Question 1

A bank uses a risk analysis matrix to quantify the relative risk of auditable entities. The analysis involves rating auditable entities on risk factors using a scale of 1 to 10, with 10 representing the greatest risk. A partial list of risk factors and the ratings given to three of the bank's departments is provided below:  Which of the following statements regarding risk in the department is true?

Accepted Answer

The answer of A bank uses a risk analysis matrix...

Question 2

Risk assessments can vary in format, but generally include: 1. A description of identified risks. 2. Tests of audit controls. 3. A system of rating risks. 4. Sample size identification.

Accepted Answer

Risk assessments typically include a description of identified risks and a system of rating those risks. Tests of audit controls and sample size identification are more related to audit procedures rather than risk assessment.

Question 3

Which of the following is least likely to vary when conducting audit engagements in different regions of an international organization?

Accepted Answer

The level of workpaper documentation needed to support audit observations is typically governed by the auditing standards and internal audit policies, which are consistent across different regions of an international organization.

Question 4

Which of the following factors would not be considered in determining appropriate follow-up procedures?

Accepted Answer

The availability of funds in the audited department's budget is not a determining factor for follow-up procedures, as follow-up is based on the significance and impact of findings, not on budget constraints.

Question 5

An organization has developed a large database that tracks employees, employee benefits, payroll deductions, job classifications, and other similar information. The internal auditor reviews the retirement benefits plan and determines that the pension and medical benefits have been changed several times in the past ten years. The auditor wishes to determine whether there is justification to perform further audit investigation. The most appropriate audit procedure would be to:

Accepted Answer

Reviewing reasonableness of retirement pay and medical expenses on a per-person basis stratified by which plan was in effect when the employee retired would provide the auditor with the best indication of whether there is justification to perform further audit investigation.

Question 6

Confirmation would be most effective in addressing the existence assertion for:

Accepted Answer

The answer of Confirmation would be most effective in addressing...

Question 7

In a payroll audit, a staff auditor suspects that signatures on some of the documents being sampled for examination are not authentic. What action should the auditor take before proceeding with the examination?

Accepted Answer

The auditor should consult with the chief audit executive to determine the appropriate course of action, ensuring that the issue is handled according to the organization's policies and procedures.

Question 8

In evaluating the validity of different types of audit evidence, which of the following conclusions is not correct?

Accepted Answer

The validity of documentary evidence is influenced by the effectiveness of the control system in which it was created, as stronger controls typically lead to more reliable evidence.

Question 9

In reviewing the appropriateness of the minimum quantity level of inventory established by a department, an auditor would be least likely to consider:

Accepted Answer

The answer of In reviewing the appropriateness of the minimum...

Question 10

Which of the following data sources would provide the least valid data for an audit of a retail store's customer service?

Accepted Answer

Interviews of service personnel may be biased as employees might not provide honest feedback about the quality of service they provide, making it a less valid data source for an audit.

Question 11

Which of the following types of sampling techniques should an internal auditor use when testing the effectiveness of internal controls?

Accepted Answer

Attributes sampling is used to test the effectiveness of internal controls by evaluating whether certain attributes or characteristics are present in the sample, which is suitable for assessing compliance with control procedures.

Question 12

Persuasive evidence indicates that a member of senior management has been involved in insider trading that would be considered fraudulent. However, the evidence was encountered during an operational audit and is not considered relevant to the audit. Which of the following is the most appropriate action for the chief audit executive to take?

Accepted Answer

The chief audit executive should report the evidence to the chairperson of the audit committee and recommend an investigation, as this ensures that the matter is addressed at the appropriate level of governance and oversight.

Question 13

Which of the following is not likely to be included as an audit step when assessing vendor performance policies?

Accepted Answer

Determining whether the balances owed to vendors are correct is more related to financial auditing and accounts payable verification, rather than assessing vendor performance policies.

Question 14

A chief audit executive (CAE) is evaluating four potential audit engagements based on the following factors: the engagement's ability to reduce risk to the organization, the engagement's ability to save the organization money, and the extent of change in the area since the last engagement. The CAE has scored the engagements for each factor from low to high, assigned points, and calculated an overall ranking. The results are shown below with the points in parentheses: Risk Reduction Cost Savings Changes High (3) Medium (2) Low (1) If the organization has asked the CAE to consider the cost savings factor to be twice as important as any other factor, which engagements should the CAE pursue?

Accepted Answer

The answer of A chief audit executive (CAE) is evaluating...

Question 15

What is the most likely source of information for a detailed schedule of a company's insurance policies in force?

Accepted Answer

The files containing insurance policies with various carriers would provide the most detailed and accurate information about the company's insurance policies in force, including coverage details, policy numbers, and expiration dates.

Question 16

What type of analysis is performed when an auditor tests for unusual variations in information by comparing the number of employees working at a factory site with the direct cost of production each month over a period of one year?

Accepted Answer

Regression analysis is used to identify relationships between variables, such as the number of employees and production costs, to detect unusual variations.

Question 17

Which of the following examples of audit evidence is the most persuasive?

Accepted Answer

Real estate deeds recorded with a government agency are considered highly reliable and persuasive because they are official documents verified by an independent third party.

Question 18

During an audit, an employee, who does not want to be identified, offers to provide information that would be damaging to the organization and may concern illegal activities. Which of the following actions by the auditor would not be consistent with the IIA Code of Ethics and Standards?

Accepted Answer

Promising to maintain the employee's anonymity may not be consistent with the IIA Code of Ethics and Standards, as auditors cannot guarantee anonymity due to legal and organizational obligations.

Question 19

An internal auditor recommended that an organization implement computerized controls in its sales system in order to prevent sales representatives from executing contracts in excess of their delegated authority levels. A follow-up review found that the sales system had not been modified, but a process had been implemented to obtain written approval by the vice president of sales for all contracts in excess of $1 million. The chief audit executive (CAE) would be justified in reporting this situation to the organization's board if:

Accepted Answer

The answer of An internal auditor recommended that an organization...

Question 20

Which of the following is an advantage of an interim report?

Accepted Answer

The answer of Which of the following is an advantage...

Exam 4: Conducting the Internal Audit Engagement