management with regard to this risk?

A)Management is aware of the risk and has decided that it is acceptable.
B)Management has decided not to continue manufacturing this product.
C)Management has decided to increase the quality control activity to reduce the manufacture of unacceptable product to an acceptably low level.
D)Management has decided that the test data are unreliable and has decided not to respond to the audit findings.

Question 26

Independence permits internal auditors to render impartial and unbiased judgments.The best way for internal audit departments to achieve independence is through

A)individual knowledge and skills.
B)organizational knowledge and skills.
C)supervision within the organization.
D)organizational status and individual objectivity.

Question 27

Senior management has ordered a compliance audit of the organization's employee benefits package.Which of the following do both the chief audit executive and senior management consider a primary engagement objective?

A)The level of the organizational contributions is adequate to meet the program's demands.
B)Individual programs are operating in accordance with contractual requirements and government regulations.
C)Participation levels support continuation of individual programs.
D)Benefits payments,when appropriate,are accurate and timely.

Question 28

When preparing an audit report,an internal auditor must convince management to take action concerning the report's findings.When reporting on an audit finding,an auditor must include some key elements about that finding in the report.These key elements are

A)condition,criteria,cause,effect,and recommendation.
B)condition,criteria,cause,effect,and requirement.
C)condition,source,cause,effect,and recommendation.
D)location,criteria,cause,effect,and recommendation.

Question 29

The proper organizational role of internal auditing is to

A)assist external auditors in reducing external audit fees.
B)perform studies to assist in attaining more efficient operations.
C)serve as an investigative arm of senior management and the board of directors.
D)serve as an independent,objective assurance and consulting activity that adds value to the organization.

Question 30

Having an audit charter is important for internal audit departments.Which of the following items is generally not a reason to have an audit charter?

A)It provides a commitment from management to support the internal audit department's activities.
B)It defines the skills and competencies required by the internal audit department.
C)It defines the department's authority and responsibility.
D)It defines the reporting requirements for internal audit departments.

Question 31

Which of the following internal audits is generally not a type of government audit?

A)Review of compliance with policies,plans,procedures,laws,and regulations.
B)Review of the economy and efficiency in the use of resources.
C)Review of the means of safeguarding assets.
D)Review of the results of programs.

Question 32

The definition of administrative control does not include reference to

A)operational efficiency.
B)accounting errors.
C)adherence to managerial policies.
D)plan of organization.

Question 33

Which of the following is a requirement of the Standards for the Professional Practice of Internal Audit if the Institute of Internal Auditors (IIA)that is not a requirement of an external auditor performing a financial statement audit?

A)Due care.
B)Internal control evaluation.
C)Reporting to the audit committee.
D)Performing a follow-up on audit findings.

Question 34

The reasons for outsourcing an internal audit include

A)more expertise only.
B)more expertise and improved control over audit costs.
C)improved control over audit costs and improved alignment with company goals.
D)all of the above

Question 35

The Standards for the Professional Practice of Internal Audit of the Institute of Internal Auditors (IIA)is classified in three major categories.Which of the following is not one of these categories?

A)Attribute standards.
B)Performance standards.
C)Governance standards.
D)Implementation standards.

Question 36

Your organization has selected you to develop an internal audit activity.Your approach will most likely be to hire

A)internal auditors each of whom possess the skills required to handle all engagements.
B)inexperienced personnel and train them the way the organization wants them trained.
C)degreed accountants because most internal audit work is accounting related.
D)internal auditors who collectively have the knowledge and skills needed to perform the responsibilities of the internal audit activities.

Question 37

The federal law that established uniform requirements for audits of federal assistance provided to state and local governments is called

A)the Single Audit Act of 1984.
B)the Uniform Requirements Act of 1992.
C)the Sarbanes-Oxley Act or 2002.
D)the Audit Reduction Act of 1985.

Question 38

Program audits include determining

A)the degree to which an entity is acquiring,protecting,and using its resources effectively.
B)the effectiveness of an organization's programs,activities,or functions.
C)the causes of an organization's inefficiencies or uneconomical practices.
D)the entity's compliance with laws and regulations concerning matters of efficiency.

Question 39

The U.S.Government Accountability Office (GAO)standards do not specifically require a written report in financial statement audits for

A)recommendations for actions to improve operations.
B)all instances of illegal acts that could result in criminal prosecution.
C)compliance with applicable laws and regulations.
D)internal control structure and the control risk assessment.

