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Improperly capitalizing an expense item results in: A. Overstatement of profit in the current year and understatement in future years B. Overstatement of profit in the current and future years C. Understatement of profit in the current and future years D. Understatement of profit in the current year and overstatement in future years

A. Overstatement of profit in the current year and understatement in future years

An internal auditor suspects that certain client employees are ordering merchandise for themselves over the internet without recording the purchase or receipt of the merchandise. When the vendors' invoices arrive, one of the employees approves the invoices for payment. After the invoices are paid, the employee destroys the invoices and the related vouchers. In gathering evidence regarding the fraud, the internal auditor most likely would select items for testing from the file of all: A. Cash disbursements B. Vendors' invoices C. Receiving reports D. Approved vouchers

A. Cash disbursements

In planning an assurance engagement, a survey could assist with all of the following except: A. Evaluating the adequacy and effectiveness of controls B. Obtaining preliminary information on controls C. Obtaining engagement client comments and suggestions on control problems D. Identifying areas for engagement emphasis

A. Evaluating the adequacy and effectiveness of controls

A "bill and hold" scheme is most likely to include: A. Recording items that the company retains as of year end as sales B. Billing items that are held by the customer for future revenue production purposes C. Selling items at substantial discounts near year end D. Shipment of items to a customer beyond what the customer has ordered

A. Recording items that the company retains as of year end as sales

A weakness in internal control over recording retirements of equipment may cause an internal auditor to: A. Select certain items of equipment from the accounting records and locate them in the plant B. Analyze the depreciation schedule for related journal entries C. Identify corresponding weaknesses in acquisition and recording of equipment D. Increase the sample size of retirements and disposals during the year

A. Select certain items of equipment from the accounting records and locate them in the plant

When auditing property, plant and equipment (PP&E), the internal auditor's approach is generally to: A. Examine evidence of disposals and retirements during the year B. Examine evidence supporting additions during the year C. Tour the plant facilities D. Review the depreciation and amortization schedule

B. Examine evidence supporting additions during the year

In selecting an instructional strategy for developing internal audit staff, a chief audit executive begins by reviewing: A. Learners' readiness B. Organizational objectives C. Learning content D. Budget constraints

B. Organizational objectives

What characteristic of information is satisfied by an original signed document? A. Sufficiency B. Reliability C. Usefulness D. Relevance

B. Reliability

Who is ultimately responsible for determining whether the objectives of an internal audit have been successfully achieved? A. The External Auditor B. The CAE C. The Internal Auditor D. The Internal External Auditor

B. The CAE

Kiting can best be described as a situation in which: A. Client checks include unauthorized signatures B. A client employee is diverting deposits to his personal bank account C. An employee fraudulently covers a cash shortage by transferring money from one bank account to another D. The client fails to complete bank reconciliations on a timely basis

C. An employee fraudulently covers a cash shortage by transferring money from one bank account to another

Which of the following fraudulent entries is most likely to be made to conceal the theft of an asset? A. Debit revenue, Credit the asset B. Debit another asset, Credit the asset C. Debit expenses, Credit the asset D. Debit the asset, Credit another asset

C. Debit expenses, Credit the asset

In the engagement planning phase, the scope of an internal audit engagement is defined by: A. Preliminary survey B. Engagement work program C. Engagement objectives D. Scheduling time estimates

C. Engagement objectives

Which of the following is not a common internal control activity related to the acquisition of property, plant and equipment? A. Using a budget to forecast and control acquisitions and retirements B. Analyzing monthly variances between authorized expenditures and actual costs C. Establishing a written company policy regarding the acquisition of raw materials D. Requiring acquisitions to be authorized in relevant departments by the appropriate level of management

C. Establishing a written company policy regarding the acquisition of raw materials

In testing for a proper cutoff of purchases of materials, the internal auditor would most likely examine: A. Vendors' invoices B. Purchase orders C. Receiving reports D. Purchase requisitions

C. Receiving reports

Which of the following is the best control procedure to prevent the payment of an invoice twice? A. Requiring dual signatures on checks B. Using a check protector C. Review of supporting documentation by the person signing the check D. Using a pocket protector

C. Review of supporting documentation by the person signing the check

Tracing a sample of purchase requisitions to receiving reports and to the PP&E records is used to test: A. Occurence B. Completeness C. Classification D. Cutoff

D. Cutoff

What is the primary consideration used when staffing an internal audit function? A. Background checks B. Continuing education C. Organizational orientation D. Job description

D. Job description

If cash disbursement control procedures leave no audit trail of documentary evidence, the internal auditor most likely will test the procedures by: A. Interviewing the cashier to learn how to strengthen such control procedures B. Requiring the appropriate cash disbursement control procedures be instituted C. Re-counting the cash balance at the end of the day D. Relying on observation and inquiry to test cash disbursement control procedures

D. Relying on observation and inquiry to test cash disbursement control procedures

After accounting for a sequence of inventory tags, an internal auditor traces a sample of tags to the physical inventory listing to obtain evidence that all items: A. Represented by inventory tags are bona fide B. Included in the listing are represented by inventory tags C. Included in the listing have been counted D. Represented by inventory tags are included in the listing

D. Represented by inventory tags are included in the listing

When conducting a performance appraisal of an internal auditor who has been a below-average performer, an inappropriate procedure is to: A. Document the appraisal B. Use objective, impartial language C. Notify the internal auditor in advance of the upcoming performance appraisal D. Use generalizations

D. Use generalizations