Question 1

A consumer electronics company is considering acquiring a small flash memory manufacturer. An internal auditor has been assigned to determine if the manufacturer's accounts payable contain all outstanding liabilities. Which audit procedure is not relevant for this objective?

Accepted Answer

Verifying a sample of accounts payable using related invoices, receiving reports, and purchase orders is more relevant for testing the existence and accuracy of recorded liabilities, rather than ensuring all outstanding liabilities are included.

Question 2

According to IIA guidance, which of the following are acceptable strategies for an internal audit activity (IAA) to establish or build relationships?

Accepted Answer

Establishing relationships involves assisting executives with responsibilities and encouraging IAA members to develop relationships, which aligns with IIA guidance.

Question 3

An organization has recently incurred significant cost overruns on one of its construction projects. Management suspects that these overruns were caused by the contractor improperly charging for costs related to contract change orders. Which of the following procedures are appropriate for testing this suspicion? 1. Determine if the contractor has received proper approval of change orders from management. 2. Determine if the contractor has billed for original contract work cancelled by the change orders. 3. Determine if the contractor has charged change orders with costs already billed to the original contract. 4. Determine if the contractor has been paid for change orders that have not yet been completed.

Accepted Answer

Determining if the contractor has billed for original contract work cancelled by the change orders and if the contractor has charged change orders with costs already billed to the original contract are both relevant to identifying improper charges related to change orders.

Question 4

A chief audit executive (CAE) has decided to add an engagement to the current audit plan which will exceed available audit resources. Which of the following is the best course of action for the CAE to take?

Accepted Answer

The CAE should seek approval from both senior management and the board of directors for the plan change and inform them about the resource limitations. This ensures transparency and allows for informed decision-making regarding resource allocation.

Question 5

An auditor-in-charge is preparing her audit team for a consulting engagement at one of the organization's foreign subsidiaries. According to the Standards, which of the following would not be a necessary step prior to beginning the engagement?

Accepted Answer

The auditor-in-charge is not required to verify that none of the audit team worked for the foreign subsidiary within the last year to ensure independence because this is not a requirement of the Standards for Consulting Services.

Question 6

The internal audit activity performs the following sequence of risk management activities: identification, analysis, and evaluation. According to IIA guidance, which of the following assurance approaches does this describe?

Accepted Answer

The process elements approach focuses on the identification, analysis, and evaluation of risks within specific processes.

Question 7

The internal audit activity of an organization obtained approval to add a senior auditor to its staff. The chief audit executive, audit manager, and audit supervisor each will interview the candidates. According to the Standards, which of the following best explains the involvement of management in the interview process?

Accepted Answer

The answer of The internal audit activity of an organization...

Question 8

When interviewing an individual in relation to a fraud investigation, which course of action should the internal auditor follow?

Accepted Answer

Establishing a rapport with the subject can encourage openness and honesty, which is crucial for gathering accurate information during a fraud investigation.

Question 9

The chief audit executive (CAE) of an organization has established an internal audit activity (IAA) quality assessment program. According to IIA guidance, which of the following would be part of this program?

Accepted Answer

The answer of The chief audit executive (CAE) of an...

Question 10

While performing an audit of the human resources department, an internal auditor discovered unencrypted files containing the personal information of employees stored on a public shared drive. According to IIA guidance, which of the following actions by the auditor would be the most appropriate?

Accepted Answer

The auditor should communicate the issue to the chief audit executive and relevant departments like IT and legal to ensure proper handling and remediation of the security breach.

Question 11

Which of the following tasks would be considered unusual for planning a control self-assessment workshop?

Accepted Answer

Securing an external subject matter expert to arbitrate disputes is unusual for a control self-assessment workshop, as these workshops typically focus on internal collaboration and self-evaluation rather than relying on external arbitration.

Question 12

While performing a follow-up of a concern about equipment-inventory tracking, which course of action is not necessary for the auditor to take?

Accepted Answer

Inherent risk is a natural part of any process and cannot be completely eliminated. The auditor's role is to ensure that controls are in place to mitigate risks, not to eliminate inherent risk entirely.

Question 13

As part of a preliminary survey of the purchasing function, an internal auditor reads the department's policies and procedures manual and concludes that the manual describes the processing steps clearly and contains an appropriate internal control design. The next engagement objective is to evaluate the operating effectiveness of internal controls. Which procedure would fulfill this objective most effectively?

Accepted Answer

A compliance test is used to evaluate whether internal controls are being applied as intended in practice, which is necessary to assess their operating effectiveness.

Question 14

An internal auditor has been assigned to perform a quality audit on a manufacturing plant. Which course of action should the auditor perform first?

Accepted Answer

The first step in a quality audit is to review the levels of scrap and rework, as this will provide an indication of the plant's ability to meet production quotas and the costs of materials purchased.

Question 15

Because of a new marketing initiative, an organization has reduced requirements for extending credit to new customers. As a result, outstanding accounts receivable as a percentage of revenue has increased significantly during the past two years. Which of the following would be least useful in monitoring this finding?

Accepted Answer

Updates from the information technology division regarding the development of a new accounts receivable system would be least useful in monitoring the increase in outstanding accounts receivable as a percentage of revenue, as it does not directly address the issue of credit policy or collection effectiveness.

Question 16

An audit of an organization's fulfillment department discovered that problems in the order processing system led to a significant number of orders being fulfilled multiple times. During the exit conference, the head of the department informed the auditors that the processing system would be enhanced within six months to correct the problems. Which course of action should the chief audit executive follow?

Accepted Answer

The chief audit executive should monitor the status of corrective action and schedule a follow-up engagement when appropriate to ensure that the issues are resolved effectively.

Question 17

During an audit of an ethics program, which of the following procedures are most appropriate to evaluate the effectiveness of the program? • Testing whether corrective actions taken on involved parties breaching the ethics program are adequate. • Testing whether all employees are mandated through policy to comply with the ethics program. • Testing whether all employees are required to confirm in writing their compliance with the ethics program. • Testing through surveys employee's level of understanding and commitment to the ethics program.

Accepted Answer

Testing corrective actions (1) and using surveys to assess understanding and commitment (4) are direct measures of the program's effectiveness.

Question 18

According to IIA guidance, which of the following should be considered when creating policies and procedures for the internal audit activity (IAA)?

Accepted Answer

The answer of According to IIA guidance, which of the...

Question 19

The chief audit executive (CAE) of a multinational entity with highly automated and complex operations has just completed the update of the risk-based audit plan. Interviews with management revealed the introduction of new technology and a significant increase in both the number and severity of technology-based risk exposures. According to the International Professional Practices Framework, which of the following would be the best course of action for the CAE to undertake next?

Accepted Answer

The CAE should first evaluate whether the internal audit department currently possesses the necessary skills and knowledge to address the new technology-based risks. This assessment will inform whether additional resources or expertise are needed.

Question 20

An internal auditor notices that a division has recorded uncharacteristically high sales and gross margins for the past three months and now suspects the division is reporting fictitious sales. Which course of action should the auditor follow to determine whether fraud has occurred?

Accepted Answer

The answer of An internal auditor notices that a division...

Exam 4: Conducting the Internal Audit Engagement