Question 40

The purpose of the internal audit's evaluation of the effectiveness of existing risk management processes is to determine that

A)management has planned and designed the process to provide reasonable assurance of achieving objectives and goals.
B)management directs processes to provide reasonable assurance of achieving objectives and goals.
C)the organization's objectives and goals will be achieved efficiently and economically.
D)the organization's objectives and goals will be achieved in an accurate and timely manner and with minimal use of resources.

Question 41

When performing a fraud examination,the fraud examiner takes great care to preserve and identify any documents that may indicate fraud,which is called

A)preserving the chain of custody of the evidence.
B)establishing evidential procedure.
C)marking an evidential exhibit.
D)forensic auditing.

Question 42

When independent CPAs in public practice take engagements to audit government units or financial assistance recipients,they must follow

A)GAAS only.
B)GAAS and GAGAS.
C)GAGAS only.
D)Internal auditing standards.

Question 43

Which of the following statements is a standard applicable to financial statement audits in accordance with government auditing standards?

A)Assess whether the entity has reportable measures of economy and efficiency that are valid and reliable.
B)Report on the scope of the auditor's testing of internal controls.
C)Briefly describe in the auditor's report the method of statistical sampling used in performing tests of controls and substantive tests.
D)Determine the extent to which the entity's programs achieve the desired level of results.

Question 44

Which of the following is a difference between performing an audit and performing a fraud examination?

A)Auditors are not concerned with the nature of a financial misstatement; fraud examiners are concerned with the nature of the misstatement.
B)Auditors use analytical procedures,such as trend analysis,to identify risks of misstatements; fraud examiners are not interested in analytical procedures because they must identify specific items that prove the occurrence of fraud.
C)Auditors are generally not concerned with small immaterial misstatements; fraud examiners generally do not believe that any fraud is immaterial.
D)Auditors are concerned only with financial statement errors; fraud examiners are concerned only with the theft of assets by employees.

Question 45

Fraud examiners have four main objectives in performing an investigation.Which of the following is not one of those objectives?

A)Determine whether a fraud exists.
B)Determine who was involved in the fraud.
C)Determine how the fraud occurred.
D)Determine the effect on financial statement users.

Question 46

Which of the following statements is true?

A)External auditors must consider the internal audit function as part of obtaining an understanding of a company's internal control structure.
B)External auditors must review all work performed by internal auditors.
C)External auditors must investigate the competence and objectivity of internal auditors.
D)External auditors must share responsibility for the work of internal auditors if it is used for evidence for the financial statement audit.

Question 47

When auditors report on a financial audit engagement in accordance with generally accepted government auditing standards (GAGAS),the basic report(s)include a

A)disclaimer of opinion on financial statements,report on internal control,and report on compliance audit regarding laws and regulations.
B)report (opinion)on financial statements,report on internal control,and report on compliance audit regarding laws and regulations.
C)report on internal control and report(s)on efficiency and effectiveness of operations.
D)report on compliance regarding laws and regulations and report(s)on achievement of program goal(s).

Question 48

Which of the following would be considered in determining whether an internal audit department is independent?

A)The organizational level of the chief audit officer and the objectivity of the audit staff.
B)A requirement for the auditors to report to the audit committee and the composition of the audit committee.
C)The organizational status of the audit committee and the individual independence of internal auditors in the department.
D)The nature of the audit charter and the objectivity of the audit staff.Question also found in textbook

Question 49

Which of the following is not required to become a certified internal auditor (CIA)?

A)Hold a college degree.
B)Pass a two-day examination.
C)Have a full-time position as an internal auditor.
D)Meet an experience requirement.

Question 50

The U.S.Government Accountability Office is an agency of

A)the U.S.Congress.
B)the Executive Office of Management and Budget.
C)the U.S.Supreme Court.
D)the Federal Accounting Standards Board.

Question 51

The work of internal auditors may affect the independent auditor's

A)procedures performed in obtaining an understanding of the internal control structure and in assessing the risk of material misstatement only.
B)procedures performed in obtaining an understanding of the internal control structure and substantive tests performed in gathering direct evidence only.
C)procedures performed in assessing the risk of material misstatement and substantive tests performed in gathering direct evidence only.
D)procedures performed in obtaining an understanding of the internal control structure and in assessing the risk of material misstatement and substantive tests performed in gathering direct evidence.

Question 52

Generally accepted government auditing standards (GAGAS)regarding performance reporting standards requires the reports to tell about which of the following?

A)Presentation of financial statements in accordance with GAAP and abuse of public money and property.
B)Presentation of financial statements in accordance with GAAP and internal control design and strength of operation.
C)Abuse of public money and property and management's noteworthy positive accomplishments.
D)Abuse of public money and property and internal control design and strength of operation.

Question 53

In assessing the objectivity of internal auditors,an independent auditor should

A)evaluate the quality control program in effect for the internal auditors.
B)examine documentary evidence of the work performed by the internal auditors.
C)test a sample of the transactions and balances that the internal auditors examined.
D)determine the organizational level to which the internal auditors report.

Question 54

After performing work in a compliance attestation engagement and finding that a governmental agency's managers failed to install and perform even the most elementary controls to ensure compliance with laws and regulations and,in fact,committed numerous violations,an auditor most likely would

A)write an adverse report on actual compliance.
B)write an unqualified report on actual compliance.
C)write a report modified to disclose particular noncompliance events (specific violations of laws and regulations).
D)write a disclaimer of opinion related to knowledge of noncompliance.

Question 55

A GAO audit report entitled Aviation Safety: Safer Skies Initiative Has Taken Initial Steps to Reduce Accident Rates by 2007 is most likely a report based on work the auditors performed during a

A)financial statement audit.
B)compliance audit of air safety regulations.
C)performance audit of program goal achievement.
D)performance audit of air control regulation effectiveness.

Question 56

The Single Audit Act of 1984 requires an annual audit of all governments,agencies,and nonprofit organizations that

A)receive $300,000 or more federal funds.
B)receive $500,000 or more federal funds.
C)spend $300,000 or more federal funds.
D)spend $500,000 or more federal funds.

Question 57

When considering the competence of internal auditors,external auditors should obtain evidence about the

A)educational and experience qualifications of the internal auditors.
B)organizational status of the internal auditors.
C)lines of communication within the entity of the internal auditors.
D)the size of the internal audit department.

Question 58

In performing a financial statement audit in accordance with government auditing standards,an auditor is required to report on the entity's compliance with laws and regulations.This report should

A)state that compliance with laws and regulations is the responsibility of the entity's management.
B)describe the laws and regulations with which the entity must comply.
C)provide an opinion on overall compliance with laws and regulations.
D)indicate that the auditor does not possess legal skills and cannot make legal judgments.

Question 59

The demand for compliance auditing in generally accepted government auditing standards (GAGAS)terms is generated by

A)acts discreditable to the profession.
B)financial statement audits performed in accordance with generally accepted auditing standards.
C)governmental managers' obligations to follow laws and regulations.
D)public reports on government managers' following laws and regulations.

Question 60

Which of the following would be considered an independence issue for an internal auditor?

A)The company decreased every department's budget,including internal audit,by 5%.
B)The auditors participated in the employee stock plan and,therefore,owned stock in the company.
C)The CAE reports directly to the audit committee.
D)The controller had authority to change the audit schedule before being sent to management and the audit committee.

Question 61

Which of the following auditors is responsible for designing and planning an audit to detect material illegal acts and frauds?

A)External auditors.
B)Internal auditors.
C)Governmental auditors.
D)All of the above

Question 62

Operational audits do not include determining

A)whether the entity is acquiring,practicing,and using resources economically and efficiently.
B)review of control systems to ensure compliance with company policies.
C)the causes of inefficiencies or uneconomical practices.
D)whether the department's goals are aligned with the organization's goals.

Question 63

In a single audit of federal financial assistance programs,which of the following does the auditor not need to determine and report for each organization?

A)An expanded scope audit of economy,efficiency,and program results.
B)That the financial statements are presented fairly in accordance with GAAP.
C)That an adequate internal control system is in place.
D)That the laws and regulations have been complied with.

Question 64

A university received a significant grant from the state in which it resides.Which of the following would be of greatest interest to a governmental auditor auditing that grant at the university?

A)Cash received by the university was deposited in the appropriate account.
B)The grant is properly recorded on the university's financial statements.
C)Grant money was spent in accordance with the purpose of the grant.
D)The person applying for the grant was the person that was utilizing the grant money.

Question 65

The GAO Government Auditing Standards requirements for written reports in financial statement audits do not include

A)audit report on financial statements.
B)a report of any significant accomplishments and management improvements.
C)a report on the auditee's internal control structure and the control risk assessment.
D)a report on the auditee's compliance with applicable laws and regulations.

Question 66

The purpose of the internal audit's evaluation of the effectiveness of existing risk management processes is to determine that

A)management has planned and designed operations to provide reasonable assurance of achieving objectives and goals.
B)management's policies and procedures will achieve objectives and goals.
C)the organization's objectives and goals are established within risk limits established by the internal audit organization.
D)the organization's objectives and goals will be achieved in an accurate and timely manner and with minimal use of resources.

Question 67

Management has instated a new grievance process.When an employee has a grievance a manager,in another department is assigned as an independent mediator to evaluate the employee's complaint.That manager must submit a written report to the Vice President of Human Resources,who must act on the report and discuss the resolution with the employee,the employee's manager,and any other relevant personnel. Management acknowledges that this process will mean that an employee will be paid for several hours of work during the grievance process and several managers will spend time in the process.However,this process will likely reduce employee turnover.
This process has been in place for 18 months.Management wants to know what the costs are for the grievance process and if the new process is achieving the stated objective of reducing employee turnover.What type of audit would internal perform?

A)Operational audit.
B)Governance audit.
C)Compliance audit.
D)Performance audit.

Question 68

The IIA Performance Standards do not include the standard for

A)managing the internal audit activity.
B)nature of work.
C)compliance with policies,plans,procedures,laws and regulations.
D)engagement planning.

Question 69

Auditors of governmental units would not be presumed to be independent if they are

A)free from sources of personal impairment.
B)independent under AICPA Code of Professional Conduct rules.
C)auditing the branch of government to which they are assigned.
D)elected or appointed and reporting to a legislative body of government.

Question 70

An internal auditor's report should contain five elements for each finding.Which of the following are the correct elements?

A)Condition,criteria,cause,effect,recommendation.
B)Condition,relevance,cause,effect,recommendation.
C)Condition,evidence,cause,effect,recommendation.
D)Condition,relevance,evidence,effect,recommendation.

Question 71

A governmental auditor assigned to audit the financial statements of the state highway department would not be considered independent if the auditor

A)spouse was the CFO of the highway department.
B)lived in the state and utilized the highway system on a daily basis.
C)performed audits of the state budget that included funding to the highway department.
D)reported the audit findings to the transportation committee of the state legislature.

Question 72

In an audit of a municipality the auditor is most important audit objective is

A)the municipality is in compliance with laws,regulations,and the municipality's policy and procedures.
B)the municipality's internal controls are operating effectively.
C)the municipality as sufficient documentation to support all purchases.
D)purchases made by the municipality have sufficient encumbrances.

Question 73

Predication is

A)the determination of the method used to enact a fraud.
B)evidence used in a court of law in proving fraudulent behavior.
C)a reason to believe that a fraud has occurred.
D)the amount of restitution that is made to the company when an individual is convicted of a fraud.

Question 74

Which of the following is mostly concerned with the benefits derived from the expenditure of funds?

A)Operational auditing.
B)Performance auditing.
C)Management auditing.
D)Financial statement auditing.

Question 75

A typical objective for internal auditors in the company's sustainability program is for the auditor to

A)determine whether the financial statements fairly present the company's expenditures on regulatory compliance.
B)establish funding requirements for sustainability programs.
C)assist management in establishing measurements for achieving company objectives.
D)report on the company's relative success in attaining sustainability objectives.

Question 76

Which of the following situations provides the greatest threat to an internal auditor's objectivity?

A)An auditor reviews the procedures for a new electronic data interchange (EDI)connection to a major customer before it is implemented.
B)A former purchasing assistant performs a review of bidding procedures in the purchasing department four months after being transferred to the internal auditing department.
C)An auditor recommends controls and performance measures for inclusion in a new contract with an outside service organization for the processing of payroll and employee benefits.
D)A warehouse employee assists an auditor in verifying the physical inventory of small motors.Question also found in textbook

Question 77

Program audits do not include determining

A)the extent to which the desired results or benefits established by the legislature are being achieved.
B)the effectiveness of organizations,programs,activities,or functions.
C)whether the agency has complied with laws and regulations applicable to the program.
D)whether the financial statements of an audited entity fairly present the financial position in accordance with GAAP.

Question 78

The services provided by internal auditors do not include

A)audits of financial statements for security registration statements.
B)review of control systems that ensure compliance with company policies,laws,and regulations.
C)review of effectiveness in achieving program results in comparison to pre-established objectives and goals.
D)appraisals of the economy and efficiency of operations.

Question 79

Which of the following would not be an objective of a fraud investigation?

A)Determine from the evidence if a fraud has been committed.
B)Determine the scope of the fraud.
C)Identify internal control weaknesses that allowed the fraud to occur.
D)Determine the amount of restitution that should be received from the perpetrators.

Question 80

In a fraud investigation,the first objective is

A)identify possible motives to commit a fraud.
B)inspect documentation for tampering.
C)establish who the perpetrators are.
D)to determine if a fraud has been committed.